With Autumn underway and a long weekend ahead, it’s a good time to take stock and prepare for what’s ahead as the financial year heads towards its final quarter and the May Federal Budget.
The gloomy prospects for economic growth, both in Australia and overseas, continue to occupying the minds of investors, businesses and political leaders. Global growth is believed to remain subdued for the next two years and Australia‘s economy will slow this year because of rising interest rates, the higher cost of living and declining real wealth. As expected, the Reserve Bank of Australia raised the cash rate by another 0.25% to 3.6% on Tuesday, but they changed their tone somewhat on the future outlook. They noted that inflation has now peaked in Australia and is expected to moderate globally over the coming months, and said they will be paying close attention to key economic indicators in assessing “when and how much further interest rates need to increase”. This softening in language has led to some economists predicting a pause in rate hikes at the RBA’s meeting in April and the expectation is that we are now near (if not at) the top of the rate hike cycle with rate cuts anticipated end of this year or early next.
Financial markets remain volatile. After a good month in January, Australian shares were down by almost 3% during February, while US stocks were down by just over 2% and more than 7% for the past year.
Enjoy this month’s articles below and have a great long weekend.
Flexing your retirement plans
The concept of retirement is changing, with fewer people working towards a final retirement date and then clocking off for good.
Instead, those who have the flexibility to choose are often transitioning out of the workforce over several years, or even returning after a break.
Whether you simply want to wind back your working hours to explore other interests, or don’t want to cut your ties with work completely, to make it work you need to plan.
Choosing your retirement date
There is no set retirement age in Australia, but most people will not be eligible to receive an Age Pension until they reach age 67.i This means you need enough savings to provide another income source if you retire earlier.
Although most of us have super, you are not permitted to access it until you reach your preservation age, which can vary.
Withdrawing your super also requires you to meet a condition of release. There are various conditions, but the most common one is reaching age 60 and permanently retiring from the workforce. Once you turn 65, you can access your super whether you are working or not.ii
Keep in mind, tax also affects your super, with different rates applying depending on your age. Most people can access their super tax-free once they reach 60.
Paying for your retirement
Unfortunately, there is no simple answer to how much income you will need in retirement. It depends on your current lifestyle and planned retirement activities, but a good place to start is the ASFA Retirement Standard.
For around 62% of the population aged 65 and over, the main source of retirement income is the Age Pension and government payments.iii
Eligibility for an Age Pension is assessed using your age, residency status and personal income and assets. These determine whether you receive the full fortnightly payment rate, which is currently $1,547.60 a fortnight for a couple.iv
As part of your planning, check for other potential sources of income from investment assets, contract work, or rent from investment or Airbnb properties.
Using your super savings
While you may dream of retiring early, many of today’s retirees can expect to live well into their 80s, so your super may need to provide income for more than 20 years. If you are unsure whether your super is on track, we can help you check your progress and put strategies in place to achieve your retirement goals.
Most super funds provide online calculators to give a rough estimate of your likely retirement balance and how much income it will provide.
ASIC’s MoneySmart Retirement Planner is another resource for working out your retirement income and potential Age Pension payments.
Transition-to-retirement (TTR) pensions
If you would like to ease into retirement, it can be worth investigating a TTR pension. These allow you to cut back working hours while using your super to supplement your income without compromising your lifestyle.
If you are aged under 60 you will pay some tax on pension payments, but they are tax-free once you reach age 60.v
TTR pensions also allow you to continue topping up your super through a salary sacrifice arrangement with your employer. You only pay 15% tax on these contributions, which may be lower than your marginal tax rate.v
Giving super a late boost
If you have income to spare as you move towards retirement, perhaps from an inheritance or downsizing your home, there are now additional opportunities to continue adding to your super.
You can make personal after-tax contributions of up to $110,000 a year until you reach age 75, even if you are not working. You may even be eligible to use a bring-forward arrangement and add up to $330,000 in a single year.
Once you hit 60, if you are planning to sell your current home you can also make a downsizer contribution of up to $300,000 ($600,000 for a couple) into your super account.
When you are doing your retirement sums, don’t forget some of the concessions on offer to older Australians. If you are aged 60 and over and working less than 20 hours per week, your state’s Seniors Card can provide discounts on public transport and some goods and services.
You may also be eligible for the Commonwealth Seniors Health Card for cheaper prescriptions and medical appointments, or a Pensioners Concession Card for discounted public transport.
If you would like to discuss your retirement options and how to fund them, give us a call.
Star ratings for Aged Care help make family choices easier
Moving into aged care can be a challenging time, both for those making the move and families supporting their loved ones. It’s understandable that everyone wants to find the most suitable accommodation and the appropriate standard of care, however, it can be confusing to make that choice.
A new star rating system for aged care is giving existing and potential residents and their families helpful insight into the quality and staffing levels of an aged care facility.
Four key performance areas covering residents’ experience, staffing levels, compliance and quality measures are each given an individual star rating. These ratings are then combined to provide an overall rating which is made public on the My Aged Care website.
For many people this will be the most consistent measure of whether aged care accommodation meets independent requirements for a good, average or poor facility.
A one-star rating indicates significant improvement needed; two stars indicates improvement needed; three stars indicates an acceptable quality of care; four stars indicates a good quality of care and a five star rating indicates an excellent quality of care.
There has been one round of ratings revealed since the system was launched in December 2022, with about one-third of the 2,700 aged care facilities in Australia receiving four or five stars, two thirds receiving three stars and one-in-10 receiving one or two stars.
How care is measured
Staffing levels in aged care are always of interest. With no staff ratios in aged care, the focus is on ‘care minutes’ provided by registered nurses, enrolled nurses and personal care workers.
A new funding model – in place from 1 October 2022- requires aged care facilities to meet a minimum average care minute target of 200 minutes a day, including 40 minutes registered nurse time. This target will become mandatory from 1 October 2023, and increase to 215 minutes, including 44 registered nurse minutes, from 1 October 2024.
The five crucial areas of care that go into determining the quality star rating include pressure injuries, physical restraint, unplanned weight loss, falls and major injury, and medication management.
The data is collected quarterly, with zero-star ratings given to providers who fail to report on each area.
The compliance rating, which is the responsibility of the existing Aged Care Quality and Safety Commission, provides information on the extent to which a residential aged care service is meeting its responsibilities.
A service that receives a one star compliance rating (which would occur if it was sanctioned or found to be punishing anyone who complained to the Commission) will receive an overall one star rating, regardless of how they perform in other sub-categories. Services that receive a two star compliance rating (if they were issued a compliance notice under the current system) cannot receive an overall star rating higher than two stars, regardless of how they perform in other sub-categories.
A resident’s experience of a facility carries the highest weighting towards the overall star rating.
To understand the experience of residents, 12 questions are asked, for example – ‘do staff treat you with respect’, do you feel safe here’, ‘do you get the care you need’, and ‘are the staff kind and caring’. Responses can vary from never to always.
At least 10 per cent of older Australians living in residential aged care will be interviewed face-to-face about their overall experience at their residential aged care home by a third-party vendor each year.
Anyone currently living in or considering a facility with a low rating should feel empowered to ask what management is going to do about improving things.
The star ratings are a recommendation of the Aged Care Royal Commission to better inform people living in or considering moving into residential aged care and to provide greater transparency in an effort to lift the overall standards.
They will become an increasingly important tool in the planning and decision-making process.
Give us a call to help you or a loved one plan for current and future needs.
The advantages of investing early
You may have heard it said, “No risk, no reward.” But did you know that time can actually decrease your risk while increasing your reward?
Investing: Risky business?
When some people think of investing, they focus on the potential for great rewards—the possibility of picking a winning share that will increase in value over time.
Other people focus on the risk—the possibility of losing everything in a market crash or on a bad stock pick.
Who’s right? Well, it’s true that all investing involves some risk. It’s also true that investing is one of the best ways to build your wealth over time.
In fact, there’s typically a direct relationship between the amount of risk involved in an investment and the potential amount of money it could make.
Different types of investments fall all along this risk-reward spectrum. No matter what your goal is, you can find investments that could help you reach your goal without taking on unnecessary risk.
Time is on your side
Here’s the secret ingredient that can make investments less risky: time.
But there’s a caveat.
If you invest in just a handful of investments or only within the same industry, time won’t necessarily make your portfolio any safer.
The reason it works for diversified investment portfolios that incorporate a range of asset classes (i.e. bonds), regions and markets is that over time, there tend to be more “winners” than “losers.” And the investments that gain money offset the ones that don’t do as well.
The more time you have, the more you benefit from compounding
Not only can the passage of time help lower your investment risk, it can potentially increase the rewards of investing.
Imagine you place one checker on the corner of a checker board. Then you place two checkers on the next square and continue doubling the number of checkers on each following square.
If you’ve heard this brainteaser before, you know that by the time you get to the last square on the board—the 64th—your board will hold a total of 18,446,744,073,709,551,615 checkers.
While there’s no guarantee you can double your money every year, the principle behind this – known as “compounding” – is important to understand that when your starting amount is higher, your increases are higher too. And over time, it can add up to be a material increase.
For example, if you earn 6% on a $10,000 investment, you’ll make $600 in the first year. But then you start the second year with $10,600—during which your 6% returns will net you $636. This is a hypothetical example that does not take into consideration investment costs or taxes.
In the 20th year of this example, you’ll earn more than $1,800—and your balance will have increased more than 200%.
A caveat: reinvesting is key
If you take your earnings out of your account and spend them every year, your balance will never get any bigger—and neither will your annual earnings. So instead of making more than $20,000 over 20 years in the hypothetical example above, you’d only collect your $600 every year for a total of $12,000.
If you instead leave your money alone, your “earnings on earnings” will eventually grow to be larger than the earnings on your original investment – and that’s the power of compounding!
Understanding long-term investing can be confusing, that is why we are here to help. Contact us today on |PHONE| to find out more.
Reproduced with permission of Vanguard Investments Australia Ltd
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Streamline Wealth Pty Ltd (AR 1299307), Neil Sonneveld (AR 1251279), and Martina Sonneveld (AR 297377) are authorised representatives of Nextplan Financial Pty Ltd (AFSL 452996). This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.