How much is enough?

How much income you will need in retirement may well be THE most important queation you should ask yourself when considering your finacial future. We find that our clinets initially have a vey hard time projecting this into the future, or even working out their current expenditure.

Most people don’t have a good idea of what expenses they will incur in retirement until they actually get there, so using a standardised measurement, such as the ASFA Retirement Standard, as a guide can help clients to plan properly.

The ASFA study considers how much is needed to fund a “modest” and a “comfortable” retirement income and is updated each quarter. Figures released for the December 2010 quarter show the following income requirements.

Modest retirement for a single: $21,218
Comfortable retirement for a single: $39,393

Modest Retirement for a single: $30,708
Comfortable retirment for a couple: $53,879

Even at the comfortable level this does not represent a lavish lifestyle. For example, a “comfortable” retirement income for a couple only includes $187.14 for food and $303.28 for leisure in their weekly budget. This means careful budgeting and expenditure management is still required.

These figures also assume the person owns their own home. Higher income is needed for those renting or still paying off debt. Thesae figures also are in today's dollars, and don't take into consideration inflation. So, if you were 40 (a good age in my book), a comfortable retirement for a couple would require nearly twice as much, or close to $110,000 per annum, by the time you get to 65, assuming prices growth of only 3% per annum.

Finally, then you need to work out the lump sum required to pay this income for life.

You can see why starting as earlier as possible, even if you don't think you are 'rich enough' to plan for the future, is so important.

We welcome any comments.

Price versus Value

Whenever we price a purchase of any kind, we make a decision about its relative value. Then we buy or don’t buy at that price.

The reasons behind that decision will either be the direct value of that item e.g. a heater that will warm us in this cold weather; or the indirect value of the purchase e.g. keeping up with the neighbour's giant plasma TV (even if that purchase ends up being useful, it was driven more by ego value).

The ‘fairness’ of the price is a reflection of that value.

When considering the ‘price’ of insurance solutions that we propose to our client's, we aim to ensure that we draw their attention to a clear relative value of the purchase.

We now run a well-structured package of products that should pretty much replace the family’s current income in most circumstances. So if the total premium for that package is say, 4% of your current household income, would that not be seen as value?

Further, while we often hear people say they 'can not afford' insurance, we ask ourselves, how they would meet their living needs if they weren't receiving an income?
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12 Tax Time Steps - Part 2

Recently we briefly discussed 8 super strategies for year end. We now offer a further 4 tax strategies. As with the super ideas, these are general in nature, and professional advice should be sought before looking to implement.

Strategy 9.Use losses to reduce capital gains.
This is suitable if you have some loss making investments that no longer meet your needs. You can save some tax, and free up more funds to invest.

Strategy 10. Defer asset sales to manage CGT.
If you are thinking of selling an asset this financial year, deferring to next financial year can delay when the tax needs to be paid. It may further provide for an opportunity to reduce the CGT as well.

Strategy 11. Pre-pay interest on a investment loan.
If you have a geared investment, you may be able to prepay the interest. This will bring forward the deduction, providing the potential for a reduced income tax liability.

Strategy 12. Pre-pay deductible risk protection premiums.
Similar to the above strategy, pre-paying these premiums will bring forward the deduction. Often people think only of income protection, but for business owners, this may cover more types of policies.

Over the next few weeks, we will look at the practicalities of some of the above strategies.

12 Tax Time Steps - Part 1

Superannuation is still one of the best ways to build wealth and save for retirement. This is primarily because the maximum tax rate during the 'accumulation phase' is 15%. In the lead up to the end of financial year, contributing to super can be even more rewarding.

In part 1 of the 12 tax time steps, we will look at 8 year-end super strategies. In part 2, we will look at a further 4 tax strategies.

Before you implement any of these, make sure you seek financial advice.

Strategy 1. Salary Sacrifice.
Ideal if you are expecting a bonus. The benefits are that you may be able to reduce your tax, and increase the level of after tax investment.

Strategy 2. Get a top up from the Government.
If you qualify, you may be eligible for up to $1,000 from the government, tax free. This also may be an ideal way to pay for insurance premiums (paid for by the government).

Strategy 3. Contribute for your spouse.
If your spouse has a lower income, you may be eligible to contribute, and recieve a tax rebate. This can assist in maximising the benefits of super as a couple.

Strategy 4. Maximise deductible contributions.
If you are eligible, you can pay less tax. This may be an ideal way for a business owner to reduce tax, and create wealth outside of their business.

Strategy 5. Offset capital gains tax.
You may be able to reduce or offset the impact of CGT if you have sold an asset for a profit. While saving tax, you may be able to make a larger after tax investment.

Strategy 6. Split contributions with your spouse.
You may be able to receive your combined super in a more tax effective manner, and even allow yourself to receive concessions on deductible contributions longer if you are eligible to utilise this strategy.

Strategy 7. Purchase Life & TPD tax effectively.
If you are eligible for any of the tax concessions above, you may be able to save on the cost of insurance premiums, or get 'more bang for your buck'.

Strategy 8. Delay withdrawing from super. If you are eligible to withdraw from super, there are some very tax effective reasons to delay, or even postpone withdrawing from super. This can save significant lump sum tax, and allow for a greater after tax investment.

As always, the strategies utlined above are neccessarily general, and my not be suitable for everyone. However, it is likely that any working Australian, and many who are not, can benefit from effective use of super.

In the next few days, we will outline the 4 tax strategies. As ever, if you have any questions, please let us know.