DUST OFF THE HISTORY BOOKS – IT’S BACK TO THE PAST TO CONTROL THE PROPERTY CYCLE

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The past few weeks have seen banks tighten up lending conditions for property investors – either charging higher interest rates or imposing lower loan to valuation ratios or both. There is even talk of lenders managing their exposure by focussing on postcodes. This is all in response to increasing pressure from the banking regulator APRA (the Australian Prudential Regulation Authority) demanding that the 10% cap on property investor lending growth that it announced last December be adhered to.

AM I BETTER OFF BUYING INSURANCE THROUGH MY SUPER?

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When it comes to arranging insurance it’s important to decide what types of insurance are available to you and what you’ll need for your particular life circumstances. From here you’ll need to consider whether you should keep it inside your super fund or set it up separately.

What are the benefits of insurance through super?

1. Get more for less

It can be cost effective to buy insurance through super. That doesn’t mean you won’t find cheaper cover outside your super fund. But it’s likely you’ll be better off because tax benefits mean you could end up paying less overall and group buying power—which normally comes with insurance through super—often gives you more for less.

2. Boost cashflow

In super you can pay for your insurance using before-tax money rather than dipping into your take-home pay, which can also be a tax-effective way to pay your premiums. Or, you can simply have the premiums deducted from your existing account balance. Be sure to keep an eye on your super balance though—less super may affect your lifestyle in retirement.

3. Access government help

You could make after-tax contributions to your super and use these to pay for your insurance. If you do, you may be eligible for a government co-contribution.

4. Be covered more easily

You’ll usually be granted insurance cover automatically when you buy through super. Outside of super you may have to submit an application, undergo medical examinations and wait for approval.

What are some of the downsides?

1. Tax on claims

Depending on your circumstances, you may pay tax on disability claim payments when your insurance is held through super. And certain beneficiaries may be subject to tax on death benefit claims they receive.

2. Limited beneficiaries

Payments (following death) can only be paid to superannuation dependents. If you have insurance outside of super there are generally no restrictions (unless your insurer specifies otherwise).

3. Longer timing on payments

When it comes to payments for some policies, including life insurance, total and permanent disablement and temporary salary continuance, the money will normally be paid by the insurer to the super fund first. The trustees can then pass it to you or your beneficiaries in accordance with the fund’s rules and the Superannuation Industry Supervision Act—this means payments can take longer.

4. Restricted types of cover

Cover provided through super can be more limited than a policy held outside super. For example, trauma cover is generally not available through super, but funds like those offered by AMP make it easy to link the cover you have inside and outside super.

What now?

After you’ve considered the pros and cons of holding insurance inside super, you need to determine the level of cover you need. At Tailored Lifetime Solutions we specialise in helping people work out the right amount of cover and type of insurance that best meets their individual needs. Call us on (03) 9851 0300 to arrange a meeting with one of your financial planners.

Article originally published by AMP LTD.

WHERE WILL RETURNS COME FROM? THE CONSTRAINED MEDIUM TERM RETURN OUTLOOK

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Way back in the early 1980s it was pretty obvious that the medium term (five year) return potential from investing was pretty solid. The RBA’s “cash rate” was averaging around 14%, 3 year bank term deposit rates were around 12%, 10 year bond yields were around 13.5%, property yields were running around 8-9% (both commercial and residential) and dividend yields on shares were around 6.5% in Australia and 5% globally. Such yields meant that investments were already providing very high cash income and for growth assets like property or shares only modest capital growth was necessary to generate pretty good returns. Well at least the return potential was obviously attractive in nominal terms as back then inflation was running around 9% and the big fear was it would break higher. As it turns out most assets had spectacular returns in the 1980s and 1990s. This can be seen in returns for superannuation funds which averaged 14.1% in nominal terms and 9.4% in real terms between 1982 and 1999 (after taxes and fees).

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THE VIRTUE OF (SALARY) SACRIFICE

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When you make a sacrifice, you’re usually giving something up with the expectation of future gain.

Salary sacrificing into your super is no different—you’re giving up ready access to your money in your take-home pay. But in return you’re boosting your retirement savings and saving on tax.

You can pay extra cash into your super from your pre-tax salary at the concessional 15% rate of tax1 —up to a limit (or cap) of $30,000 for 2014/15 (or $35,000 if you’re 49 or over). That’s a considerable tax saving for most people on their usual marginal tax rate.

Get your regular payment in place

With a new financial year fast approaching it’s a great time to get your salary sacrifice arrangement in place – on top of the regular super guarantee payments made by your employer. This way you’ll be able to maximise your concessional contributions and minimise your tax burden over the course of the next financial year.

Boost super, save on tax

Let’s look at how salary sacrifice could work in practice.

Judith, aged 50, is a teacher earning $80,000 a year. She currently puts $385 per fortnight into her online savings account (approximately $10,010 a year) and wants to start building up her retirement savings. She is considering whether to make:

  • an after-tax contribution into superannuation of $10,010 a year, or
  • an equivalent pre-tax (salary sacrifice) contribution.

After-tax contributions v salary sacrifice for Judith (2015/16)

In both scenarios, Judith’s take-home pay is the same. But by salary sacrificing into super, Judith can increase her super contributions for the year by $2,980, even after taking the 15% contributions tax into account.

Salary sacrifice checklist

Salary sacrifice isn’t without pitfalls. You’ll need to make sure you don’t unintentionally go over your contributions cap or reduce your other entitlements.

Here’s a handy checklist to make sure that you’ve ticked all the boxes.

1. Make sure that you can salary sacrifice

  • Does your employer allow salary sacrifice?
  • Are you under age 75?

2. Complete your employer’s standard salary sacrifice paperwork

  • You can’t salary sacrifice income already earned.
  • Plan ahead to sacrifice bonus and leave payments.

3. Make sure your other entitlements aren’t affected

Check with your employer:

  • how your super guarantee is calculated
  • the definition of ‘salary’ used to work out your payments.

4. Monitor your concessional contributions cap

Check all concessional contributions for the financial year. These include:

  • compulsory contributions paid by your employer – such as the super guarantee
  • contributions from a previous role within that financial year
  • pre-tax contributions on top of your super guarantee
  • administration fees and insurance premiums paid by your employer
  • contributions allowed as an income tax deduction – such as contributions you make if you are self-employed
  • notional taxed contributions if you are a member of a defined benefit fund

5. Get the agreement in writing

  • Every employer is different. Make sure you know when your contributions are paid within the financial year so you don’t go over your concessional contributions cap.

6. Set up a notification

  • Download the AMP app and set up an alert to notify you when your payments reach your account.

So don’t delay. Make sure you get your salary sacrifice arrangement in place by 1 July to take full advantage of the government’s tax concessions for the next financial year. You’ll soon see the difference when you next look at your super balance.

At Tailored Lifetime Solutions, we can help you plan your salary sacrifice strategy and keep track of your contributions cap. Call us on (03) 9851 0300 to arrange a meeting with one of our Financial Planners.

1 Or 30% if you earn more than $300,000 a year.

Article originally published by AMP Ltd.

2015-16 FEDERAL BUDGET – WHAT DOES IT MEAN FOR YOU?

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The Federal Budget is in and while it may not be as contentious as last year’s there are still some proposed changes that could affect you. Whether you’re a retiree, a family with young children, expecting a new baby or running a small business the budget may have an impact on you.

The technical specialists at AMP have put together a brief discussion on the proposed changes and how they affect families on a practical day-to-day level.

At Tailored Lifetime Solutions we specialise in helping people achieve their financial goals in an ever changing environment. If you have any questions about how the proposed Federal Budget changes may impact your financial goals call us on 03 9851 0300 to arrange a meeting with one of our Financial Planners.

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CORRECTION TIME?

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The last few weeks have seen the investment scene hit another rough patch: US shares have had a fall of less than 2%, but for Japanese shares it was 4%, Australian shares 6%, Eurozone shares 7% and Chinese shares 9%. This note takes a look at the key drivers, whether it’s a correction or something more serious and some of the key threats and risks investors should keep an eye on.

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THE RBA CUTS THE CASH RATE TO A NEW RECORD LOW

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As widely expected, the Reserve Bank of Australia has cut the official cash rate to 2% from 2.25%. This has taken the official cash rate to its lowest level ever and will push mortgage rates down to levels not seen since the mid-1950s. The latest rate cut if fully passed on to mortgage holders should save a borrower with a $300,000 mortgage about $12 a week or $625 a year.

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HOW TO NEGOTIATE THE BEST PROPERTY PRICE

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Negotiating the best property price isn’t a matter of swindling a seller. It’s about doing your homework, knowing what you want, knowing the market and making sensible offers.

When you are buying property, getting the best price can mean the difference between being able to afford it and having to settle for second best. And, of course, a purchaser is often negotiating with a seasoned professional, so any time spent brushing up on negotiating skills is well spent.

But we’re getting ahead of ourselves. For a first-class property price negotiation, the homework starts well before you even let the agent know you are interested.

The first thing to do, says buyers’ agent Shelley Horton, is get a good understanding of your requirements and circumstances. Aside from the location and type of house you are looking for, this understanding involves finance, of course.

“One of the first things I would be wanting to find out is whether a purchaser will be borrowing to finance the property, and how much they are looking to borrow,” Horton explains. “If someone is relying on finance as part of the property purchase process, I would always recommend they go and get preapproval, because if you don’t have preapproval, it doesn’t really put you in a strong position against the rest of your competition.”

Aside from meaning that when you do eventually make an offer it will be taken seriously by the seller or their agent, having finance sorted out means that you can be sure of what your stamp duty and associated costs are, and exactly what price range you can consider.

“We can start to work out what an offer range might be, and then it’s just a matter of ascertaining the market,” Horton says.

“This means doing lots and lots of research – seeing the prices other similar properties are listed on the market, checking recent sell prices for other properties that fit the criteria, comparing as much as we can like for like, so then you know that you’re not paying too much.”

Horton initially looks at online resources such as realestate.com.au or Domain. She also uses RP Data reports, but notes that the general public doesn’t usually have access to these (agents, valuers and credit advisers usually do).

“The reports give us a little more insight into properties that have sold, and background on the circumstances and situations leading up to a property coming on the market, how long they’ve been on the market and whether they have switched agents,” she says.

Above all, the best thing a buyer can do is get out and look at properties, and speak to the agents to build contacts.

“I inspect properties and go to auctio555ns just to keep in touch with the area, to see what the market is doing,” Horton says. “If you go to an auction and there was a lot of hype around the property, but then you find that there was really only one person interested in bidding, it tells a different story.”

Once you have your finance sorted and you’ve found that special property, get the building and pest inspections done as soon as you can so that if you do make an offer, you are prepared to move quickly. This can give you the edge on your competitors.

“If you have your homework done – your due diligence reports, your finance – you know exactly the position you’re in and you’re ready to go, and letting the agent and vendor know that is actually a good thing,” says Horton. “An agent wants to look for all those signs to see who is the most serous buyer. So being able to make an offer, possibly with no cooling off, will put you ahead of anyone else, because the agent knows that you’re going to start talking about dollars and, once you agree, it’s a done deal.”

Finally, it’s time to talk dollars, and you are well armed by the time you reach this point. Most agents will make buying guides available at inspections, so you will have a good idea of the vendor’s expectations; you will have a certain budget in mind because your finance is locked in; and you will have a good idea of the value of the property from all the preparation you have done (if you are still unsure here, you can have a professional run a valuation or engage a buyers’ agent).

So what should you offer? “I tend to not start too low because the agent won’t take you seriously,” Horton says. “You have to get that balance right. You might want to start five per cent below a realistic opinion of the value of the property, and go from there. It also depends on your budget. Certainly start below your maximum, and work up to that. Every dollar you get the property under your budget is a bonus for you.”

One exception to this is when a property has been on the market for a long time and there is not much interest in it. “That might be the case where you can get something at a heavily discounted price because the property is stale,” Horton says. The key to knowing whether this is the case, of course, is all that thorough research you’ve done.

At Tailored Lifetime Solutions our dedicated MFAA Approved Credit Advisor, Paul Bridges, can help get your finance sorted out so you are ready to make a deal. Call us on (03) 9851 0300 to arrange an appointment.

Article originally published by MFAA.

SUPPORT FOR CARERS

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In Australia, we rely heavily on carers to care for our aged and disabled community. According to Australian Bureau of Statistics and other sources, there are approximately 2.7 million unpaid carers providing over 1 billion hours of care. So what support is available of those carers? Here are some suggestions:

  1. Financial support is available through Centrelink either as a Carer Payment which is asset and income tested or a Carer Allowance which is not asset and income tested. These are available to carers who provide more than 20 hours per week of care;
  2. The National Respite for Carers Program is a federal government program that provides respite for carers either in the home, in day programs or in a residential facility;
  3. Carers Australia is a not for profit organisation which provides specialist services across Australia for carers. These services include advice, counselling and information. You can also contact your State based Carer organisation such as Carers Victoria for local assistance and information;
  4. There are numerous illness specific organisations which provide information, support and assistance to carers of people suffering from that illness; for example, Alzheimers Australia.

The carer needs to ensure that they take a break and take care of themselves because if they are not caring for themselves, they cannot care for others.

At Tailored Lifetime Solutions we work with other professional partners and specialists who can help with accessing care and support for you and your loved ones. Contact us on (03) 9851 0300 to arrange a meeting.

ACCESSING YOU SUPER

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For the average Australian, Superannuation will be the largest asset they have besides their own home. But do you know what your options are when accessing your superannuation? At Tailored Lifetime Solutions our Financial Planners specialise in helping people make the most out of their superannuation by guiding them through the ins and outs of super. To help you get started, AMP has put together a short video outlining some of the options available when accessing your superannuation. If you want to know more about superannuation or if you want help building a plan to achieve your goals, call us today on (03) 9851 0300 to arrange a meeting with one of our Financial Planners.