Are you turning 55 soon? Well congratulations! They say life starts at 55….or was that 40?? Either way, you get to have a party, and get lots of presents. But one present that you won’t be able to get is your superannuation.

For Australians to be able to access their superannuation, they must have met a condition of release. Generally speaking, a condition of release is usually around retirement or long term illness or injury. Part of the retirement condition of release is a requirement to have reached ‘Preservation Age’ which is set by the Government and is based on your birthday.

From 1 July 2015, Australians turning 55 will no longer be able to access their superannuation if retired, but rather will have to wait another 12 months to be able to do so. The preservation age will progressively increase in the coming years and you should be aware of them to know when your preservation age is.

What does this mean for you? Well, if you were planning on retiring early, you need to ensure that you have access to alternative funds or assets to provide an income to cover your expenses before you are legally allowed to access your superannuation funds. While retiring early may not be everyone’s plan, you should also take this into consideration as the preservation age is only increasing and you may find that when you get closer to retirement, you might want to look at your options and if you don’t have sufficient alternative options, you may have to continue to work until you can access your superannuation.

This shouldn’t be confused with the Age Pension age which is the age that you are entitled to receive Government benefits if you meet other qualifying conditions. The Financial Services Council has called for further increase to the preservation age to bring it in line with Age Pension age, as they are worried that some Australians will choose to retire early and utilise their superannuation for the years before Age Pension kicks in, and then rely on the Government to fund the remainder of your life.

If you’re worried about what the increasing preservation age will mean to your retirement, you should contact JBS for a chat.

Joe Hockey’s 2nd Federal Budget proposed some important changes, particular for families, retirees, and small business owners and looks to be aimed squarely at growing the economy.   There are always winners and losers and this year is no different.

Please view the video to watch a brief summary of the Budget proposals.

Budget Summary

The following provides a summary of the main proposals announced in the 2015 Budget:

–   The government has expressed their confidence in the importance of the superannuation system and announced there will be no changes
–   Pension assets test changes will benefit lower net worth retirees, however, higher net worth retirees may receive reduced entitlements
–   Many lower income young families will benefit from greater child care subsidies
–   Families choosing not to vaccinate their children will miss out on child care subsidies and family benefits
–   It will no longer be possible to claim both the full Government and employer provided parental leave payments
–   The company tax rate for eligible small businesses will be reduced by 1.5%
–   Unincorporated small businesses will receive a 5% tax discount to a maximum of $1,000
–   Small businesses will be able to fully deduct capital expenses of up to $20,000 per year

Please Note: The measures outlined in the Federal Budget are proposals only and may or may not be made law.

Click here to read the full breakdown

If you have any questions about these changes and what this could mean for you, please contact the JBS Team to discuss.

For those with a Self-Managed Super Fund (SMSF) you are required to prepare an Investment Strategy, when you initially set up your SMSF and you need to review it on a regular basis, with the industry standard being at least annually.  You may also consider reviewing your investment strategy when there are changes in circumstances, for example a member entering pension phase, or a member making a large contribution into their fund.  The main reason that an SMSF is required to have an investment strategy is to allow for the members personal circumstances to be regularly reviewed as well as, to account for any changes in the markets and economies.

The investment strategy is a way to prompt you as trustees to review your investment portfolio and ensure that it is still current given any changes that may have occurred in your personal circumstances or the markets and economies.  It also helps you review your objectives, strategies and asset allocation to ensure that they’re still current and may even prompt you to make changes where needed.

When drafting an investment strategy there are a few key considerations that you should consider.

Liquidity Needs:

Each member’s personal circumstances and life-stages are an important factor with regards to the SMSF investment strategy.  If each member is 15 years out of retirement, then you may consider investing for growth and riding out any volatility.  However, if one or more members is approaching retirement or is in retirement, then you may need to use a more cautious approach to ensure that you can afford ongoing pension payments, but you may need to adopt some level of risk to help your super benefits last in retirement.

Risk Tolerance:

Each member may or may not have different tolerances to risk.  Some may like or feel comfortable taking on additional risk in the hope of achieving greater returns, however others may feel more comfortable only taking on a small amount of risk and may feel better preserving their capital by investing in mainly cash and fixed interest.  Either way, when reviewing your investment strategy and portfolio for your SMSF, you need to take into account each members risk tolerance.

Asset allocation:

The asset allocation of your SMSF portfolio needs to also be reviewed, especially alongside your risk tolerance, as you don’t want to be too overweight or too underweight in an asset class.  However in some circumstances you may be comfortable with being over or underweight in an asset class.  You may also review your asset allocation based on what’s happening in the markets or economies.  For example, with the cash rate at all time lows, you may wish to seek returns and income from other asset classes, e.g. investing more in shares or international equity.

Insurance Needs of the Members:

As trustees of your SMSF it is now a requirement that you must consider insurance as part of your Investment Strategy.  It is not a requirement for each member to actually hold insurance but it needs to be clearly outlined that insurance has been considered for each member.

Here at JBS we can help you prepare your Investment Strategy and can even help review your current Investment Strategy.

On 20^th March 2015, the age pension for a single person increased by $5.90 per fortnight increasing the total payment to $860.20 per fortnight. The rate for each member of a couple increased by $4.40 per fortnight to a combined rate of $1,296.80 per fortnight for a couple.

The Seniors Supplement which is paid as part of the Commonwealth Seniors Health Card, increased by $7.80 per annum to $1,262 per annum, for a single person and by $5.20 per annum each for members of a couple, increasing their combined annual payment to $1,898.

In the 2014 Budget, the Government proposed stopping the payment of the Seniors Supplement for Commonwealth Seniors Health Card holders. The amending legislation is still before the Senate.

Deeming rates, which apply for the purposes of calculating income derived from financial investments were reduced from 20^th March. The new deeming rates are 1.75% up to the threshold, and 3.25% for financial investments over the threshold. The threshold for a single person is $48,000, and $79,600 for a couple, combined.

The Department of Human Services made another important comment in relation to grandfathering of account based pensions for income testing purposes.

Where a person was in receipt of Government income support, such as an age pension before 1 January 2015 and they also had an account based pension in place before that date, the account based pension would continue to be assessed under the former (and often more favourable) income test rules. If the account based pension ceases for any reason, or the income support benefit ceases (even temporarily) the account based pension will then be subject to deeming.

The Department has reiterated that grandfathering will be lost where the benefit recipient receives no benefit payment of a “whole pay period”. This means people who have grandfathered account based pensions will need to exercise caution if planning on taking on casual work, even if only for a short period. If a fortnight’s income from casual work results in the loss of the age pension for just one fortnightly pay period, then the grandfathering of the account based pension is lost.

If you have any questions about these changes and how they could affect a Government benefit you are receiving, please contact the team at JBS.

During times of share market volatility it’s easy to get caught up in headlines aimed to scare us from investing.

An article in the Age on 9th March 2015 had the headline ‘$24 Billion wiped off the ASX’,  can be a little daunting when expressed this way.  It went on to discuss how the share market fell 1.3% that day.  What it failed to mention was the share market was up over 10% in the previous 2 months, which equated to many more ‘Billions’ added to people’s wealth.

Investing into share markets or other growth assets (such as property) is not a short-term prospect.  You need to take a long-term view of at least 5 – 7 years.  Focusing on just the year ahead, or the daily movements of share markets, you can easily get caught up in the hype and make irrational decisions.  However, when we look at share markets over a longer term, we can start to see the benefits.

Constructed correctly, a share portfolio can bring rewards when a longer time frame is assessed.  The following graph outlines the annual returns from the Australian share market (including dividends) over the last 20 years.

As outlined in the graph, there have been 3 negative years and 17 positive years since 1995.  Over the last 20 years, 85% of years were positive, yet it is those negative years that get the most attention.

The average return has been +9.64% per year or 192% (since 1995).  That includes a period where markets were heavily negative during the Global Financial Crisis.

It is important that you receive adequate advice when constructing share portfolios, as your time frame, investment risk profile, your goals, and the underlying investments need to be analysed.  Investing is an area JBS are passionate about as we see the benefits it can provide our clients.

This passion leads us to produce a weekly newsletter on how share markets are performing.  If you are interested in shares and want to increase your knowledge we ask you to subscribe to our weekly Monday Markets newsletter here.

In the late 80s interest rates peaked at 17% which made home ownership out of reach for most people and hard to cover for those that had them. We move forward to today and the Reserve Bank Cash Rate is at a very low 2.25% with the last rate rise occurring in November 2010.

While this isn’t great news if you’re thinking of investing into bank deposits or fixed interest investments as returns are low, it does open up opportunity for people to review their mortgage, other debts and financial planning affairs in general.

Some of the main considerations could be:

–   Obtaining a low rate mortgage that still provides the benefits that you need or utilise. If you refinance to the lowest rate loan you could end up paying a higher interest rate on your credit card and may not be an appropriate strategy or beneficial for you

 
–   There are lenders outside the major 4 banks. While many of us complain about the big 4 making massive profits, we also like their security. You can consider options outside the banks and look at credit unions, lending societies, and other lending institutions.

 
–   Reducing your mortgage interest rate and continuing to make the same level of repayments could see you reducing the length of your loan which means interest savings. But, are there restrictions on how much you can make in additional payments? Do you have a redraw facility in case you need to access the funds?

 
–   Credit card interest rates are high and can be up to 20% so consolidating debt may be a way to go, especially if you can reduce that down to say a mortgage rate of around 5%. But beware because if you don’t make additional payments to cover the consolidated funds, you are extending the term of this debt and could end up paying higher interest over the life of the debt.

 
–   Margin lending becomes more appealing with lower interest rates however any strategy that includes debt, should also have contingency plans. Can you still afford it if interest rates increased by as much as 3%? Do you have relevant insurances in place to ensure that can cover your obligations if you can’t work?

 
–   Returns on cash and fixed interest investments become lower and shares become more appealing however you need to consider the risks involved. Chasing returns rather than investing into a diversified portfolio could see a decline in your balance outside what you are comfortable with.

 
–   Be careful with your spending, with additional funds in our pocket due to lower interest rates, it is tempting to spend more. Maybe consider making additional repayments of debt, additional savings or additional super contributions to ensure that the additional money available in your cashflow isn’t blown.

While you may think that you’re personal situation hasn’t changed, the world around you is. Interest rate rise and fall, economic markets changes and legislation is amended, which is why you should be regularly reviewing your financial position. If you haven’t had a review of your financial plan lately, make sure you give the team at JBS a call to make an appointment.

The Commonwealth Seniors Health Card (CSHC) provides concessional benefits to self-funded retirees who aren’t entitled to the Government Age Pension.

Some of the benefits provided include:
•    Concession rates for medication (Pharmaceutical Benefits Scheme)
•    An additional Seniors Energy Supplement payment
•    Other concessions provided by State, territory and local governments as well as private businesses, in the areas of health, transport, education and recreation

To be eligible for CSHC a person must meet the following criteria:
•    Have reached the age of Pension entitlement
•    Not qualify for pension payments from the Department of Human Services or Department of Veterans Affairs
•    Meet residency requirements
•    Meet the income test which is based on your Adjustable Taxable Income

The income test is as follows:

Changes from January 1st 2015

Any person, who commenced a superannuation income stream from the 1st January 2015, will have their Account Based Pension deemed as income. This means your account based pension income is now subject to a rate of income (deeming rate) for calculation purposes rather than the previous calculation of reducing the gross annual pension payments by the relevant deductible amount which is actually a return of the original capital. This could make it more difficult to meet the income test.

The deeming rates are as follows:

Anyone who has commenced a super income stream prior to the 1st January 2015 will be exempt from the new rules as long as they became holders of the CSHC before 1st January 2015 and continue to be eligible in the future.

Example 1
John is 66 years old, married, and a holder of the CSHC before the 1st January 2015.  John and his wife have a combined annual income of $70,000 per year.  John also has $600,000 in a tax free account based pension, which he commenced before the 1st January 2015 and draws $45,000 per annum.  Because of the grandfathering rules, John’s Account Based Pension will not be subject to deeming rules as it was commenced before the 1st January 2015.  The pension is subject to the old rules, giving him a deductible amount of $33,784 on the $45,000 he’s withdrawing from his Account Based Pension.  This means that only $11,216 will be assessed as income.  This amount together with John and his partner’s income of $70,000 brings their total annual income to $81,216, meaning he will be eligible for the CSHC.

Example 2
Cath is 66 years old, married and a holder of the CSHC before the 1st January 2015.  Cath and her partner have a combined income of $70,000 per annum.  On the 2nd February 2015, Cath decides to move her account based pension, which is worth $600,000 to a new product.  As a result, Cath loses the grandfathering provisions and her new account based pension will be deemed to earn $19,806 worth of income.  Together with Cath and her partner’s taxable income of $70,000, brings their combined total income to $89,806.  In this scenario, Cath would fail the income test, as their combined income is over $82,400 meaning Cath will not be eligible for the CSHC.

This is why it is very important to seek advice before considering re-booting an existing pension. The benefits that you currently receive from holding the Commonwealth Seniors Health Card must be considered as part of the assessment in the strategy to re-commence any income stream to ensure that the strategy is right for you.

If you wish to discuss how these changes may affect you, please contact the JBS team.

As we go about our day to day lives we never think about what could happen to us, whether it’s becoming permanently or temporarily disabled, becoming quite ill or even getting into an accident.  For members of a self-managed super fund (SMSF) this could become an issue.  What as members and trustees of your fund can you do to prepare and handle these situations?

The first thing to do regardless of whether you have individual or corporate trustees is for each member to appoint a legal personal representative (LPR) under an enduring power of attorney.  By doing this, if you or another member become disabled and unable to conduct your normal duties as a member / trustee of your SMSF, then your legal representative steps in and takes over for you.  What you should make sure is that you choose the right person to appoint as your legal representative.  As you need to be certain that they understand what it takes to run an SMSF and the duties required of a member / trustee.

What you then need to ensure is that your Trust Deed allows for the legal representative to become a member / trustee of your SMSF.  Not all trust deeds allow for this and you need to make sure yours is flexible enough to allow the appointment of a replacement director or trustee depending on your structure.  If your trust deed doesn’t allow for this then in the event a member becomes disabled then the their super benefits may no longer be able to remain in the SMSF and must be paid out to another fund.

The final thing to do is to assess your trustee structure to ensure it allows for the seamless transition for the legal personal representative (LPR) to replace the disabled member.

The table below outlines the differences between an individual and corporate trustee structure.

Every situation differs and a member becoming disabled doesn’t always occur, thankfully! But by following the tips above you’ll be prepared for the worst case scenario. Our office will be able to assess whether or not you’re ready for this event, so feel free to pick up the phone and give us a call!

Table Source: SMSF Adviser

If you are a Gen X or Y retirement is an average of 33.6 years away, for some it will be up to 50 if the retirement age is increased.  Not only is the age at which we retire creeping up but the time in retirement and money required to fund it growing too.  Forced super contributions have not been increased in line with this growth and as a result there is now a broadening gap between what one has saved for retirement and their actual needs.

Recent studies have shown that for a male to have a truly comfortable retirement he needs to contribute 17.5% of his annual salary to super until retirement and for females the figure is 19.5%.

9.5% of that is currently taken care of by your employer and the rest is up to you!  Is it really feasible to contribute 8-10% more of your income into super?  Let’s put it into dollar figures to make it simpler.  For an individual earning $60,000 this equates to an average $103 per week of extra savings.

If you committed to that saving plan at age 30 by the time you reached 40, it would have made an average $79,262 increase to your super balance.  If we extend that out to retirement (age 70) we are looking at a $1,041,108 difference.

What would you give up for an extra million dollars in retirement?  Your morning coffee? Buying lunch at work? Using non-preferred bank ATM machines?  Combining these simple techniques could easily get you on your way to saving $100 per week.

Unfortunately what we find for the Gen X & Y demographic is that if they cannot see an immediate benefit for themselves, they will not give it much attention.  They are extremely quick to take on debt to satisfy a want for a new car, piece of clothing or electronics, yet extremely slow to put any money away as they cannot see any present day tangible benefit.

It all comes down to education, JBS can assist the Gen X & Y’s with their financial needs. It’s about taking control today and you will thank yourself when it comes to retirement.  Start with what you can afford, get yourself into a saving rhythm and mindset that is sustainable and doesn’t impinge too much on your lifestyle.  Keeping your savings plan manageable is key to its success.

For every 1 dollar saved before age 35 you will have 7 more in retirement.  Would you turn down a 600% return anywhere else?

Movember is an annual event  involving the growing of moustaches during the month of November to raise awareness of men’s health issues, specifically prostate cancer and other male cancers.  The fact this event attaches so much attention and is encouraged by the medical profession show the seriousness these health issues have on families.

The facts:

• Prostate cancer is the most commonly diagnosed cancer in Australian Men (20,000+ new cases per year)
• 1 in 8 Australian men (1.3 Million) experience depression at any given time.
• Every hour, more than 4 men die from potentially preventable conditions in Australia.

There are many complex reasons for the poor state of men’s health which include: 

• Men not openly discussing their health and how they’re feeling
• Reluctance to take action when men don’t feel physically or mentally well
• Men engaging in risky activities that threaten their health
• Stigmas surrounding mental health
• Men are less likely than women to seek help for health concerns, and also less likely to use health care services

It is important that families are adequately protected to combat the financial impact that Prostate cancer and other illnesses impose.  This financial stress can be removed through implementing appropriate levels of insurance, an area JBS Financial Strategists can assist with.

For more information regarding men’s health issues click here.