The family holiday can be a little daunting, yet exciting, and if not planned, costly.  By budgeting your holiday, you can keep control of your costs and still create great memories and experiences to last a lifetime.

Step 1 – Set a budget amount that can’t be exceeded

The reality is that there is no right or wrong number here, it comes down to what you can afford in your family’s annual household budget and any holiday can be great if planned out.

You may even find some additional funds, review your budget, see if there are any other savings you could make on discretionary items that could be directed towards the holiday instead (e.g. do you really need a daily coffee or takeaway this week or can you use this on the holiday instead?)

Step 2 – Initial Planning

The best way to do this is to plan as a family. Get everyone involved as this helps kids learn great life skills.

Consider what kind of holiday you might want to take and make a basic cost estimate to see what fits in the set budget e.g. an overseas trip won’t fit in a budget of $2000.

Identify the needs for your holiday (transport required, accommodation, food/drinks) vs wants (activities, experiences, souvenirs).  Don’t forget what you might need to arrange for whilst you are away such as pets, mail, gardens.

Discuss as a family and prioritise the wants. Everyone will be different and not everything will be able to be completed due to time or cost.  Make sure everyone gets a say in the activities. This could be a family walk, a beach trip, a fun park, day spa, the list is endless. Do some research of the places you are going to see, what is of interest, or talk to friends that have been there before.

Step 3 – Basic structure

Structure the holiday day by day accounting for time to travel and time to see things along the way.  Identify where accommodation, travel, and other costs will be spent daily.  Do a basic cost estimate and allow 10% extra for something missed. There are plenty of online tools to get estimates.  Challenge the kids to look up costs and complete a spreadsheet.

Are you close to your budget amount? If yes, we can move to a more detailed plan, otherwise, if you are over, some more thought may be required.  Are there other opportunities for saving such as the type of accommodation (self-contained to save on meals, one- or two-bedroom units or motel, caravan park stays), driving vs flying and hiring a vehicle or maybe a train trip, could you make some sandwiches for lunch to allow for meals out for dinner?

Step 4 – Details

Start identifying things to book in advance such as flights, accommodation and activity tickets.  There are plenty of savings to be made with a prior booking.  This should enable you to have a costed plan within +/- 5 to 10%.  If the budget is getting tight, research.

Research can help find some great ways for additional savings. Look for deals (e.g. stay 3 nights for the price of 2, breakfast included, kids eat free, “happy hours” for dining.) Does the time you are travelling matter as peak season/school holidays can raise costs dramatically.

Step 5 – Consider everything

Contingency – do you need it?  Think about if you were delayed by a day or more, can you afford it?  Doing riskier activities like skiing or bungy jumping?  Travel insurance is not for everyone but could be something you want to consider (and add in the budget) to cover potential issues.

Planning and taking a holiday together can be rewarding, creating family time whilst educating the family on money and time management.  Take time to listen to each other and when the time comes, given you have planned it out, financial stress should not be an issue leaving you more relaxed and able to enjoy the time away.  Most importantly have fun and capture memories to last a lifetime.

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.

The receipt of inheritance brings both financial and emotional considerations.  Financially, an inheritance will more often than not improve one’s financial position by allowing debt to be paid down or the wealth base to increase.  Emotionally, the loss of a loved one is never easy, or the responsibility of applying the inheritance to ensure a ‘legacy’ is left may become a real burden.

For Age Pension recipients, there are additional considerations.

Centrelink assessment of an interest in a deceased estate

An individual’s interest in a deceased estate is an assessable asset once it is received or can be received.

It can take considerable time to finalise an estate, it is accepted that a beneficiary is unable to receive their interest in a deceased estate for up to 12 months from the death of the testator.  However, if the estate is finalised earlier the interest will be assessed from the date it is received or able to be received.

If after 12 months of the death of the testator the estate has not been distributed, Centrelink may consider the facts of the case to determine what is preventing the estate from being finalised.  If a beneficiary has contributed to the delay, their interest will be regarded as being available.

If the beneficiary is not the executor and the executor has discretionary power on how the estate is distributed, Centrelink will accept that the beneficiary has no control over the delay.  Also, Centrelink will accept that where the estate debts are yet to be paid the estate interest cannot be received.

Deprivation provisions are intended to limit the potential for recipients to avoid the assets and income tests. They apply to a person’s interest in a deceased estate or superannuation fund if the person:

• Waives their right to their interest in the deceased estate or superannuation fund and the person obtains no, or inadequate consideration.
• Directs the executor of the estate or trustee of the superannuation fund to distribute their interest in the deceased estate or superannuation fund to a third party and the person obtains no consideration or inadequate consideration.
• Gives their interest in the deceased estate to a third party after the estate has been finalised for no or inadequate consideration, or
• Gifts their interest in a superannuation fund.

Once a person’s interest in a deceased estate is assessed, the value of this asset or the deemed income may reduce that person’s age pension entitlement, possibly to zero.

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.

Regardless of the short-term issues on the resurgence of COVID-19 driven by the Delta variant, lockdowns and restrictions, fully utilised monetary and fiscal policies alongside high inflation, the Australian and Global markets are at all-time highs. The current investment climate overloads investors with an excessive amount of information on traditional assets such as shares and property alongside speculative favourites such as GameStop and Bitcoins. It is easy to lose sight of the fundamentals of investing and below are quotes from the great investors of our generation to keep us in check.

“Never invest in a business you can’t understand.” – Warren Buffett

Many lost a fortune through the Global Financial Crisis (GFC) in investments that were not easy to understand and involved excessive complexity. While there’s likely something in blockchain and digital finance, the same caution applies to cryptocurrencies.

“More money has been lost trying to anticipate and protect from corrections than actually in them.” – Peter Lynch

Preserving capital is important. However, timing the market during and after a correction leads to investor’s becoming so focused on avoiding losses that they miss the initial positive market recovery. We have seen a bit of that ever since share markets bottomed in March 2020, with numerous forecasts for steep falls ever since and yet markets have fallen a few per cent every so often only to resume their rising trend.

“To be an investor you must be a believer in a better tomorrow.” – Benjamin Graham

If you don’t believe the bank will look after your term deposits, that most borrowers will pay back their debts, that most companies will see rising profits over time as the economy grows, that properties will earn rents, etc (and that the world will learn to shake off or live relatively safely with coronavirus) then there is no point investing. This is flippant but true – to be a successful investor you need a favourable view of the future.

“There is no free lunch.” – Anon

If an investment looks too good to be true, it probably is. Focus on investments offering sustainable cash flows (dividends, rents, interest) that don’t rely on excessive gearing or financial engineering.

If you are ever in doubt in the face of volatile market conditions, please contact one of our friendly financial advisers.

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.

Financial advice is important at all stages of your life.  Whilst each generation has many differences, ultimately our financial goals will end the same, it’s just the timing of the priority.

When clients see a financial adviser and are asked why they are seeking financial advice, many new clients will focus on generating wealth or planning for retirement.  It’s key for the adviser to explore the client’s financial goals.  Only then can a plan be considered on how to achieve the client’s endpoint.  It’s worth understanding that we are all different, there is no right or wrong answer, and the priorities of our goals will vary over our lifetime.

The Financial Planning Association of Australia prepared a document in 2016 entitled “Dare to Dream” and a part of the survey considered achievements and goals across generations.  Notwithstanding the impacts of Covid-19 on travel and people’s work and health, much of the detail from 2016 remains apt today.

The report highlighted that whilst one in two Australians dreamt more about the future in 2016 compared to 2011, 63% had made “no plans” or “very loose plans” to practically achieve those dreams.

The survey considered the three main generations present in the workforce – Baby Boomers, Gen X and Gen Y.

Amazingly, when it came to identifying their “greatest achievement”, the top two answers provided for every generation were overseas travel and buying their first home.  Gen Y also listed a new home as their top dream, reflecting that many had yet to achieve this, but when they did it was seen as a significant achievement.  Gen X still had a first home as their number 4 dream, whereas Boomers had moved to see new furniture for their home (already in ownership) as a higher dream.

All generations would love to travel as a short and long term goal, but only Gen X / Y credited living overseas for a period as a significant achievement, reflecting the change in dynamic and the opening of world travel and opportunities through the past 20 to 30 years.  Travel is not always the highest of priorities for many clients but does feature highly in goals requiring a lump sum allocation and perhaps the need for household budgeting to accomplish.

The goal of long term planning for retirement was common across all generations and early retirement could be seen as a focus area for both Gen X and the Boomers.  Not surprisingly, all generations saw saving money, repaying debt and buying a new car as high priority short term goals.  Saving money and repaying debt are great short term goals when targeting retirement wealth and early retirement.

Ultimately, the report highlighted that the goals for all 3 generations are largely the same, it’s just the priority we allocate to them at each stage of our life that is different.  When considering your goals, make sure you target what is both important and realistic for you – your financial adviser is there to help you on your way.

Source: FPA, “Dare to Dream”, 2016.

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.

When a person dies, generally the responsibility for administering the deceased estate falls to the legal personal representative. This person may be an executor or administrator who has been granted a court’s probate or letters of administration. It is important to note that while there are no inheritance or estate taxes in Australia, the legal personal representative is likely to have important tax and superannuation issues to attend to.

It is important to notify the ATO and the deceased person’s super fund of the death as early as possible. The ATO will determine whether a tax return is required for the deceased person and the super fund will commence a process for the release of any superannuation entitlement. A formal death certificate will be required to fulfil an official notification of death.

Accessing information from a deceased person can sometimes be tricky. You’ll need to have probate granted or a letter of administration. In the past, tax agents, BAS agents or legal practitioners engaged by a legal personal representative were unable to access this information directly. However, effective from 15 May 2020, the legislation has been modified to allow information from a deceased person to be provided to these agents directly, given the complications associated with the tax affairs of deceased estates. A deceased estate data package will also be provided by the ATO, which includes;

• Individual tax return information for the last three income years.
• An extract of income and investment data for the last three income years.
• An extract of notices of assessment issued for the last three income years.
• Copy of the most recent statement of account.
• Any outstanding ATO debts.
• Any superannuation accounts identified.
• Payroll data received for the current year.

From here, an assessment is made as to whether an individual tax return or trust tax return is required for the deceased person and their estate. All outstanding tax implications involving employment income, investment earnings and superannuation distributions will be assessed and any tax payable or refunds are applied to the deceased’s assets.

As a beneficiary of a deceased estate, there may be some tax obligations depending on the following factors;

1. Receiving super benefits – if the deceased person had super, the super fund’s trustee will work out who to pay the benefit to and how it will be paid (lump sum or income stream). If a Binding Death Nomination is in Place, the superannuation trustee will follow those instructions. Whether tax is payable depends on whether the beneficiary is a dependant under taxation law, whether it is paid as a lump sum or income stream, the breakdown of the tax-free and taxable components of the fund, the ages of the beneficiaries and the age of the member when they died. For most funds, there will be some tax payable unless you are a spouse or financial dependant of the deceased.
2. Receiving investment assets – Capital Gains Tax (CGT) will apply to the disposal of an asset, however, if you receive an asset, you will not be affected by CGT. If you later sell that asset, CGT may apply.
3. Receiving/earning income – income is deemed assessable from the date of entitlement rather than the date of payment. Beneficiaries need to be conscious of reporting such income in the year of entitlement.

There is no one size fits all approach regarding deceased estates and it is usually a long-drawn process. It is highly recommended that you engage the accountant or financial adviser of the deceased and employ a legal practitioner to assist with the process.

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.

In what seems to be the ever changing world of superannuation, the Commonwealth Government has recently passed the following reforms:

Increasing the number of members for a Self Managed Superannuation Fund (SMSF) to six from 1 July 2021.

This is useful for a family business that wants the SMSF to own the commercial property out of which the business trades, thereby ‘keeping the wealth within the family’ rather than contributing rent into the wealth accumulation strategy of an external landlord.

Increasing the number of members in a SMSF will allow for the asset pool to increase thereby opening up investment options and strategies available to the fund in order to meet wealth accumulation objectives.

Extending bring forward rules for Non-Concessional Contributions (NCC) to those 65-66 years old from 1 July 2021.

From the 2020/21 financial year, people aged 65-66 were permitted to make a voluntary contribution into superannuation without having to satisfy the work test. This allows for a NCC to be made up to the now increased $110K maximum limit, per annum from 1 July 2021.

At the time of this introduction to allow those aged 65-66 to make a NCC, the ‘bring forward’ of two future years was not permitted, which of course was inconsistent with the spirit of superannuation. However, it was hotly anticipated that the restriction would eventually be removed, which it has now been. Two future years of NCCs can now be brought forward resulting in a maximum of $330K that can be voluntarily contributed into superannuation for those aged 65 and 66.

Extend pension drawdown relief by 50% over the 2021/22 financial year.

For the last two financial years, the minimum pension payment required to be taken by superannuants from their pension accounts was reduced by 50%.

This was a measure introduced to alleviate the pressure on pension accounts being drawn down unnecessarily, resulting in ‘forced’ asset sales to shore up available cash at a time when financial markets were depressed. In essence, the concept was aimed at increasing the ‘longevity’ of pension accounts.

This measure has been extended into the current 2021/22 financial year. This no doubt will be well received by those in pension mode that don’t require the otherwise ‘normal’ minimum withdrawal.

Superannuation guarantee increase to 10% on 1 July 2021.

This refers to the amount employers are required to ‘compulsory’ contribute into superannuation on behalf of an employee. Previously the rate was set at 9.5% of gross salary, it is now 10%.

Another change to be aware of is the increase in contribution caps for the two different types of contributions. As mentioned above, the ‘NCC’ cap has been increased to $110K per annum. Similarly, the ‘concessional’ or taxable contribution cap has been increased by 10% to $27,500 per annum.

There is further scope and incentive for those in accumulation mode to increase the amount that can be contributed into their retirement asset of superannuation. These are positive steps to alleviate gaps in the retirement system, which will make it fairer for everyone.

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.

In hindsight, looking at a chart of a company’s share price, it would be perfectly easy to make money any day of the week, by buying at the bottom and selling at the top.

In practice, it is not easy at all.

It is often the opposite that occurs, with the result that buyers enter near the top of the market, and when the market falls, they decide they don’t want to lose any more money, and they sell out, often near the bottom of that dip. These times are often recognisable because everyone has a stock market tip for you in a topping market, and again at the bottom when all and sundry have decided that they can’t bear it anymore and will put their money in the bank. They have realised a loss, which is difficult to recover.

Our investment team constantly researches markets and companies, before recommending a purchase. We are looking for solid companies, with good management, good cash flow, a solid performance history, preferably a franked dividend, and something where we see some value so far as price is concerned. Fair value of a company sometimes equates to its current share price but may be much more or less than the current market price. We don’t buy if we consider a company over-priced, but we like the underpriced gems that sometimes show up.

At The Investment Collective, we like to utilize a ‘buy and hold’ strategy, populated by the companies where we see value. We may wait to purchase a stock if we think the market price is a bit high compared with what we see as its fair value, and we may also add to an out of favour stock, again, because we see value. We don’t try to find the bottom to buy, and we also don’t try to find the top at which to sell or reduce. Sometimes we are lucky and a trade is executed on one of these days, but our investment philosophy is to hold assets for the long term.

We don’t think that it’s possible to time the market such that our trades are executed exactly at one of the extremes of price, because the movement of the market in the future can’t be known until after the event. Our philosophy is to buy at close to fair value and to hold onto that company for as long as it continues to meet our investment criteria, time in the market. If it fails this test, then it’s out.

Our focus in choosing our investments is not based so much on the present, but on what the company can deliver to us as investors in the future. This means that it may take some time for a company to begin to deliver a very positive impact in a portfolio, again, time in the market.

Investing requires patience and some courage to remain invested if the current market isn’t so rosy. Time in the market – we don’t try to time it.

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.

Government support comes in all shapes and sizes and the temporary minimum pension drawdown relief was one key measure designed to support retirees at the onset of COVID-19. Superannuation pensions and annuities are subject to rules that determine the minimum and maximum amounts to be paid in a financial year. The legislation allowed superannuation accounts that are currently in drawdown/pension mode to effectively halve their annual drawdown limits and preserve superannuation balances during the COVID-19 market sell-offs.

These rules were initially legislated for the 2019/20 and 2020/21 Financial Year’s (FY):

Referencing the above table, a retiree aged between 65-74 would normally need to draw a 5% minimum amount per annum from their pension accounts. The drawdown relief legislation allows this individual to draw only 2.5%. This preserves the superannuation balance and avoids the need to sell down investments during the height of the market sell-offs.

An example would be a retiree aged 65 with an $800,000 pension balance. Under normal circumstances, 5% must be drawn per annum, which is $40,000. However, with the drawdown relief in place, only 2.5% is required to meet the annual legislated drawdown requirements, which is $20,000.

Benefits of this temporary measure to retirees

• Preservation of superannuation balance (tax-free nest egg).
• Avoids crystallising losses (from the volatile COVID-19 sell-offs).
• Flexibility on where to draw income (access taxable sources before superannuation).

On Saturday 29 May 2021, the government announced that a further extension to this measure is being considered for the 2021/22 FY.

The proposed minimum pension drawdown for 2021/22 FY:

Key takeaways from the May announcement

• This proposal is not yet law and still needs to be tabled.
• This measure is not compulsory. Individuals need to review their situation to assess whether the pension halving/reduction will benefit their unique circumstances.
• The measure will apply to account-based, transition to retirement and term allocated superannuation pensions.

Please keep in mind that there are no guarantees that the temporary minimum pension drawdown relief will be extended into the 2021/22 FY. This is something that we are keeping a close eye on for the benefit of our clients.

If this is something you’d like to take advantage of, please reach out to your Financial Adviser.

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.

The cost of retirement in Australia continues to rise and I have noticed increased cost pressure on retirees everyday expenses.

I am often asked the question “how much do we need to save for retirement?” There is no simple answer to this question as everyone has different living standards and one could go without what you might consider essential.

According to the Association of Superannuation Funds of Australia, to live a comfortable retirement at age 65 a couple will need $640,000 saved or funds of $62,562 per year. For a couple aged around 85, the funds needed per year falls to $58,871.

Some older Australians who are homeowners that I have spoken to feel anxious about their retirement and being able to meet their income needs. Being asset rich and cash flow poor is not an unusual dilemma.

One option to consider is downsizing your family home.

Selling the family home may allow eligible individuals to make a downsizer contribution from the capital proceeds into their superannuation of up to $300,000. A couple can contribute up to $600,000.

A downsizer contribution is not treated as a non-concessional contribution and will not count towards an individual’s contribution caps.

Eligibility criteria

• Homeowners aged 65 years or over. The 2021-22 budget proposed reducing the eligibility age down to 60.
• Owned an Australian property for at least 10 years and it must be your primary residence within this period to qualify for the capital gains tax exemption.
  • A houseboat, caravan or mobile home are not included.
• Must not have previously made a downsizer contribution using the proceeds from the sale of another home.
• The contribution must be made within 90 days of when the change of ownership occurs.
• You must provide your superannuation fund with the downsizer contribution into super form.

There is no requirement to purchase another home, for example, you may rent or go into aged care.

Things you should consider

• Age Pension implication
  • Currently, your primary residence is exempt as an asset from assessment of entitlement to the Age Pension. Your superannuation is assessed and the downsizer contribution may affect your Age Pension entitlement.
• Contributing to a self-managed super fund.
  • It is essential for trustees or members of a self-managed super fund to ensure that a downsizer contribution into the fund is permitted by the trust deed.

This is just one option older Australian’s have to top up their super for a more comfortable retirement.

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.

David Booth is a US businessman, investor and philanthropist who has been involved in financial markets for 40 years.  Below are five lessons from his decades in the trenches which serve as a timely reminder.

Lesson 1: Gambling is not investing and investing is not gambling

A short-term bet is a punt on chance, nothing new here, however, if one treats the stock market like a casino and tries to time the market, then you need to be right twice in the game of buying low and selling high.  It’s very difficult to pick the right stock at the right time once let alone twice.

Investing on the other hand is a long-term game and while all investments carry risk, a long-term investor can manage those risks and be prepared.  Investing is buying a good quality business at the right price and holding it for a long time.  The bet you’re making is on human ingenuity to find productive solutions to the world’s problems.

Lesson 2: Embrace uncertainty

Over the past 100 years, the S&P 500, an index of the 500 largest companies listed on the US exchange has returned a little over 10% on average per year but hardly ever close to 10% in any given year.

Like most things in our lives, stock market behaviour is uncertain and whilst none of us can make uncertainty disappear altogether, dealing with it thoughtfully can make a huge difference to our investment returns and perhaps, more importantly, our quality of life.

Uncertainty can be dealt with by preparing for it.  It was Benjamin Disraeli,  former Prime Minister of the United Kingdom who was quoted as saying; “I am prepared for the worst, but hope for the best.”

If you’re prepared for uncertainty you can benefit from it when it comes along.  The recent ‘COVID’ crash presented some wonderful buying opportunities.  Without this level of uncertainty or risk, there would be no opportunity to do better than a relatively riskless return like that from a money market fund.

Lesson 3: Implementation is the art of financial science

All the research completed over the years into understanding markets and returns tell us there’s general agreement on what ‘financial science’ tells us, however, so much can be gained or lost in application.

Whilst it does help if you have one or two genuine superstars, successful sports teams execute their strategies with a greater level of consistency and discipline than the opposition.  Investing is no different.  Great implementation requires paying attention to detail, applying sound judgement and maintaining discipline through all stages of the cycle.

Lesson 4: Tune out the noise

If you’ve lived long enough you should know one thing, if an investment sounds too good to be true, it probably is.  Fads come and go and unicorns are not real.

There are a plethora of websites and pundits willing to hand out stock tips or predictions and there’s always that ‘friend’ or family member, a self-proclaimed completely fearless guru, who is happy to tell you what the next big thing will be.

Bottom line is if you don’t understand it or the person who is imparting their ‘wisdom’ can’t explain it to a sixth grader, don’t invest in it.

Lesson 5: Have a philosophy you can stick with

This one is an extension of those above.

During periods of extreme market volatility, you need to call on your levels of intestinal fortitude to avoid the trap of making poor decisions based on emotion.

We will remember the year 2020 for the rest of our lives.  It’s an example of how important it is to maintain discipline and to stick to your plan when things don’t go as planned.

By embracing uncertainty, you can focus on what you can control.  Whilst you can have some effect on how much you earn, you most definitely can control how much you spend, how much you invest and the risk level you are prepared to accept.  A professional you can trust can help here.

Discipline applied over a lifetime can have a powerful impact.  Look at those you know who are not and decide for yourself which path you would like to follow.

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.