Winter Newsletter 2019

Inside….

The ‘what, why and how’ of

contributing to super

Is household debt consuming you?

Dollar cost averaging 101

What is your aged care funding

strategy?

You CAN afford a holiday?

Best ever Caramel Slice

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Welcome The Winter rains are here, and the end of the 2019 financial year is nigh!! Before we get into the

contents of this Winter Newsletter, two very important reminders:

1 Make your last-minute super contributions NOW. Leaving it to the last week may be too

late as some processing times and cut off dates have been getting earlier each year!

2 Is your Life, Total and Permanent Disablement and Salary Continuance insurance safe?

If you hold your insurance inside a superannuation fund and that fund has been continuously

inactive for 16 months as of 1 July 2019, your insurance policy will be cancelled. You must

actively instruct your super fund to keep your cover. If you have received a letter regarding

the new ‘protecting your super’ legislation from your super fund, do not ignore this letter.

Call our office if you require assistance or clarification on how this legislation may impact you.

After the federal election, in this Winter Newsletter, we cover superannuation, household debt,

dollar cost averaging and aged care funding. On a more positive note, we show ways to help

afford a holiday and provide a yummy caramel slice recipe!

o The ‘what, why and how’ of contributing to super - With so many actual and

intended changes to super in recent times, it is hard to keep up with what you can and can’t

do. Focusing on the present, this article provides a fresh overview of the current

superannuation contribution options.

o Is household debt consuming you? - This article discusses the timely topic of

household debt and provides an explanation of good debt vs bad debt, lists warning signs to look out for, and provides solutions to take back control.

o Dollar cost averaging 101 – A short, simple explanation of dollar cost averaging.

This is a process to help reduce the impact of investment market price volatility.

o What is your aged care funding strategy? - This article is a summary of the

costs associated with aged care, highlighting the need to be aware of the little incidentals

charged as extras that can have an impact. It also discusses the point that, in our aging

population, those seeking aged care for older loved ones, may soon be in the same boat and

how a financial adviser can help.

o You CAN afford a holiday! - Some excellent ways to afford overseas travel.

o Best ever Caramel Slice – Ok, let’s be honest, everyone likes a little bit of caramel

slice. Just limit the portion size to keep the diabetes away.

Should you wish to discuss any of the articles in depth, as usual, please do not hesitate to contact

me on 08 9322 3325 or email sheree@prioritywealth.com.au. Sheree Hart is a Director and

Authorised Representative of Priority Wealth Advisers Pty Ltd (AFSL 508998)

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Despite frequent changes to its governing rules,

superannuation remains, for most people, a tax-

effective environment in which to save for retirement.

Here’s a quick Q&A on the what, why and how of

contributing to superannuation from this point on.

Why should I contribute to super?

Some super contributions and the investment earnings within super funds are taxed at 15%. As this is lower than the marginal tax rate for people earning more than $18,200 per annum, less tax is paid on the money going into super than if it was paid to you as normal income. The higher your marginal tax rate, the greater the benefit.

What types of contributions can I make?

Concessional contributions. These are contributions on which you or your employer has claimed a tax deduction. They are taxed at 15% within the super fund. If you earn more than $250,000 p.a. you will be taxed an additional 15% on the concessional contributions above this threshold. Concessional contributions include:

o Compulsory employer (Superannuation Guarantee) contributions. Your employer must pay 9.5% on top of your ordinary time earnings to your super fund when you earn more than $450 per month.

o Salary sacrificed contributions made from your pre-tax income.

o Personal contributions on which you claim a tax deduction.

Low Income Superannuation Tax Offset (which is actually a refund) on the tax you’ve paid on contributions. It applies if you earn less than $37,000 per annum and is capped at $500. This is paid to your super fund and prevents your super contributions from being taxed at a higher rate than your normal income.

Cap: $25,000 pa. The unused portion can be carried forward and used in future years if your total super balance is under $500,000.

Non-concessional contributions. Contributions on which a tax deduction has not been claimed, including:

o Personal contributions on which you do not claim a tax deduction, for example those in excess of the concessional cap or you are seeking a government co-contribution.

o Spouse contributions. These can generate a tax offset of up to $540 if your spouse earns less than $40,000 pa.

The ‘what, why and how’ of contributing to

super

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o Government co-contributions. Worth up to $500, co-contributions are available if your taxable income is less than $53,564 p.a. and you make a non-concessional contribution.

Caps: $100,000 pa, or $300,000 if a further two years of contributions are brought forward.

Note: you cannot make non-concessional contributions if your total superannuation balance exceeds the general transfer balance cap (the amount that can be transferred to pension phase), currently $1.6 million.

Who can contribute to super?

You can make personal contributions to super if:

• you are under 65 years of age;

• you are aged between 65 and 75 and were gainfully employed (including self-employed) for at least 40 hours over 30 consecutive days during the financial year.

You can claim a tax deduction for these contributions, but make sure you don’t exceed the $25,000 annual cap for concessional contributions from all sources; or the $100,000 cap on non-concessional contributions.

Spouse and government co-contributions can only be received up to age 70 provided you pass the work test.

You are eligible for mandated employer contributions, including Super Guarantee payments, regardless of your age.

Get it right

A successful super contribution strategy can mean the difference between looking forward to retirement and dreading it. This article is provided as an overview. Super is a complex area and further rules apply in some situations. Getting things wrong can be costly so talk to your qualified financial planner and get the right advice on the best ways to boost your super.

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Is household debt consuming you? By the end of 2018 Australia had, relative to the size of its overall economy, one of the highest levels of household debt in the world. At 127% of gross domestic product (GDP), our household debt, as a percentage of GDP, had nearly doubled over the last 20 years.

So are Australian households groaning under the weight of oppressive levels of debt? For the most part the answer is no. A major reason for the increase in household debt is that interest rates are much lower than they were 20 years ago, so it’s easier to service larger loans. And over 90% of our household debt is owner-occupied home loans and investment loans.

Good debt, bad debt

Home loans and investment property loans are often referred to as ‘good’ debt because, when used responsibly, they (usually) improve wellbeing and build wealth over the long term. That said, poor choices or unfortunate changes in circumstances – borrowing too much, loss of a job or an increase in interest rates for example – can see ‘good’ housing debt turn ‘bad’.

Another type of bad debt is lifestyle debt. This has a negative impact on wealth because the debt is being used to buy things such as cars and clothes, holidays and groceries – that lose value rather than gaining it. In today’s world it’s easy to accumulate bad debt.

Temptation galore

Credit cards, digital wallets on our phones, payday loans and buy-now-pay-later options all make it easier to spend money, even if it’s money we don’t have. Relentless, targeted advertising, the fear of missing out, the increasing level of peer pressure enabled by social media or just paying for daily essentials are all capable of leading us into spiralling debt.

Is debt consuming you?

Some warning signs that you have a debt problem include:

• Not paying off your credit card in full each month. This means you will be paying a high rate of interest on the carryover balance.

• Your total debt is increasing, along with your interest payments.

• You’re experiencing housing stress. This means rent or mortgage repayments consume more than 30% of your pre-tax household income.

• You’re using debt to fund basic living costs.

Taking control

How do deal with your particular debt problem depends very much on personal circumstances.

• Track your spending. Australians buy huge amounts of clothes they don’t wear, food they don’t eat and gadgets they don’t use. For every purchase ask yourself, “do I really need this?”

• Take out a lower interest rate personal loan to pay off high interest debts such as credit cards. Repay the loan as quickly as possible.

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• If you have a home loan, make sure it has a linked offset account that you use for everyday banking. You only pay interest on the difference between your loan balance and offset account balance so all of your money is working to pay down your loan.

• Review your home loan regularly. You may be able to refinance at a lower interest rate. Check for all the fees involved.

• Talk to your financial adviser. They can look at your specific situation and recommend strategies that will put you in control of your debt rather than having debt consume you.

Are you interested in the state of Australia’s financial health, check out this website:

https://www.australiandebtclock.com.au/

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Dollar cost averaging 101

It’s easier to show how this works, than explain it. Here’s an example of investing $250 a month

for 12 months into a hypothetical managed fund.

Month Unit price Units

purchased

1 $3.00 83.33

2 $2.80 89.29

3 $2.50 100.00

4 $2.60 96.15

5 $2.10 119.05

6 $1.98 126.26

7 $2.30 108.70

8 $2.45 102.04

9 $2.80 89.29

10 $3.00 83.33

11 $2.95 84.75

12 $3.00 83.33

Total 1,165.52

At the end of the investment period, $3,000 has been added to the portfolio, but because more

units were purchased when the market was down, the investor has bought 165 more units than

they would have if they had invested everything on day 1. At the end of the time the value of the

investment stands at $3,496.56 ($1,165.52 x $3). This is a 16.6% return - even though the unit

price has only come back to its starting point.

Dollar cost averaging doesn’t always provide the best outcome or generate a positive return. In a

rising market, there will often be periods when it doesn’t pay off. In turbulent times, when markets

are flat or declining, dollar cost averaging into a diversified managed fund may well be the sensible

way to unearth those hidden bargains.

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What is your aged care funding strategy? We’re an ageing population; the media keeps reminding us, as does the government, but are we prepared for what this means? As a society? As individuals? One thing’s for sure – it’s something we cannot ignore.

According to the Australian Bureau of Statistics, in 2018 over 3.9 million Australians were aged 65 and over.

Consider for a moment: this figure shows those people contemplating aged care for elderly family members are fast approaching the age when they’ll need it themselves.

Sobering thought.

What this means is that as aged care becomes increasingly important, the need for aged care facilities is growing proportionately. As demand out-grows supply, costs associated with residential care can only go one way.

Fees are regulated

There are strict regulations governing aged care fees and charges. Aimed at consumer protection, a degree of flexibility within the guidelines enables aged care facilities to adapt the fee structures to meet their own financial pressures.

So as we age, and as we begin to consider the future care of not only ourselves but our older loved ones, what can we expect to pay?

To help you estimate the costs

The government provides an online Residential Care Fee Estimator to help you estimate aged care costs here http://www.myagedcare.gov.au/estimate-fees-for-aged-care-services. As for the type of fees, depending on the facility, one or more of the following may apply:

Type of fee Included

Daily basic Living costs such as meals, power, laundry.

Means-tested An additional contribution towards cost of care determined by Department of Human Services (DHS) and based on your means-tested income and assets.

Accommodation The government may cover part or all of this as determined by DHS income and assets means-test.

Extras/additional options Applies where higher accommodation standards or additional services are required. Variable depending on the home and available facilities.

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Watch out for “extras”

Although the government capped annual and lifetime means-tested fees, additional charges to cover extras like hairdressing, internet access, excursions, etc, can apply. It’s important to check with the facility first to find out how these extra services are offered and their associated costs. They can sometimes be disproportionate to the services supplied and add up to a substantial amount. Aged care providers must give itemised accounts to the resident breaking down each of these services and the associated charge. Legislation also states that these fees cannot be charged more than one month in advance.

Plan to make it easier

The desire to provide loved ones with the best possible living conditions sometimes forces older people to sell their homes to afford care for an aging partner. Not only can this affect the age pension they receive, but can see the partner not in care seeking accommodation with relatives or alternative housing – a heartbreaking situation for someone wishing to leave an inheritance behind.

The focus on self-funded retirement doesn’t always consider increasing life-expectancy and what happens beyond pension-funding projections.

This is where your financial adviser can help. Indicative of our times, strategies for wealth creation with extended pension horizons are increasingly relevant. They help to support appropriate income levels so you are less likely to need a lump sum withdrawal from your investment portfolio.

You’ve heard it before: you’re never too young to plan your future. But you’re never too old either!

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You CAN afford a holiday! Are TV travel documentaries not close up and personal enough for you? Would you prefer to

actually be there, immersing yourself in the environment, amongst the people, eating local

delicacies, but you’re not sure if your budget can take you further than your lounge room?

An overseas holiday doesn't have to be outrageously expensive, especially if you follow these

money saving tips. You may be surprised how far your money can take you.

Research your options

• Shop around. Go online and find the best deals without leaving your mouse. Seeking expert advice from a travel agent could also save you time.

• Consider a travel package which includes flights, accommodation and meals. Often packages are cheaper than purchasing each component individually.

• Choose a destination that doesn't have a big impact on your budget. South East Asia, New Zealand and the South Pacific are cost-effective destinations for Australian travellers.

• Consider choosing a venue that offers free activities, such as an island resort.

• Time your travel

• Travel off peak. Some argue the weather doesn’t seem to follow the same patterns these days, so travelling off season may be a good option to save on flights and accommodation and still enjoy good weather.

• Plan your trip well in advance and book early. The closer you get to your departure date, the more expensive travel costs are likely to be.

• School holidays coincide with higher costs, as well as bigger crowds. If you don’t have to travel with children, steer clear of these times.

• Save money on flights

• Make the most of discounted flights but check terms and conditions carefully. “Discount” airfares have “add-ons” such as paying for seat allocation

and luggage which make the promoted fare much higher.

• Subscribe to the airlines’ “special deal” emails and act fast. There are restrictions on travel dates, but the savings can be extraordinary if you’re flexible.

• Book with the airline or hotel directly. They don’t have to pay commissions so will often give you a better deal than Trivago or one of those online services..

Be budget savvy with accommodation

• Check out accommodation websites. Type “discount accommodation” into your favourite search engine. The choice is astounding - but be aware that sometimes their “best deals” aren’t always the cheapest. Contacting the accommodation provider direct might save you even more.

• Rent a fully-equipped holiday home or a serviced apartment rather than staying in a hotel.

• Consider staying several nights in one location to take advantage of discounted weekly rates or deals like “buy 5 nights, get 2 nights free”.

• Better still, arrange to house-sit or house-swap at your holiday destination and your accommodation could be free! There are many websites available offering these services.

With these money-saving tips, the most expensive thing you’ll do for your next overseas trip is

renew your passport!

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Best ever Caramel Slice

Ingredients:

• 1 cup (150g) plain flour

• ½ (110g) brown sugar

• ½ cup (40g) desiccated coconut

• 125g butter, melted

• 100g butter, extra

• 2 x 395g cans Sweetened Condensed

Milk

• 1/3 cup (80ml) golden syrup

• 200g Premium Dark Chocolate, melted

• 1 tbsp vegetable oil

Method:

Step 1 Preheat oven to 180°C (or 160°C fan-forced). Lightly grease an 18cm x 28cm

lamington pan and line with baking paper.

Step 2 In a medium bowl, combine flour, sugar and coconut. Add melted butter, mix well.

Press mixture firmly into prepared pan. Bake for 15-20 minutes until lightly browned.

Cool.

Step 3 Place extra butter, sweetened condensed milk and syrup in a medium saucepan. Stir

over low heat until smooth. Pour over base. Bake for 20-25 minutes until golden. Cool.

Step 4 Combine premium dark chocolate and oil, stir until smooth, pour evenly over slice.

Step 5 Cool in fridge or on the bench in winter and when chocolate is set, cut into squares and

serve with your favourite hot beverage.

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If you wish to provide a favourite recipe for our next publication, please email lisa@prioritywealth.com.au

Disclaimer This publication has been compiled by Padash Pty Ltd as trustee for the PDS Trust trading as Priority Wealth. Priority Wealth is a Corporate Authorised Representative of Priority Wealth Advisers Pty Ltd (AFSL 508998). The information provides general education only. The content does not take into account your personal objectives, financial situation or needs. You should consider seeking financial advice tailored to your personal circumstances. This publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose. Any taxation or legal position described in this publication is general and should only be used as a guide. It does not constitute tax or legal advice and does not replace the need to seek independent professional tax and legal advice for your personal situation.