When is the best time to refinance your home loan?

When is the best time to refinance your home loan?

As a home owner with a mortgage, chances are you’ve heard of the term ‘refinancing’. Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.

Refinancing can also allow you to consolidate your debts or pay down your mortgage more quickly.

Another common reason borrowers look to refinance is so that they can access equity – the amount you’d get from selling your home after settling any associated loans, such as a mortgage on that property, and any other costs associated with the property. Depending on that amount, you may be able to access equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.

However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, your broker will need to assess your needs and objectives as well as your current financial situation.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.

Are you looking to pay less interest?

Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender should that be available to reduce repayments. If you aim for a lower interest rate, this could potentially save you a lot of money in the long term.

While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required.

At this point, the broker will need to find out about your existing loan, repayments and current loan structure.

Your mortgage broker will also need to find out more about your current financial situation, including your income, any other current debts and about any assets you own.

The current value of the property is also taken into consideration, so your broker will have access to current data that will indicate what your property is likely to be worth.

The broker will then review the various loan options and figure out whether it’s worth it for you to refinance. Sometimes it’s not worth it if it’s only going to save a couple of hundred dollars a year, particularly when you take into consideration the exit and application fees involved. But if it’s going to save upward of $1,000 a year, refinancing might be a sensible approach.

In some cases, the mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.

 

Do you want to change your loan type?

One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI)* to your new lender. If switching your loan means you will need to pay LMI again, it may not be worth refinancing.

If you do decide to go down the refinancing path, working with a broker rather than going straight to a lender has advantages. Broker’s generally have access to loan options from a range of different lenders (on average 34 lenders), and if there’s a better opportunity for you, they’re usually able to access it.

It is important to consider that when you take up a new home loan, it can incur exit fees and may not have all the features your existing home loan has.

Have your circumstances changed?

If you had a recent major life change such as a because of a loss of income or a change in marital status, you might be looking to refinance.

If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to your mortgage broker who can negotiate with your current lender for a rate suitable to your current situation.

Your broker can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time and even save you interest in the long-term.

If you would like to talk to one of our lending specialists to determine if you have the most suitable loan for you, then simply call the office on 9851 0300.

*LMI protects the lender against potential loss. 

Superannuation scams – Scammers who want your super

An offer to help you get your superannuation money early might seem like a great idea. But if you agree to it you could end up in a lot of trouble. Accessing your super before age 55 (at the earliest) is illegal except in very limited circumstances.

Here we explain how super scams operate so you can protect your retirement savings.

How super scams operate

The scammers say they can withdraw your super or move it to a self-managed super fund (SMSF) so you can pay off your debts or use the money for something you really want.

Once your super has been withdrawn or transferred, the scammer then takes a large commission or may even steal the entire amount for themselves.

By agreeing to the scam, you risk losing your hard-earned super savings. You may also unintentionally get caught up in tax penalties as a result of taking your super early. The scammers may even get you to sign false statements, exposing you to fines.

To find out more about when you can get hold of your super money, see our page on getting your super.

There is another type of super scam where scammers steal your identity and pretend to be you so they can transfer your super to a fake SMSF that they can access. Read more about how to protect yourself from this scam on the identity fraud webpage.

Who the scammers target

Promoters of illegal super scams often target people who are struggling with debt, people who are unemployed and those from non-English speaking backgrounds.

Case study: Kim’s super is taken by a scammer

Distressed Woman With Hand On HeadKim was desperate to pay off her car loan and credit card debt. She had $30,000 in her super fund and really wanted to use that money now, not in years to come. She saw an ad in her local paper saying she could get hold of her superannuation money now and phoned the number.

Greg answered her call and said all she needed to do was sign some papers to transfer the money into his self-managed super fund. Then Greg could give Kim 90% of the $30,000 and he would only take 10% commission. Kim thought this was a great idea so she signed the papers.

A few weeks later, Kim had still not received the $27,000 from Greg. She thought this was strange but believed the money would come soon. Then she got a call from the Australian Taxation Office letting her know she was up for a big tax bill as she had accessed her super.

She also got a call from an ASIC investigator who had received complaints from other people in Greg’s self-managed super fund who had not received any of their money. The investigator told Kim it was illegal to get hold of super funds before retirement and she was questioned about her dealings with Greg.

The investigator sent her the real bank statements from Greg’s fund. Greg had withdrawn all her money and there was nothing left.

The truth was that Greg had a gambling problem and ran the scam to fund it. Greg was already bankrupt, so there wasn’t much hope that Kim would get her money back.

Warning signs of a super scam

Promoters of illegal super schemes will try to get you to believe that anyone can access their super with their help.

Be alert to these signs of a super scam:

  • Advertisements promoting early access to super
  • Offers to ‘take control’ of your super
  • Offers of quick and easy ways to access or ‘unlock’ super
  • Unlicensed operators – see ASIC Connect’s Professional Registers or APRA’s Disqualification Register.

If you have been approached about accessing your super early, report it to ASIC via the online complaint form or by calling ASIC’s Infoline on 1300 300 630. You can also report it to the Australian Taxation Office by phoning 13 10 20.

Action ASIC has taken action against super scams

To find out more about the actions ASIC has taken over early release super schemes, see the following media releases:

When early release of super is legal

Early release of super is legal only in very limited circumstances: when you are experiencing financial hardship or on ‘compassionate grounds’. For more information, contact your adviser at Tailored Lifetime Solutions.

Ponzi Schemes – Dividends but no real investment

One of the simplest yet most effective investment scams is the ponzi scheme. The promoter promises investors a return on investment and says it is secure, but there is no real ‘investment’.

The promoter convinces people to invest with their scheme. They then use the money deposited by early investors to pay the first ‘dividend’ until investors feel comfortable and decide to invest more. Some investors then encourage their family and friends to join. Eventually the scheme falls apart because the promoter starts to spend the money too quickly or the pool of investors dries up.

Here are tips on how to pick a ponzi scheme from a real investment.

Warning signs of a ponzi scheme

  • The rate of return is sometimes suspiciously high (maybe as high as 10% per month or 120% per year)  – but it can also be just the usual rate of return
  • The person who tries to recruit you is someone you think is trustworthy, like a neighbour or someone in your church or community group
  • The recruiter may have already invested in the scheme and received great dividends

Read ASIC’s media releases about the conviction of ponzi operator Chartwell Enterprises, and a penalty and ban issued to ponzi ‘mastermind’ David Hobbs.

Case study: Maria invests through a friend

Couple On Park BenchFirst-time investors Maria and Jason borrowed $70,000 to invest in the overseas money market after a recommendation by their friend of 40 years, Steve.

Steve told them their investment would involve no risk at all, as it was guaranteed by the Bank of America. He said they could withdraw their capital at any time after the first 12 months. The return promised on the investment was fantastic (26% per year on their initial investment). Steve helped the couple arrange to borrow the $70,000 they would invest.

But the scheme was not real – they were caught up in a ponzi scheme. Part of the money they and other early investors deposited was used to pay their first dividend cheques. When the money for dividends dried up, Steve said that it was due to the interference of ASIC. This was one of many false stories fed to the investors by Steve, to keep them onside.

Jason and Maria were angry with ASIC as they thought the organisation was ruining their chances of making money from their investment. They wanted to believe Steve, as they didn’t want to think they had lost all their money, and he was an old friend.

When the truth eventually came out that the scheme wasn’t real, Maria and Jason, along with the other investors, assisted ASIC’s investigation and prosecution of Steve and his business partner — who spent more than 2 years in jail.

Maria and Jason lost their $70,000 and ended up having to pay off the loan. When Jason’s mother died, his inheritance was completely swallowed up by the $70,000 debt plus interest.

Jason and Maria are now very wary, and warn others to get a second opinion from a licensed financial adviser before investing in anything.

This is a true story – only the names of the investors have been changed at their request.

Where do ponzi schemes operate?

Operators of unlawful investment schemes sometimes target community groups, like churches, to find victims. In some cases, members of the community group innocently encourage others to put money into the illegal scheme.

This means that when the scheme collapses, not only do the investors lose their money, but relationships break down between friends, neighbours or community group members.

Ponzi schemes targeting Thai communities

ASIC Victorian Regional Commissioner Warren Day talks to SBS about how members of the Australian Thai community are falling victim to Ponzi scams operated through Facebook.

Warren Day interview on SBS (23 mins)

How long can the scheme last?

If the promoter of the scheme is disciplined about how much money is left in the account to pay ‘dividends’, the scam can go on for many years. Ponzi schemes only require a few people in their early stages to be successful.

How ponzi schemes work

An example of how a ponzi scheme works is shown in the table below. In January, the promoter convinces Katie to invest $100,000 in his scheme. The promoter then pays Katie $10,000 each month using Katie’s own money.

As Katie receives $10,000 each month she doesn’t suspect anything is wrong, and happily recruits friends and work colleagues to invest, too. After 3 months, Katie’s neighbour Adam decides to invest $100,000 after hearing about Katie’s great returns.

After both Katie and Adam have invested their savings, the returns continue to come in April. But in May they don’t hear anything from the promoter. They try to contact him but his number has been disconnected.

The promoter has taken off leaving two devastated people in his wake. Katie lost $70,000 and Adam lost $90,000. The promoter got $160,000 out of the scheme.

This is example has only two victims but in reality these schemes can have dozens or even hundreds of victims.

Katie and Adam invest in a ponzi scheme

Month Katie Adam
January Invests $100,000
February $10,000 returned
March $10,000 returned Invests $100,000
April $10,000 returned $10,000 returned
May No contact No contact

The power of a Ponzi scheme

In this episode we take you behind the scenes of a Ponzi scheme where unbelievably good returns are offered to investors, the scheme operator seems to be trustworthy – but it’s all smoke and mirrors.
ASIC investigators Kaan Finney and David McArthur explain how Ponzi schemes work, how operators attract investors, how ASIC investigates and shuts down these schemes and most importantly, how can you can avoid getting caught up in a scheme.

transcript

What to do if you have invested in a ponzi scheme

  1. Stop investing any more money
  2. Check if the company is on our list of companies you should not deal with
  3. Check the company’s licence number on ASIC Connect’s Professional Registers.
  4. Report the scam to ASIC

ASIC may be able to prosecute the ponzi scheme operators if they are operating in Australia. ASIC may also be able to issue an alert about the scheme. You should also warn your family and friends, to stop them from becoming victims.

The biggest telltale sign of a ponzi scheme is the suspiciously high rate of return. That old saying applies here: if it sounds too good to be true, it probably is.

Before you invest in any scheme, do independent checks to see how the returns are really going to be made. Don’t just trust the word of the person selling you the scheme.

 

Reprodued from ASIC Moneysmart website

Understanding insurance: Protect what’s most important to you

Should something ever happen to you, personal insurance is there to provide financial security for you and your family. Find out about the insurance options available and some of the things you should think about when it comes to protecting what’s most important to you.

Choosing the right insurance

Choosing the right type and the right amount of insurance is a good way to make sure that if anything were to happen, you and your loved ones would be looked after financially. There are four types of personal insurance every Australian should understand. These include:

  • income protection
  • total and permanent disablement (TPD)
  • trauma cover
  • life insurance.

Learn more about choosing the right insurance

Insurance and super

Income protection, TPD and life insurance are available through most super funds.

And if you’re making super contributions through your employer’s default super fund, it’s likely your employer will have negotiated some cover for you.

While you may already have some insurance through your super fund, you need to make sure the type and amount of that insurance is suitable for your circumstances.

Learn more about insurance through your super

We’re here for you

In 2018, AMP paid $1.212 billion in claims across its trauma, life, terminal illness, total and permanent disablement, and income protection insurance plans. We have a proactive, fair and transparent approach to assessing claims and we’ll be there for you every step of the way if you need to make a claim.

See a sample of our claims amounts and the age groups of the people we paid claims to in 2018.

What kind of money parent are you?

Many parents approach the topic of money differently, but could your way of doing things influence your kids’ success?

The majority of Aussie mums and dads recognise that they’re accountable when it comes to shaping their children’s perspective around money matters.

A recent report published by the Financial Planning Association of Australia (FPA), revealed parents listed themselves (95%), followed by grandparents (63%) and teachers or coaches (59%) as the top three biggest influencers when it came to instilling money values in their kids1.

What money conversations are parents having?

As part of the research, parents said they mainly concentrated on day-to-day issues when talking money with their children, admitting that more contemporary issues, such as making transactions digitally, were sometimes overlooked2.

What parents said they discussed3:

  • 52% – how to spend and save
  • 43% – how to earn money
  • 32% – how household budgeting works
  • 24% – how much people earn
  • 19% – making online purchases
  • 13% – in-game app purchases
  • 5% – buy now, pay later services, such as Afterpay.

What approach do you take with your kids?

The research undertaken indicated that there were four prominent personalities parents assumed when discussing money with their children, with some parents initiating conversations more frequently, while others were sometimes a little more hesitant4.

The four distinct personalities that came out of the research included5:

The engaging parent

Common traits:

  • You have the most conversations around money with your kids and feel comfortable doing so
  • You tend to have a higher household income
  • You’re more likely to use money to encourage good behaviour in your children
  • Due to high engagement, your kids are often more financially prepared than other kids
  • Your kids have a greater interest in learning about all types of money matters.

The side-stepping parent

Common traits:

  • You are less comfortable talking to your kids about money so have fewer conversations
  • You may have less money coming in as a household
  • You’re less transparent about what you earn and money matters in general
  • You tend to provide the least amount of pocket money and as a result your children may be less interested in learning about money and how to make transactions.

The relaxed parent

Common traits:

  • You’re comfortable talking to your kids about money but don’t do so too often
  • You take a relaxed approach to money matters and are transparent about money issues
  • There is little financial stress in your home
  • Your relaxed nature may lead to your children missing out on opportunities to learn about money, which means your kids may need to explore money matters on their own.

The do-it-anyway parent

Common traits:

  • You’re not always comfortable talking about money but still have frequent conversations
  • You’re mainly concerned your child will worry about money if you talk about it
  • Despite your discomfort, your perseverance generally pays off
  • Your teenage children are more likely to have a job than the average child.

What approach is best according to the research?

Engaging parents were more likely to report that their children were more curious, confident, and financially literate than they were at their age6.

According to parents who fell into this category, their children were the most equipped to understand and transact in today’s digital world and their teenagers were the most likely to have a job and make online purchases for themselves or their family7.

In addition, the research found children with a paid job outside of the family home were more financially prepared to engage with money8.

They were also used to transacting digitally and showed greater interest in learning about paying taxes and superannuation than those who didn’t have a job9.

2019-20 Federal Budget roundup

Grow My Wealth | 03 April 2019

Find out how the measures announced in the 2019-20 Federal Budget could affect you

Federal Treasurer Josh Frydenberg has handed down the Morrison Government’s first Federal Budget. Among the proposed changes were personal income tax cuts and changes to super rules.

Read on for a round-up of the proposals put forward and a look at how they might affect your household expenses and financial future, whatever your stage of life.

Remember, at the moment these are just proposals and could change as legislation passes through parliament.

Tax

Personal income tax cuts

The government is proposing to expand the personal income tax cuts that have been legislated from the 2018-19 budget. These tax cuts will particularly benefit low-to-middle income earners.

The indicative tax cuts in 2018-19, compared to 2017-18, are as follows.

Reduction in tax paid – individuals

Taxable income Tax reduction
$30,000 $244
$50,000 $1,080
$80,000 $1,080
$90,000 $1,215
$120,000 $315
$130,000 $135

These cuts will be achieved through a combination of changes to tax offsets, adjustments to personal income tax brackets and marginal rates.

Changing tax thresholds and marginal tax rates

  • From 1 July 2022, the top threshold for the 19% marginal tax bracket is proposed to increase to $45,000.
  • From 1 July 2024, the government proposes to reduce the current 32.5% marginal tax rate to 30%.

Increasing the Low and Middle Income Tax Offset (LMITO)

  • For the 2018-19 to 2021-22 tax years, the LMITO will increase to provide tax relief of up to $1,080 per year to low and middle income earning Australians.

Increasing the Low Income Tax Offset (LITO)

  • From 1 July 2022, the LITO is proposed to increase to $700.

New proposed personal tax rates and thresholds

Marginal tax rate (%) Thresholds – income range from 1 July 2018 Thresholds – income range from 1 July 2022 Thresholds – MTR (%) and income range from 1 July 2024 ($)
0 0 – 18,200 0 – 18,200 0% 0 – 18,200
19 18,201 – 37,000 18,201 – 45,000 19% 18,201 – 45,000
32.5 37,001 – 90,000 45,001 – 120,000 30% 45,001 – 200,000
37 90,001 – 180,000 120,001 – 180,000
45 >180,000 >180,000 45% >200,000
LMITO Up to 1,080
LITO Up to 445 Up to 700 Up to 700

Effective tax-free threshold 2018-19

LITO and LMITO (Individuals below Age Pension age) – $21,884

Increasing and expanding SME access to the instant asset write off

The instant asset write-off threshold is increasing from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.

Small businesses (aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from budget night to 30 June 2020.

Medium sized businesses (aggregated annual turnover of $10 million or more but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from budget night to 30 June 2020.

However, medium sized businesses must also acquire these assets after budget night to be eligible.

 

Super

The government has proposed a number of measures to make it easier for Australians aged between 65 and 67 to top up their super.

Super contribution work test to apply from age 67

Currently, people aged 65 to 74 must be in paid work for a minimum of 40 hours in any consecutive 30-day period in the financial year to make voluntary super contributions.

From 1 July 2020, this ‘work test’ will only be necessary where contributions are made by people aged 67 to 74.

This proposed change means that people aged 65 or 66 who don’t meet the work test because they, for example, only work one day a week, or do volunteer work, will be allowed to make voluntary concessional and non-concessional contributions to their super.

Age limit for ‘bringing forward’ non-concessional contributions increasing to 67

The government is proposing to extend the ‘bring-forward’ rules which allow Australians aged less than 65 at the start of the financial year to make up to three years’ worth of non-concessional contributions to their super in a single financial year.

From 1 July 2020, the bring-forward rules will be extended so they also apply to people aged 65 and 66 at the start of the financial year.

 

Age limit for spouse super contributions increasing to 74

Currently, Australians aged 70 years and over cannot receive contributions made by their spouse on their behalf. The government is proposing to increase the age limit for spouse super contributions from 69 to 74 years from 1 July 2020.

Spouse super contributions are counted towards the receiving spouse’s non-concessional contribution cap. It is expected that the receiving spouse will need to continue to meet the work test from the work test age (please see above).

 

Medicare levy changes

While the Medicare levy remains unchanged at 2% of taxable income, the thresholds for low-income singles, families, and seniors and pensioners will increase in the 2018-19 income year.

The threshold for singles will increase to $22,398. The family threshold will increase to $37,794 plus $3,471 for each dependent child or student.

For single seniors and pensioners, the threshold will increase to $35,418. The family threshold for seniors and pensioners will increase to $49,304 plus $3,471 for each dependent child or student.

Social security

Help with paying energy bills for Australians on income support

Individuals in receipt of a qualifying income support payment will receive a one-off Energy Assistance Payment of $75 for singles and $125 for couples (combined) to assist with energy bills.

Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, Veterans’ Service Pension, Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004.

 

Aged care

The government has allocated $320 million for a one-off increase to the basic care subsidy for aged care residents.

Also, 10,000 extra home care packages will be released over the next five years.

Want to learn more?

Remember, at this stage these are proposals which may change as they pass through Parliament.

If you’d like more information about the budget measures you can:

Your financial adviser can also help explain how the budget proposals might affect you. If you don’t have an adviser, we can help you find one.

Payment demanded by gift card? It’s a scam

Gift cards are increasingly the payment method of choice for scammers. Scamwatch reports show more than $5 million was lost in 2018, a 38 per cent increase compared with 2017.

iTunes cards accounted for $3.1 million in losses — a 156 per cent increase from the $1.23 million reported in 2017. However Scamwatch has also seen an increase in reports involving other gift cards such as Google Play, Amazon, and Steam cards, and Australia Post Load & Go prepaid debit cards.

Losses to scams where non-iTunes gift cards were used as payment increased by 530 per cent in 2018 to around $1 million.

“Scammers like to get gift cards as payment as it’s easy for them to quickly sell them on secondary markets and pocket the cash,” ACCC Deputy Chair Delia Rickard said.

“It’s concerning that the scammers are now demanding payment in other forms of gift cards. This is likely in response to scam warnings about using iTunes cards for paying scammers that are in stores like supermarkets and on the cards themselves.”

“It’s clear the scammers are diversifying their payments to try get around these warnings, so it’s vital people are aware that no legitimate company or government agency will ever ask you to make a payment with any sort of gift card,” Ms Rickard said.

There are several common types of scams involving gift cards:

ATO impersonation scams

  • The scammer pretends to be from the Australian Taxation Office and claims there is a warrant for their victim’s arrest. The scammer asks the victim to pay an immediate ‘fine’ using gift cards or bitcoin, and claims police will come and arrest them if not.

Catch-a-hacker scam

  • The scammer calls and pretends to be from a law-enforcement agency or internet provider and convinces the victim they are trying to trace the location of a hacker who has compromised the victim’s computer. They claim they can do this by sending money from the victim’s bank account or via gift card serial numbers.

Victims are also tricked into giving up personal details with the promise of gift cards. Scammers entice victims to participate in surveys by promising gift cards as a prize, however the surveys extract personal information such as your name, date of birth, address details and even financial details like your credit card or bank numbers.

“If anyone asks for payment using a gift card, it is a scam, simple as that,” Ms Rickard said.

“If you paid a scammer with a gift card, report it as soon as possible. Call the company that issued the gift card and tell them the gift card was used in a scam. It’s very difficult to get your money back but the sooner you report it, the better your chances.”

Businesses that sell iTunes, Google Wallet and similar gift cards are encouraged to inform their staff about these scams so that they can help warn customers.

“If staff are informed they can identify the warning signs of a scam when they notice a customer spending large amounts of money on gift cards,” Ms Rickard said.

Further information is available online about where to get help. People can also follow @scamwatch_gov on Twitter and subscribe to Scamwatch radar alerts.

Dividends, franking credits and retirement income goals

By Jeff Rogers

Previous Chief Investment Officer, ipac (retired)

 

The Labor Party’s proposal to eliminate cash refunds for excess franking credits continues to generate lots of discussion by self-funded retirees and members of self-managed super funds (SMSFs) even after some refinements that narrow its impact.

The stated policy intention is to broaden the tax base by eliminating what is described as an anomaly in the operation of the current system. It may also be targeting perceived issues of intergenerational equity and be trying to further curb the growth of self-managed superannuation. None of that sounds too contentious, so why all the angst?

Dermot Ryan has recently discussed the implications of the proposed changes and the actions that SMSF members might consider taking in response. I have previously expressed my view on whether cash refunds for excess franking credits do indeed represent an anomaly. The aim of this article is to try to explain why there is concern among a large group of retirees. I contend that there are both emotional and financial reasons for this.

Doing the right thing

Research in behavioural finance has explored how the emotional needs of investors influence their behaviour. I believe that an expression of loyalty and patriotism, along with comfort from a sense of familiarity, are important factors driving the investment choices of retirees. The home country bias in SMSFs can be interpreted as reflecting an emotional preference for investing in one’s own country. Remember that during the 1990s Australians were actively encouraged to become shareholders in privatised and demutualised domestic entities.

Retirees are clearly affronted by any suggestion that they have been rorting the tax system through the receipt of cash refunds for excess credits. They feel they have been obeying all the rules over the past two decades and have been doing the right thing by allocating capital domestically.

Members of SMSFs see themselves as unfairly targeted since their contemporaries with similar financial resources, but whose superannuation is held within large funds regulated by the Australian Prudential Regulatory Authority, are unlikely to be impacted by the proposals. Worse still, many self-funded retirees are of an age where they are not permitted to change the location of their assets to shield themselves from the effect of the proposal.

Impacts on consistency of cash flows

From a financial perspective, it is apparent that many retirees would see a reduction in the after-tax return on their Australian shares if Labor’s proposal were to be implemented. What is less well appreciated is that it would likely also lead to an increase in the variability of cash flows delivered from their retirement portfolios. Australian companies with large and sustainable dividends turn out to be particularly attractive investments for retirees looking to fund a reliable income stream in retirement.
This observation isn’t entirely intuitive to people schooled in thinking that risk and portfolio volatility are one and the same. From a goals-based perspective, portfolio volatility and the risk of failing to meet a retiree’s essential spending goals represent different concepts.

In a recent whitepaper, Darren Beesley notes that a key goal for retirees is to maintain confidence that they will be able to draw consistent cash flow, growing with the cost of living over time, from their retirement portfolio. The capacity to take investment risk and the appropriate characteristics of those risks are informed by their spending goals. A retiree’s investment problem is different to that of an accumulator who has a predictable sequence of future inflation-linked contributions.

Correlation between Australian shares and retirement goals

So, why is investment in a portfolio of profitable companies whose shares have attractive return prospects, and where a large proportion of that return is delivered through sustainable dividends and associated imputation credits, so well-suited to reliably fund a retirees’ spending goals?

First, shares of such companies can deliver attractive returns on a standalone basis. If history is any guide, portfolios with these characteristics are likely to have a superior total return per unit of investment risk relative to a traditional equity portfolio.

Second, and most importantly, spending on essential needs in retirement has the characteristic of a series of cashflows that rise with the cost of living over time. A retiree needs to fund these cash flows through income from their security holdings supplemented by the progressive sale of assets. Consequently, a share portfolio that generates a high level of sustainable dividends and imputation credits has very attractive attributes because it reduces, or potentially eliminates, the need to sell assets at times of weak asset prices.

Shares with these characteristics may not only improve the reliability of retirees’ financial outcomes but also deliver favourable behavioural benefits by restricting the extent to which volatility of markets is transmitted into uncomfortably large variability of future cash flows from their portfolios. That’s why the implementation of Labor’s proposal could be financially disruptive for a large cohort of retirees.

Possible outcomes

Some commentators have suggested that Australian super funds are over-invested in Australian shares and it would be a good thing if that exposure were to be reallocated to other asset classes, especially global equities. This may well be sound advice for an accumulator in super or a wealth-maximising investor looking for high total return while limiting overall portfolio volatility. However, it isn’t quite right for a retiree looking for confidence in their spending power. Further, retirees looking to reallocate offshore need be thoughtful about the type of shares in which to invest.

Ironically, our goal-based analysis suggests that if there is a desire to reduce access to franking credit it would be better if restrictions were to apply in the accumulation phase of superannuation rather than in the pension phase. That’s unlikely to happen. What may be more likely is that Labor responds to community concerns by allowing self-funded retirees some limited access (say up to $5,000 per year) to refunds on excess credits.

How to avoid some of the credit card traps

By Noel Whittaker | 15 March 2019

See why credit cards can create issues for travelers, families and retirees alike.

Love them or hate them, the fact remains that credit cards are a necessity for most people.

You can hardly book accommodation, airfares or a rental car without them and they take the worry out of carrying cash when you shop. Still, you still need to be aware of the traps.

A classic is having just one credit card when you are travelling and finding it blocked when the hotel demands you hand it over at check-in, to guarantee any purchases you may make while you are staying there.

Another major problem is supplementary cards.

To save on fees, many families have one main credit card, with the partner and other family members using supplementary cards.

Unfortunately, with many cards, all associated cards are blocked as soon as one of the cards becomes lost or stolen. This can be particularly embarrassing if you’re travelling overseas.

Obviously, the solution is for couples to have individual credit cards but, as a recent email from a reader points out, it is becoming increasingly difficult for retirees to qualify for a credit card.

She wrote: “My husband and I have had a 40-year association with a major bank, have paid off numerous loans, and have a history of never missing a payment.

We are 62 and 73 and are self-funded retirees with substantial assets.

After reading your articles, I decided to apply for a credit card in my own name, which has to be done online. It was declined by the bank’s computer on the grounds I had no taxable income.

I can’t see the logic of this, and am concerned that my 40 years’ loyalty with the bank appears to count for nothing.

The bank’s decision makes me feel discriminated against — both as a married woman and a grandmother. Do you have any ideas how I can overcome this absurdity?”

I telephoned the bank on her behalf and spoke to one of their senior people, who promised to look into it. Within five days I received an excited email from the reader telling me that a credit card in her own name had been approved. She was over the moon!

I phoned the executive I’d been dealing with to relay the good news and asked him the obvious question: what is the mechanism for a person in her situation to get a credit card?

There is a Plan B

It’s ridiculous to expect that the only way for a card to be approved is for somebody in the media to bring it to the bank’s notice.

To his credit, he was most helpful. He suggested that the first line of attack should be to go to a bank branch, talk to a staff member face-to-face, and make sure all details of the conversation are recorded.

In most cases, this should solve the problem. But if it doesn’t, he also suggested a Plan B.

Apparently, all the major banks have an Advocate, whose job is to handle matters such as this for aggrieved customers.

Seek the help of the Advocate

Anybody who feels they have been badly treated can contact the Advocate, who will investigate the case and help the customer achieve an outcome that works for both parties.

I must confess that this is a term which is new to me but if you do a web search you will find every bank’s Advocate is clearly shown.

I guess it’s good to know that in this age of computers we still have a human avenue of appeal if needed.

 

This article was originally published by The Sydney Morning Herald on 3 February 2019. It represents the views of the author only and does not necessarily reflect the views of Tailored Lifetime Solutions.

5 REASONS WHY SMALL BUSINESSES FAIL

By Flying Solo contributor John Refalo

For many people starting a business is a dream but, at the same time, a significant risk when not done properly.

While we see a number of clients citing issues with the Tax Office as the catalyst for problems that upend them, there’s many reasons why a business can fail.

Let’s now explore what I believe are the five most common reasons why businesses fail.

1. YOU HAD POOR PLANNING

We may be sick of that saying “Businesses don’t plan to fail, they fail to plan” but this rings true. This is why we need a business plan—a good start is the template found on www.business.gov.au. To summarise quickly, a business plan is a document that goes through every aspect of your business, from establishing your vision and mission statement, to industry analysis and all the way to specifics like budgeting, employees, and expenses.

Spending adequate time creating a business plan will give you complete understanding of your business. You may be reading this now thinking “I am the owner … of course I know my business”. That may be true but a business plan forces you to:

  • Consider your capital requirements;
  • Define the direction that your business is going to take (vision, mission statement);
  • Examine how your business is perceived in the market (quality, cost);
  • Consider how you set yourself apart from your competitors (unique attributes);
  • Deal with current and future threats to your business;
  • Manage your income and expenses through budgeting;
  • Consider finance arrangements to fund your part or all of your business;
  • Consider opportunities in the industry/economy; and
  • Define the employees’ roles and who is responsible for helping you achieve your direction.

This document is so important that even the banks require it when providing finance!

And while it’s up to you if you adopt one to this extent, or at all, spending some time looking at this (at least once a year) will hopefully change your focus on the ‘what’ you do in business to ‘why’ and ‘how’ you do business.

2. YOU FAILED TO BUDGET

Simply put, a budget will quickly tell you if you should be in business or not. It maps out your income and expenditure over a period of time which is especially crucial for those businesses that have cyclical or seasonal fluctuations (i.e. hospitality, agriculture, etc). By estimating the amount of revenue, or the peak periods when revenue is generated, businesses can see how much revenue is needed to keep the business alive during the slower months. On the flip side, focus on expenses is just as important (paying employees, meeting financial obligations, paying taxes) because it highlights what a business can afford.

3. YOU FORGOT TO COLLECT YOUR CASH!

Unless you are a ‘Not-for-Profit’, you are in business to make money. So when you complete a job, you expect to be paid for it … right?

These days, a lot of businesses operate on credit terms – sometimes necessary to secure customers. But when payment is due, a number of businesses are not doing enough, if anything, when collecting their debts!

I recently worked on the administration of a plumber that had a majority of ‘mum and dad’ customers on credit terms on its books accounting for $60,000 which was overdue. Had the owner followed up his customers and collected this amount, a lot of his short-term cash flow problems  could have reduced.

4.  YOU TOOK (A BIG) WAGE

Business owners usually have a lot of sentimental attachment to their business, and for good reason. Some people pour their blood, sweat and tears into it. It’s for this reason that some business owners will use their business’ money as if it was their personal bank account.

This can have pretty serious consequences. For example I have seen businesses been used to pay for personal holidays, lavish lifestyles, mistresses, mortgage repayments and even a burial plot!

Diverting money from the business’ needs and focusing it on your own, limits the money available to grow your business, let alone to trade it! So next time, take a (reasonable) wage and once it hits your bank account, do whatever you want. We will revisit the seriousness of these personal transactions using a business’ funds in a future article.

5.  YOU DIDN’T SET YOUR PRICE APPROPRIATELY

A tricky question for business owners is: how can I price my product or service so I cover my costs but at the same time stay competitive? This is important because properly pricing your product or service determines how much profit you can make.

Specific budgets can help here on project-focused work where materials and labour are estimated, a percentage of meeting overheads (those costs not directly attributable to the job), provisions, and then applying a margin (a formal way of saying “the cream on top”).

If business owners take the time to price appropriately, they can see where their costs are being incurred and, more importantly, if they are undercutting themselves. There is no shame in walking away from a job because it is not profitable.

While there are many other issues that can be attributable to business failure, the above issues are what I believe are common for business owners, especially those starting out.

 

About Tailored Lifetime Solutions:

At Tailored Lifetime Solutions we pride ourselves on staying true to our core values of:

  • Genuine Care
  • Keeping it simple and
  • Providing Security and Peace of Mind.

Tailored Lifetime Solutions has been helping Australians secure their Financial future for over 18 years. We understand each of our clients is unique and as such require tailored financial advice to meet their needs. We work to partner our clients on their financial journey, to ensure financial fitness throughout life’s various stages and secure your future financial security.

With over 70 years of financial planning experience between us, our areas of advice include:

  • Wealth creation
  • Lending and mortgage broking
  • Superannuation advice
  • Self managed superannuation funds
  • Aged Care advice
  • Lifestyle financial planning

Providing quality financial advice in Balwyn and the Eastern Suburbs for almost 20 years.

Important information

This information is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Source :Flying Solo  February 2019

This article by John Refalo is reproduced with the permission of Flying Solo – Australia’s micro business community.