As more Australians are spending longer in retirement than previous generations, how are we managing our clients’ longevity risk?

As financial planners, we know the risk of clients’ outliving their retirement savings is very real, however, it’s also a risk that clients often prefer not to face up to. For me, the starting point for managing longevity risk is persuading clients to accept the possibility of outliving their money and then providing them with the strategies, portfolios and behavioural skills to set them up for success.

Behaviour changes: We spend much of our time encouraging clients to understand and appreciate that there is a real risk they’ll outlive their money. When there is an understanding of various trade-offs, most clients need to consider that it’s easier for them to make informed decisions and take ownership of their actions.

Portfolio risk: The portfolio needs to be aligned to the client’s risk tolerance. However, in the case of retirees, we need to be cognisant of the impact a loss may have. The desire to generate healthy long-term returns is also important, so the risk/return trade-off takes on a different meaning for a retiree.

Legislative risk: Social security benefits (i.e. Centrelink) can make up a significant portion of a client’s income and can’t be dismissed. Consideration of tax implications on a client’s finances is also fundamental as we know, tax and social security rules change often, so it’s important to be aware of the impact changes have on a strategy and adapt accordingly.

Strategy and products: Using a range of products can make a strategy more robust and flexible for the future. Providing an element of guaranteed income, whilst maintaining access to capital, is nirvana to some clients, particularly if it also provides an uplift in social security benefits.

We approach client’s longevity risk in a number of ways, however, the most effective strategy is regularly talking to our clients about this issue during regular review meetings, revisiting potential outcomes and empowering the client to make smart decisions for the long-term.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

New Year’s has come and gone, and we have moved into the 20’s. I’m of the school of thought that the decade doesn’t begin until next year, but it doesn’t seem to make sense does it, since the teens are finished.

Every year on January 1, people all over the world make lists of New Year’s resolutions. Being human, our lists are often lengthy and one of the most common resolutions is to get fit or lose weight, probably exacerbated by the Christmas pudding that we have all indulged in. So, we rush off to join the gym and we sweat it out regularly for a while. Gyms love January 1.

As the weeks roll on, into February and March, our attendance at the gym begins to taper off. Perhaps we are feeling a bit fitter and we have lost some of the weight. We then allow the other things in our life (and the little man on our shoulder who says it’s all too hard) to take over again which spells the end of our exercise regime.

It doesn’t matter what our resolution for the new year is – what matters is how we apply that resolution to our lives. I’ve changed the way I make a resolution by just picking one thing. This year it is that I will tidy up. It’s pretty broad isn’t it – but it covers lots of things including my:

• House
• Kitchen cupboards
• Financial life
• Mind
• Golf
• And so on

I just have to remind myself constantly that this is the goal that I have set myself for 2020, and I have made a good start. But I have to work at it. The kitchen cupboards won’t stay tidy unless I make them that way and be consistent about putting things away in their proper place.

It is the same with anyone’s financial life.  You won’t save money or keep proper control on your spending unless you have a plan to keep it tidy. The work that you put in now on planning and budgeting will pay off for you in your later life, that is retirement. If you want to be able to do things in retirement, you need to have the plan in place now so that you can achieve those dreams. The consequence of doing nothing is being restricted in retirement, and perhaps being restricted to living off the age pension.

Give one of our friendly financial advisers a call to assist you to put your plans in place to tidy up your financial life. We are good at it and we can make a difference for you.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Funding your child’s education expenses and fees can be costly. The money you spend funding your child’s education could be one of your family’s biggest expenses.

Research conducted by The Australian Scholarships Group (ASG) on education costs, provides some context. The research is based on a child starting pre-school today and suggests that opting for the private school from Prep-Year 12, will set you back a $367,569 per child. Even if you decide on a government school for primary years and private for secondary, you will still need to come up with $244,822.

For most families, the time when kids are starting out at school comes when household budgets are already stretched with mortgage repayments, bills and living expenses. This means that some forward planning is required to make sure you have enough money to give you, and your children, the full array of options for education.

Here are 5 tips…

1. Planning is important – have the discussion with your partner, do your research and estimate how much it is going to cost you.

• Open up a dialogue with your partner about what you want your kids’ education to look like. Is it through Private or Government schooling? Do one of you want to send them to the school you attended as a child? Does your child have any special needs? The sooner you have these conversations the better.
• All schools have websites. Check out those that you’re interested in. Most should include information about fees and advise you whether there is a waiting list.
• There is a heap of great resources out there to help you on your way. The ASIC Money Smart website and the Australian Scholarship Group’s online calculator are a couple to try out.

2. Start saving early!

• Like any other long-term savings goal – the sooner you start, the better! The best time to start saving is when your child is born or possibly even earlier. Make a budget and decide how much you can put aside each week. Look to increase the amount each year to ensure you’re keeping pace with inflation.

3. Structuring things right for tax

• If one member of the couple isn’t working and staying at home to look after young children or working part-time, chances are their marginal tax rate is low. Therefore, holding investments or savings accounts in their name may be of benefit as the assessable income for tax will be much lower.

4. Once you have a little bit of savings behind you, look to get that money working harder for you.

• An investment in blue-chip Aussie shares and managed funds can be a great way to accelerate your savings. Bear in mind that these investments are riskier than leaving your money in the bank and that you won’t get rich overnight. A 7 year plus timeframe is appropriate.
• If both parents are working and earning solid incomes, Investment bonds can be tax-effective for investors with a marginal tax rate higher than 30%, as long as certain rules are followed. Within the bond, your money is pooled with money from other investors and a portion of the pooled funds is then invested in the investment options such as cash, fixed interest, shares, property, infrastructure or a range of diversified investment options, with risk levels ranging from low risk to high risk. The value of the investment bond will rise or fall with the performance of the underlying investments. An investment bond is designed to be held for at least 10 years after which you can withdraw tax-free! You can make additional contributions over the life of the insurance bond. To make the most of the tax benefits, each year you can contribute up to 125% of your previous year’s contribution.

5. Saving via an offset account against your home loan can provide other benefits.

• Another simple, but potentially effective way of saving for education costs is through your home loan. An offset account allows you to make extra repayments into a bank account attached to your home loan. It operates much like a normal bank account with some special features. For example, the amount you have in the offset account effectively reduces the loan balance the bank uses to work out the interest payable on your home loan. For example, if you have a home loan of $300,000 with $100,000 in an offset account, the bank calculates interest based on only $200,000.

My advice is to start early, work out how much you will require for education costs, how much you will need to save to get there and then select the appropriate savings vehicle. Seek the help of a good financial planner to set you on the right path

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.