Home ownership in the spotlight

Housing affordability continues to be a major concern in Australia and not just for would-be first home buyers. It also affects pre-retirees forced to work longer to repay bigger mortgages and older Australians unable to downsize from large family homes due to a lack of affordable options.

The latest 2016 Census revealed a gradual decline in home ownership over the past decade from 68 per cent of all Australian households in 2006 to 65 per cent in 2016. And those of us with mortgages are more likely to be stretched to the limit, with over 7 per cent of home buyers paying more than 30 per cent of their income on mortgage costs.

It’s not only homeowners feeling the pinch. Rising house prices mean more of us are renting in the private market. Almost 25 per cent of households are renting privately, up from 21 per cent a decade ago; a further 4.2 per cent are in public housing. This puts upward pressure on private rents and increases demand for public housing.

Price growth easing

The national debate about housing affordability is understandably loudest in Sydney and Melbourne where the median price of houses and units is $880,000 and $675,000 respectively.i But residential property is always a tale of many markets.

While the constant warnings from some quarters that Australia’s housing boom is about to bust has not yet come to fruition, the rapid price growth of recent years appears to be slowing.

According to the CoreLogic Home Value Index, annual price growth eased from 12.9 per cent in March to 9.6 per cent by the end of June. In Perth and Darwin prices fell, while Brisbane and Adelaide posted modest gains. Hobart remains our most affordable capital city with a median price of $355,000 despite annual capital growth of 6.8 per cent.

Retiring with debt on the rise

The census also revealed that fewer of us own our homes outright. Mortgage-free home ownership is down from 32 per cent to 31 per cent over the same period. This could be due to more of us borrowing against the mortgage for renovations or investment, and higher home prices resulting in bigger mortgages that take longer to repay.

If this trend continues it could have implications for our retirement income system, which assumes that most people will retire with a home fully paid for. In a little over two decades the incidence of mortgage debt among people aged 55-64 has more than tripled from 14 per cent to 44 per cent.ii As more of us delay buying our first home until later in life, this trend is likely to continue.

To tackle housing issues at both ends of the age spectrum, the federal government announced some new measures in the May 2017 Budget.

New government incentives

The first of these is the First Home Super Saver Scheme. If the proposal is passed, first homebuyers will be able to make voluntary contributions of up to $15,000 a year to their super fund which they can withdraw to use towards a deposit, up to a maximum of $30,000.

In a move designed to free up more housing stock for young families, the Budget proposed allowing people over 65 to downsize and put up to $300,000 of the proceeds into super without it counting towards existing contribution caps. Couples could contribute up to $600,000. This may make downsizing more attractive for some, but it may not be the best strategy for everyone because the family home is exempt from the age pension assets test while super is not.

State governments have also stepped up assistance for first home buyers, with grants and stamp duty savings.

It remains to be seen whether these measures will significantly improve housing affordability for first home buyers or encourage Baby Boomers to downsize to a smaller nest.

Whatever your stage in life, we can work with you to help achieve your version of the Great Australian Dream.

i All housing prices from CoreLogic ‘Capital City Dwelling Values Rise 0.8% over June Quarter’ https://www.corelogic.com.au/news/capital-city-dwelling-values-rise-0-8-over-june-quarter

ii ‘Australians are working longer so they can pay off their mortgage debt’ http://theconversation.com/australians-are-working-longer-so-they-can-pay-off-their-mortgage-debt-79578

Where is the best place to stash your cash?

Australia’s historically low interest rates are great news for borrowers but a headache for savers. Whether you are a young single saving for a home deposit, a family saving for future education costs or a retiree seeking income, the hunt is on to find the best return on your savings.

In a survey by Westpac(i), 29.4 per cent of people said bank deposit accounts were the “wisest place for savings”. Real estate (24.6 per cent) and pay debt (16.5 per cent) were also popular choices, ahead of shares (9.5 per cent). And despite generous tax breaks, superannuation (5.2 per cent) limped in behind “spend it” (5.4 per cent).

Finding the wisest home for savings is not just about the highest return. If you are saving for a holiday or a home deposit, long-term investments such as shares or super are not appropriate.

Your appetite for risk and the amount you have available are also factors. Say you receive a $5,000 windfall, or identify savings of a few hundred dollars a month. Real estate is out of the question, so what are your options?

Play safe with bank deposits

Bank deposits come with a government guarantee up to $250,000, but safety comes at a cost. Five years ago term deposits were paying more than 6 per cent. Today, they are paying less than 3 per cent on average, only about 1.5 percentage points above inflation.(ii)

High interest savings accounts aren't much better, paying a fraction below 3 per cent and only if you are prepared to shop around.(iii) Unlike term deposits, these accounts have the added bonus of being at call, however most of the best rates are only for introductory periods or if you regularly deposit a minimum amount each month, so check the details.

If you put $5,000 in an online account at 3 per cent you would earn $150 in interest after one year and $808 over five years.

Pay off debt

If you have a mortgage or credit card debts, then using savings to reduce debt can be a winning strategy.

Basic variable home loan interest rates are currently between 3.5 per cent and 4 per cent, so any additional payments you make are earning an effective interest rate of at least 3.5% and that is an after tax equivalent, worth considering when comparing to regular interest earning bank accounts.(iv)

Even bigger savings can be made by paying down credit card debt. According to Canstar, credit card interest rates range between 7.99 per cent and 23.5 per cent.(v)

A $5,000 debt on a credit card charging 18 per cent interest will cost you around $900 in interest a year. If you make the minimum payment each month you end up paying $17,181 over 33 years. But increase your monthly payment to $246 and you cut the cost to $5,902 over two years, a saving of $11,279.

Build wealth with shares

If you are saving for a longer-term goal you can afford to take a little more risk for a potentially higher return.

Australian shares returned 11.8 per cent a year on average in the five years to June 2017 from a combination of capital growth and dividend income.vi

With $5,000 the easiest way to gain exposure to a portfolio of quality Australian companies is via an Exchange Traded Fund that covers Australian shares. Alternatively, if you already hold direct share investments you could purchase additional shares.

Secure your future with super

If you are saving for retirement, then it’s hard to go past super. Not only does super come with generous tax concessions but the long-term nature of your investment allows compound interest to work its magic.

According to research firm SuperRatings, the median balanced super fund returned 10.5 per cent in the 2017 financial year and 10.0 per cent a year over the past five years.(vii) ‘Balanced’ here means 60 per cent is invested in shares and other growth assets with the remainder in cash and fixed interest.

There are a wealth of options for savers who are prepared to look beyond traditional bank accounts.

Quality advice can help you get the most out of your savings so you can achieve your personal financial and lifestyle goals sooner, so please give us a call to discuss a tailored strategy.

i Westpac-Melbourne Institute Consumer Sentiment Index, June 2015

ii Canstar, viewed 26 July 2017, http://www.canstar.com.au/interest-rate-comparison/

iii Canstar, viewed 26 July 2017, http://www.canstar.com.au/interest-rate-comparison/

iv Canstar, viewed 26 July 2017, http://www.canstar.com.au/interest-rate-comparison/

v ‘Credit Card Interest: An Overview?’, Canstar viewed 26 July 2017, https://www.canstar.com.au/credit-cards/credit-card-interest-101/

vi Lonsec, https://irate.lonsec.com.au/MarketIndices

vii SuperRatings, viewed 26 July 2017, http://www.superratings.com.au/latest-returns/returns

Win the investment race

It’s been a volatile time on global investment markets, as shares and other assets are knocked about. At times like these it’s little wonder that more cautious investors decide it’s too risky to approach the start line.

No sensible person would take risks with their hard-earned cash for the sake of it, but the paradox of investing is that there’s no avoiding risk if you want to achieve financial security.

Risk vs volatility

Investing is an inherently risky business, but perhaps not in the way you think. While it’s common to hear people talk about volatility as a byword for risk, they are not the same thing.

In investment markets, volatility refers to daily price fluctuations. Risk, on the other hand, is the possibility that an investment will provide a lower return than expected over your time horizon or even a permanent loss.

Short-term volatility is only a risk if you need to sell investments after a big price fall. The longer your time horizon, the less important volatility becomes.

Here is a rundown of some of the main types of risk:

General market risk
This refers to the possibility that an investment will lose value because of a general decline in financial markets, due to economic, political, or other factors. Market risk can cause problems for investors who need to sell assets into a falling market, but it can also provide opportunities for bargain hunters.

Economic risk
This refers to the possibility of an economic shock or crisis that will cause panic selling, such as a debt crisis or a credit squeeze.

Interest rate risk
When rates are low investors borrow to buy shares and property, pushing up prices. When interest rates rise it’s more expensive to borrow to invest in shares and property so they tend to fall in value, while bank savings accounts and term deposits become more attractive.

Exchange rate risk
Exchange rates add another layer of risk when you invest in international markets or local shares with overseas operations. You can manage this risk to some extent by buying a hedged version of an overseas fund or shares in a local company that hedges its currency exposure.

Country risk
Sometimes particular countries face political or economic upheavals that spook financial markets. The Greek debt crisis and the Chinese sharemarket crash are two recent examples.

Sector risk
This applies to particular sectors of a market or economy. For example, the spread of the internet is disrupting the business model of companies in the media sector, while low commodity prices have hit companies in the resources sector.

Specific risk
This is the risk that a company you own shares in turns out to be a lemon. Or your investment property is in the path of a new freeway.

That may sound like a lot of risk, but without accepting some degree of risk you are unlikely to earn the returns you need to keep ahead of inflation and achieve your financial goals.

Managing risk

The amount of risk you accept depends on your personal tolerance for risk, your investment goals and your time horizon.

If you are close to retirement, you may wish to reduce the overall risk of your portfolio to protect your capital. Even so, it’s still wise to keep a portion of your money in higher risk investments such as shares and property to produce the returns you need to last the distance.

You can’t banish risk entirely but the good news is that most risks can be reduced or managed with some simple strategies. Diversification across and within asset classes and geographic locations is the best insurance against the risk of poor performance in a single investment or market.

If you would like to discuss your risk tolerance in the context of your investment portfolio, don’t hesitate to call.

Global markets navigate a sea of uncertainty

It’s almost a decade since the global financial crisis created havoc in financial markets. While the global economy continues to show signs of recovery, political uncertainty in Europe and the United States is creating fresh confusion on global markets as investors wait to see how current events play out.

It started just over a year ago when Britain voted to leave the European Union. ‘Brexit’ was followed by the surprise election of President Trump in the United States. Then the relatively unknown Emmanuel Macron won the French Presidential election. And most recently, UK Prime Minister Theresa May gambled on a general election to strengthen her hand going into the Brexit negotiations with the EU, only to end up with a hung parliament.

That’s a lot of unpredictable outcomes for one year. As every investor knows, markets don’t respond well to uncertainty. So what can we expect in the months ahead?

Brexit talks begin

Brexit negotiations are finally underway but Britain’s lack of political unity may prolong talks and weaken its hand. The process involves two stages – first there are technical negotiations over who gets what in the divorce. This will be followed by trade talks about the nature of Britain’s relationship with the EU and its 27 member states going forward.

Whichever way the talks go there are likely to be financial winners and losers. The early market response has been to sell down the value of the British currency and shares, although a weaker pound is good news for companies with foreign earnings.

The market has responded more positively to President Macron’s victory and the success of his new party’s candidates in France’s June elections. Macron has promised market-friendly reforms to boost the sluggish French economy.

As the Trump trade deflates

The market’s early positive response to the election of President Trump has lost momentum as key policy changes including tax cuts and infrastructure spending which were intended to boost economic growth now look in doubt.

With the focus on political uncertainty on both sides of the Atlantic, the US Federal Reserve’s latest rate rise barely registered on financial markets. The Fed raised its key interest rate for the third time in six months to a range of 1 per cent to 1.25 per cent, with one more rise anticipated this year. This signalled the central bank’s ongoing confidence in the slow but steady economic recovery.

Markets appear to be playing a waiting game, with no clear signal to push the US dollar or bond yields higher. After a record-beating run, US shares have held onto their gains but drifted sideways in recent months. The S&P 500 index rose about 18 per cent in the year to June.i

Australia’s growth continues

Closer to home, Australia’s record-breaking economic run continues. While growth slowed to 1.7 per cent in the March quarter, it was a far cry from the recession some pundits were predicting.

The residential property boom in Sydney and Melbourne is also cooling, with prices barely moving in the three months to May.ii While this is good news for homebuyers, it also gives the Reserve Bank more room to lower interest rates if needed. In recent months, the Aussie dollar has traded in a narrow band around US75c. This is up from its low of US68c in January last year, but longer term the trend is likely to be down as the gap between local and US interest rates closes and foreign money looks for better returns elsewhere.

Australian shares have performed well, up more than 11 per cent in the year to June.iii But to put this in perspective, along with the US market rise of 18 per cent, French, German and UK shares rose around 27 per cent, 34 per cent and 22 per cent respectively while Japanese shares were up 29 per cent.iv

Looking ahead

For local investors, Australian shares remain attractive for their yields but global shares are likely to continue to provide superior returns going forward.

If you would like to discuss your investment strategy in the light of current world political and economic events, don’t hesitate to give us a call.

i All market figures as at June 27.

ii https://www.corelogic.com.au/news/multiple-indicators-point-to-softer-housing-market-conditions

iii http://www.marketindex.com.au/asx200

iv https://tradingeconomics.com/stocks

Time to review transition to retirement pensions

Amid the major reforms to superannuation that took effect on July 1, some significant changes to the tax treatment of your Transition to Retirement Pension (TRIP) may have flown under the radar. Some individuals will be affected more than others, so if you have a TRIP or are thinking about starting one, now is the time to review your strategy.

The Government’s super reforms were designed to improve the sustainability, flexibility and integrity of the system. According to the Tax Office, the changes to TRIPs were designed to ensure that they’re not used primarily for tax purposes.i

What is a TRIP?

A TRIP allows you to access up to 10 per cent of your super in the lead-up to retirement. The idea is that you can supplement your employment income while you continue to work full or part-time. The tax benefit comes from replacing employment income taxed at your marginal rate with concessionally-taxed income from super.

When combined with salary sacrifice, a TRIP strategy also allows you to boost your super without sacrificing some or any of your after-tax income.

As you would expect with super, there are strict rules around eligibility. For starters, you must have reached preservation age; this is currently 56, rising progressively to age 60 for everyone born after June 1964. Then there are maximum (10 per cent) and minimum (4 per cent) amounts you can withdraw from your TRIP account balance each financial year. And you can’t withdraw your money in a lump sum, it must be received as an income stream unless you retire, turn 65 or satisfy another condition of release.

What are the changes?

The main change relates to the taxation of earnings on investments used to fund your TRIP. From July 1, earnings on these investments are no longer tax free. Instead they are now taxed at the 15 per cent rate that applies to earnings from assets held in the accumulation phase of super.

The good news is that payments you receive from your TRIP will continue to be taxed as they were previously. That is, payments are tax free if you are aged over 60, or taxed at your marginal rate with a 15 per cent tax offset if you are aged between 56 and 60.

Another of the super reforms will limit the appeal of TRIPS for high income earners. That’s because the income threshold at which individuals begin to pay contributions tax at the higher rate of 30 per cent, instead of normal super rate of 15 per cent, has been lowered from $300,000 to $250,000.

New limits on concessional (before tax) super contributions may also limit the potential benefit of the popular salary sacrifice strategy when combined with a TRIP. From 1 July, the maximum concessional contribution (including Super Guarantee payments and salary sacrifice arrangements) is $25,000 a year for everyone. Previously anyone over 49 could contribute up to $35,000 a year this way.

What should I do?

While TRIPS are still a tax effective way to manage your finances in the leadup to retirement, the new rules mean some people could be better off pursuing other strategies. In some cases, high income earners who already have a TRIP and satisfy a condition of release, such as retiring or changing jobs after turning 60, may be better switching it off or converting to a normal account-based pension.

At the very least, if you have a TRIP or are thinking of starting one and you haven’t already done so, you should review whether it’s still be the best option for you going forward. The new super rules are complex and their impact will depend on your overall financial situation so it’s important to seek professional advice before you act. If you think you may be affected or you would simply like to discuss your options in the leadup to retirement, don’t hesitate to give us a call.

i https://www.ato.gov.au/individuals/super/super-changes/change-to-transition-to-retirement-income-streams/

The positive side of being passive

Passive investing is a term often used to describe the investment approach of taking a broad, whole-of-market-level investment, without 'actively' looking for winners or avoiding losing investments. This 'passive' approach seeks to benefit from being 'in the market' but without worrying too much about 'beating' the market.

So that's a lot of 'quotations'! But really the fundamental concept comes back to capturing those markets, whether shares or bonds, property or commodities, or many others, as simply as possible. This often relies on market indices, or Index Investing, in order to do this. but to properly understand why you might take this approach, it is worth taking some time to understand what a market index is and how it is used in modern investing.

Whether you are familiar with financial terminology or not, you will possibly already have heard of some of the more famous indices without even realising what they are. The original and arguably the most well known is the Dow Jones Industrial Average. Way back in 1896, a stock market investor by the name of Charles Dow wanted a quick and easy indicator of how the US Stock Market was going, if not as a whole, then at least capturing the biggest names of the day. This index was a very basic number, created simply from a dozen companies and averaging their share prices. If those chosen companies went up in price, then so did the index. A very crude measure of a stock market, but easy to calculate in an era before computers.

Modern indices are usually a bit more thorough in their construction, and the most popular method nowadays is market capitalisation weighted. That is, the bigger the company (as measured by number of shares on issue multiplied by their current price), the bigger their weighting in the Index. Market Cap indexes like the S&P 500 or the NASDAQ 100 in the United States, or the All Ordinaries Index in Australia, are big name examples of this style of indexing.

S&P Dow Jones.jpg

Now an index is just a number, it isn't actually the market, but it is the closest thing we often have to knowing all of what the market is doing from moment to moment, day to day. As an investor indices can form two very helpful functions.

Firstly, it is a measure of how well your money is being invested, it can be a benchmark. For example, the S&P/ASX 200 tracks the performance of the top 200 biggest (by market cap, or size) Australian listed companies. If you as a share investor, or the fund manager who is investing on your behalf, are investing in this Australian share market, you might consider that getting at least as good as the share market as a whole (as defined as this index) to be your minimum standard. Why? Because you could theoretically go out and copy the index by buying what makes up the index in the same amounts (proportionately), so if you are going to invest differently to the index, you want to do better.

Finally, this leads us to the idea of passive investing. If we have this minimum standard of an index as the benchmark, maybe we don't want the hassle and expense of trying to do better, maybe we are perfectly happy with just getting 'the market'. Now you could always go through the effort of buying each of the individual shares that make up an index, all in the right proportional amounts; however we are lucky enough that now days there are many, very affordable alternatives to doing this.

Enter the Index Fund Manager. These fund managers, just like their active, beat-the-market colleagues, build portfolios to match as closely as humanly possible a given index, and then bundle these portfolios up and sell them as managed funds. Pioneered by groups like Vanguard Investments in the US decades ago, there are now many hundreds of fund managers (and thousands of funds) that operate this way.

Even better, they now have these index funds, packaged up and ready to invest in, selling on the same Stock Exchanges as the underlying shares they cover. These tradeable, ready-made investment portfolios are called Exchange Traded Funds, or ETFs, and are massively popular and growing more so every day.



So why would an investor want to "passively' invest and just accept these 'dumb' market returns? Don't we want to 'beat the market', pick the winners and avoid the losers? Well, unfortunately, that's not as easy as it sounds. Although plenty try to do just this, even the professionals it turns out aren't that fantastic at the task.

This from Standard and Poors in their latest SPIVA scorecard that analyses the efforts of the Australian managed fund industry.

There is no consistent trend in the yearly active versus index figures, but we have consistently observed that the majority of Australian active funds in most categories fail to beat the comparable benchmark indices over three- and five-year horizons. As of June 2016, the majority of Australian funds in all categories, except the Australian mid-and small-cap fund category, were outperformed by their respective benchmarks over the one-, three-, and five-year periods. International equity, Australian bond, and A-REIT funds significantly underperformed their respective benchmark indices over the one-,three, and five-year periods.
— SPIVA Australia Scorecard Mid-Year 2016


A lot of this under-performance has been blamed on the high active fees charged by some managers. Many managers charge in excess of 1% per year, which means their investment choices need to do better than the market index by at least 1% to just break even. Not as easy as it might sound.

As a solution, many investors have turned to index investing in some or all of their investment portfolios. Because index investing is a lot easier than trying to pick the winners and avoid the losers, with less trading and overall lower costs, these types are much cheaper to run, some fees approaching a tenth or even less than their active market competitors.

With long term share markets returning 8% to 12% historically, and active managers struggling to consistently beat the market by more than even 1%, why not go after just the 'market returns'? Add to this the explosion of ETF offerings coming cheaply to the market, very easily traded each day online, you can quickly see why Passive investing is the 'new black' of investing.

Escape the winter blues – without breaking the bank!

Have you been feeling a bit sluggish as the winter weather sets in? Are you craving richer meals, sleeping in a bit more, and generally feeling a bit flat?

There could be a scientific explanation. Seasonal Affective Disorder (SAD), otherwise known as the winter blues, is a real condition. It’s more common than you might think in this country as it’s estimated that up to 54% have some of the symptoms.i

Even if you’re not afflicted by SAD, it’s pretty common at this time of year to feel a bit lacklustre as the days get shorter and the drizzle sets in. One thing guaranteed to put a spring in your step is the idea of escaping the cold weather and heading on holiday somewhere for days of endless blue sky and balmy warm nights.

Escape the grey skies by heading north

The good news is that Aussies have plenty of options when it comes to getting away to somewhere warmer. It doesn’t cost much for those on the southern and eastern seaboards to head to the Northern Territory or Queensland, where it can seem like summer all year round to those from the cities in the southern half of the country. Darwin and the wider Northern Territory have plenty of natural and cultural wonders to explore. There’s nothing quite like swapping out the grey palettes of city streets for the rich reds and vibrant aquamarines of the Kimberley gorges. Tropical Queensland is home to plenty of luxury resorts, not to mention national treasures like the Great Barrier Reef. A few days soaking up the sunshine can be had for well under $1,000 for a couple, all inclusive, if you take some time to do your research.

Overseas destinations

If you’ve got a bit more time and you’re willing to go further afield, south east Asia has a plethora of budget-friendly destinations. According to the ABS, the most popular holiday spots during the winter months are Indonesia (including Bali), Thailand, and Malaysia.ii

Emerging destinations, where luxury getaways can be had for the price of a hostel stay back here in Oz, are also worth considering. For example, visitor numbers to Cambodia and Vietnam are increasing, with tourism to these countries having really opened up over the last couple of decades. Vietnam offers world famous cuisine coupled with stunningly diverse landscapes, from the balmy south to the mountainous north. Cambodia is also a unique cultural experience, home to delightful villages where you can still get that feeling of being somewhere fresh and un-explored.

Finding the best deals

To find the best deals, look at packages being offered by bigger travel companies, which can use their buying power to your advantage. Alternatively, keep an eye out for airfare sales with lower cost airlines, and build your own holiday from there. There is a ‘sweet spot’ in terms of timeframes for nabbing the best fares. Booking between three months and six weeks in advance and avoiding peak times like school holidays will get you the cheapest deals.ii

Many carriers also offer bargain fares in the middle of winter, when fewer people are taking time off for holidays compared to the summer months. If you prefer hotel accommodation and steering clear of questionable street food ‘adventures’, an all-inclusive resort deal can help you keep costs under control.

Budget for a break

Putting some money aside for upcoming travel and building up some savings can help you to avoid racking up a high credit card debt that you then have to deal with on your return.

And of course, if you can’t beat ‘em, why not join ‘em and embrace winter? Take a leaf out of the book of European après ski culture and make a day trip to the snow, rent a cabin in the country (complete with roaring fireplace), rug up and go for long walks. Alternatively, just bunker down at home and enjoy lounging around on the couch with a hot choccie in your hand.

i http://mccrindle.com.au/the-mccrindle-blog/winter-blues-having-real-impact-in-australia

ii http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3401.0Jul%202016?OpenDocument

iii Source: Airlines Reporting Corporation (ARC)

An insurance lifeline when you need it most

Trauma insurance is the middle child of the personal insurance family. It’s overshadowed by its better-known siblings but it’s a quiet achiever that will do the heavy lifting when the circumstances require it.

What trauma insurance is and isn’t

Trauma insurance – sometimes known as critical illness insurance – provides a lump sum payment in the event of a major illness or injury, such as a cancer diagnosis, heart attack or stroke. The full list of conditions covered will be set out in your policy.

In 2013, the most recent year for which figures are available, insurers paid out $621 million to 4512 trauma policyholders. That works out to an average pay out of $137,808.i

As with other types of personal insurance, the cost of a trauma policy will vary depending on how likely you are to make a claim. This is calculated with reference to your age, gender, occupation, health status and the amount of cover you’re seeking. A non-smoking 35-year-old male, for example, should be able to take out a standard trauma policy for around $300 a year. This will entitle him to $20,000 if he has a heart attack, $120,000 if he’s diagnosed with cancer and $150,000 if he has a stroke.ii

Why you may need it

You may be wondering why you might need a trauma insurance policy if you have private health insurance. If you have other forms of personal insurance that provide a much larger payout if something goes wrong, you may wonder why you need to bother with trauma cover?

The answer to the first question is that trauma cover pays for rehabilitation, carers, other forms of treatment and loss of income that health insurance does not. The answer to the second question is that trauma is best seen as a complement to, rather than substitute for, these other forms of personal insurance:

  • Life insurance pays your dependants a lump sum if you die.

  • Income protection insurance replaces (most of) your salary for the period you are unable to work due to illness or injury.

  • Total and permanent disability (TPD) insurance provides you with a lump sum payment if you suffer an injury or illness that prevents you ever working again.

If you don’t have any personal insurance, you would be well-advised to investigate some of the more well-known policies before considering trauma cover.

A small outlay for a lot of peace of mind

If you have superannuation you almost certainly have some life insurance, TPD cover and possibly even income-protection cover ‘baked in’, although the amount of cover is often low so you may need to buy a separate policy outside super. Trauma cover can only be purchased outside super, which brings us back to the issue of why bother.

Take the 35-year-old who is paying $300 a year for trauma insurance. Let’s say he’s diagnosed with cancer. He has a life insurance policy but it’s not going to pay out anything unless it’s terminal cancer. He’s got TPD insurance but it’s not going to pay out anything unless the cancer is going to result in a total and permanent disability. He’s got income-protection insurance but that’s only going to pay out, after a waiting period, once proof has been provided that the cancer is preventing him from earning an income.

With trauma insurance, there are no ifs or buts. Once the diagnosis is made, he qualifies for a lump sum of $120,000. That’s not going to set him up for life by any means, but it will allow him to cover medical expenses and pay the mortgage if he needs to, or chooses to, stop working for a while to concentrate on getting well.

If, like our hypothetical 35-year-old, you have financial responsibilities and want the reassurance of a payout if you suffer an insurable health-related setback then trauma insurance may be for you.

Avoiding being under or over insured is no simple task. If you’d like us to help you work out your insurance needs, give us a call.

i Industry Stats 2013, the risk store 2014, http://www.theriskstore.com.au/resources/16/TRS_Claims_Stats_2013.pdf

ii What’s the cost of trauma insurance, finder.com.au 2017, https://www.finder.com.au/cost-of-trauma-insurance

June 30: Get your (financial) house in order

Time is running out to get your financial house in order before June 30. This is especially the case for anyone who has funds available to make a large cash injection into their superannuation retirement savings before the rules change.

The 2016-17 financial year is your last opportunity to make a non-concessional (after tax) contribution of up to $180,000 to your super account, or as much as $540,000 under the ‘bring forward’ rule. This rule allows people under age 65 to make three years’ non-concessional contributions in the current financial year by bringing forward two years’ contributions.

From 1 July, the annual non-concessional cap reduces to $100,000 and $300,000 under the bring forward rule. What’s more, anyone with a total super balance of more than $1.6 million at the end of this and future financial years will not be able to make any more non-concessional contributions.

A golden opportunity

If you have recently sold an asset or received a windfall, this is the moment to think about making the most of the existing super rules while you can. A couple aged 50 or older could potentially put an extra $1.15 million into super before 30 June 2017 if they each made non-concessional contributions of $540,000 using the bring forward rule and concessional contributions of $35,000.

Younger couples can make a maximum concessional (pre-tax) contribution of $30,000. Concessional contributions include superannuation guarantee payments made by your employer and salary sacrifice amounts.

The advantage of doing this is that once your savings are in the super environment, investment earnings are taxed at 15 per cent instead of your marginal tax rate and are tax-free in pension phase. After June 30, people with more than $1.6 million in super will only be able to make concessional contributions and the annual cap will fall to $25,000 for everyone, regardless of age.

Take advantage of government contributions

Low and middle income earners may also be able to boost their super balance, thanks to government contributions.i

If you earn less than $36,813 this financial year and make an after-tax contribution to super, then you are entitled to a government co-contribution of up to $500. The co-contribution tapers out once you earn $51,813.

Also, low income earners on incomes below $37,000 may be eligible for a government-paid low income super contribution (LISC). This payment is equal to 15 per cent of your or your employer’s concessional contributions over the financial year up to a maximum of $500.

Bring forward expenses, delay income

The countdown to June 30 is not all about super; some simple financial housekeeping tips could help you reduce your tax bill.

Begin by collecting all supporting receipts and documentation for any work-related expenses. Where possible, bring forward tax-deductible expenses to the current financial year and delay income until July. This is especially worthwhile if you think your taxable income will be lower next financial year.

Review investments

After a mixed year on global sharemarkets, you may be sitting on paper losses on some of your stocks. This could be a good time to sell some of your poor performers to offset against capital gains made on the sale of other investments over the past 12 months. Look to sell investments held for at least 12 months if you want to take advantage of the 50 per cent capital gains tax discount.

Residential property has had a mixed year across the country, with the boom continuing in Sydney and Melbourne and prices falling in the West. With interest rates on investment loans on the rise, it’s more important than ever to claim all allowable rental property deductions.ii

The tax and investment landscape is constantly changing and growing in complexity. If you want to take advantage of the current super rules or traditional end-of-financial-year tax-saving strategies, consult your tax accountant and call us if you would like to discuss planning opportunities.

i https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=govtcont#govtcont

ii https://www.ato.gov.au/general/property/residential-rental-properties/expenses-you-can-claim/