admin, Author at Sherlock Wealth

July 7, 2021

admin In Family, Financial Advice, Kids and Money, Latest Updates, Retirement

Supporting your kids, without sacrificing your own retirement

With careful planning, you can give a helping hand to your adult children financially, while still enjoying a comfortable retirement.

In the past, wealth was often passed on through inheritance. But with our longer lifespans, and the higher cost of living (especially housing), the desire to help our kids while we’re alive and well is increasing.

If your children are young, you may have twenty or thirty years to save and invest on their behalf, while also saving for your own retirement. If this is the case, it pays to put a strategy in place early on.

For those nearing retirement age, or already retired, you may have a large lump sum you’d like to gift to one or more of your kids. Giving money is a wonderful thing to do, but it’s not always simple. It can have tax implications and may affect your income support payments from Centrelink. On the other hand, gifting may enable you to increase your government pension payments or benefits, if done right.

So how can you help your children without compromising your own financial security and comfort in retirement?

Ensure you’re on track for a comfortable retirement.

Before you give away your wealth, it’s important to remember that you need to fund your own retirement for many years.

Australians are living longer than ever, with more years spent in retirement. If you were to retire at age 60 and live to 90, that’s one whole third of your life spent in retirement.

As well as wanting to enjoy your retirement through travel or leisure activities, older age often comes with more medical and health expenses.

So it’s really important to make sure you have enough funds saved and invested to get you through. This might sound selfish, but in reality, it means you won’t become a financial burden on your children later in life.

How much will you need to retire, and, how much can you afford to give away now? It’s always best to seek professional financial advice to ensure you have enough put away to see you through. A financial planner will be able to give you tailored advice about the impact of your giving on your retirement plans.

What am I giving money for?

Next, consider what it is you’d like to help your son or daughter with. Are the funds for a property deposit? To pay for a wedding. Education expenses? This might offer some clue as to the right amount of support.

Following on from this, consider how many children you need to help. If you gift funds to one child, do you need to match that for others when the time comes? If you have several children, but some are doing better than others, do you need to help them all equally?

Balancing the family dynamics around money is important, as it can be a sensitive issue. The last thing you want to do is cause a rift in the family over some perceived inequality. If you do have several children you need to help, keep this in mind, as it will limit how much help you can offer each child.

Giving an incentive

Often the best way to support children financially is to match their own contribution. Rather than purchasing something outright, offer to base your assistance on their own savings. This also means they have a vested interest in the item, which means they’re likely to treat it more carefully.

How should I give money?

If you receive the Age Pension or other benefits from Centrelink, there is a limit to how much you can give away. The gifting rules allow you to give $10,000 over one financial year, or $30,000 over five years. You’ll need to let Centrelink know when you’re planning to give a gift of this type.

If you’re considering giving your children a substantial amount of money, it’s worth taking the advice of Dr Brett Davies at Legal Consolidated. He recommends always giving funds as a loan ‘payable on demand’, not as a gift. Creating a written loan agreement helps keep the money in your family, even if things don’t go to plan.

As Dr Davies explains, a correctly worded and executed loan agreement can protect the money in case your child was to:

divorce
go bankrupt.
suffer from an addiction.
suffer from a mental health problem.
you run out of money and need it back.

He gives this as an example. You gift your daughter $400,000 to buy a house. Five years later, she divorces her husband and the house is the only asset of the marriage. The Family Court awards half of the value of the house to the husband, including $200,000 of your donated funds.

If you instead had a valid loan agreement in place, the loan must be paid out before the assets are distributed. Hence, the $400,000 comes back to you, to do with as you please. You can read more examples of a loan agreement in action here.

Always seek professional legal advice when drawing up a loan agreement to ensure that it’s compliant with the law, properly worded and correctly executed.

Get professional advice.

If you’re nearing retirement and looking to give up work, downsize your home and/or gift funds to your children, it’s important to seek financial advice.

Reach out to the Sherlock Wealth team here so we can help you work out a strategy for meeting multiple goals, such as giving to several children while funding your own comfortable retirement.

Source: Money and Life
(Financial Planning Association of Australia)

July 1, 2021

admin In Financial Advice, Latest Updates, Tax

Advice for couples at tax time

Unsure how your relationship status affects your taxes? We’ve made it simple with our couple’s guide to tax.

If you’re newly married, engaged or living with your partner, you might not be aware that there are some implications for your taxes.

In Australia, you’re not required to lodge a combined tax return with your spouse each year. Instead, you need to declare your spouse’s taxable income on your individual tax return.

The Australian Taxation Office (ATO) uses your joint income to work out whether:

you’re entitled to a rebate for private health insurance (and how much)
you need to pay the Medicare levy surcharge.
you’re entitled to a Medicare levy reduction.
you’re entitled to the seniors and pensioners tax offset.

So, first things first, how do you know if you have a ‘spouse’ in the ATO’s eyes?

Do I have a spouse or de facto partner?

As far as the ATO is concerned, your spouse “includes another person (of any sex) who:

you were in a relationship with that was registered under a prescribed state or territory law
although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.”

You must declare all of the taxable income your spouse receives in your return, including:

salary and wages
dividends
interest
rental income
foreign-source income
pensions and child support payments.

How does this affect my tax return?

There are some implications for your taxes, especially in the following areas.

Private health insurance rebate

The amount of rebate you qualify for is based on your income, so you might receive a different level of rebate as a couple than you did as an individual. You can check the rebate rates and income thresholds here.

Medicare levy surcharge

High-income earners who don’t have private patient hospital cover are charged a Medicare levy surcharge.

If you have a spouse, the ATO will use your combined income to work out your Medicare levy surcharge. It’s calculated as a percentage of your income (up to 1.5%) and is payable in addition to the Medicare Levy.

You may need to pay the Medicare levy surcharge if you don’t have private patient hospital cover and your income is over:

$90,000 for singles
$180,000 for families.

If you’ve recently gained a spouse for tax purposes, and you don’t have private patient hospital cover, make sure to check whether your combined income puts you over the income threshold. Taking out private patient hospital cover will mean you don’t need to pay the surcharge – and you’ll be covered in case of an emergency.

Medicare levy reduction

There’s also a Medicare levy reduction available to low-income earners. If you have a spouse and your family taxable income is equal to or less than $48,092, you might be eligible for a reduction.

Combining your homes?

Something that’s often overlooked when moving in with a spouse is the way it affects the capital gains tax (CGT) exemption on your main residence. If you both owned and lived in your own homes before moving in together; or you’re in an established relationship but lived separately during the year; and you plan to sell one or both of the properties, there could be CGT implications. Working out your CGT obligations can be tricky, so seek advice from a tax professional when preparing your return.

If you’re still not sure whether you need to include your spouse’s details on your return, seek advice from a tax agent or speak to the ATO. If you leave your spouse out, the ATO could amend your tax return and there could even be financial penalties.

Need help? Please reach out to the Sherlock Wealth team here to help you look at what’s right for you.

Source: Money and Life
(Financial Planning Association of Australia)

June 25, 2021

admin In Economy, Financial Advice, Financial Planning, Investments, Latest Updates, Money

Bonds, inflation and your investments

The recent sharp rise in bond rates may not be a big topic of conversation around the Sunday barbecue, but it has set pulses racing on financial markets amid talk of inflation and what that might mean for investors.

US 10-year government bond yields touched 1.61 per cent in early March after starting the year at 0.9 per cent.ⁱ Australian 10-year bonds followed suit, jumping from 0.97 per cent at the start of the year to a recent high of 1.81 per cent.ⁱⁱ

That may not seem like much, but to bond watchers it’s significant. Rates have since settled a little lower, but the market is still jittery.

Why are bond yields rising?

Bond yields have been rising due to concerns that global economic growth, and inflation, may bounce back faster and higher than previously expected.

While a return to more ‘normal’ business activity after the pandemic is a good thing, there are fears that massive government stimulus and central bank bond-buying programs may reinflate national economies too quickly.

The risk of inflation

Despite short-term interest rates languishing close to zero, a sharp rise in long-term interest rates indicates investors are readjusting their expectations of future inflation. Australia’s inflation rate currently sits at 0.9 per cent, half the long bond yield.

To quash inflation fears, Reserve Bank of Australia (RBA) Governor Philip Lowe recently repeated his intention to keep interest rates low until 2024. The RBA cut official rates to a record low of 0.1 per cent last year and launched a $200 billion program to buy government bonds with the aim of keeping yields on these bonds at record lows.ⁱⁱⁱ

Governor Lowe said inflation (currently 0.9 per cent) would not be anywhere near the RBA’s target of between 2 and 3 per cent until annual wages growth rises above 3 per cent from 1.4 per cent now. This would require unemployment to fall closer to 4 per cent from the current 6.4 per cent.

In other words, there’s some arm wrestling going on between central banks and the market over whose view of inflation and interest rates will prevail, with no clear winner.

What does this mean for investors?

Bond prices have been falling because investors are concerned that rising inflation will erode the value of the yields on their existing bond holdings, so they sell.

For income investors, falling bond prices could mean capital losses as the value of their existing bond holdings is eroded by rising rates, but healthier income in future.

The prospect of higher interest rates also has implications for other investments.

Shares shaken but not stirred

In recent years, low-interest rates have sent investors flocking to shares for their dividend yields and capital growth. In 2020, US shares led the charge with the tech-heavy Nasdaq index up 43.6%.^iv

It’s these high growth stocks that are most sensitive to rate change. As the debate over inflation raged, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google – fell nearly 17 per cent from mid to late February and remain volatile.^v

That doesn’t mean all shares are vulnerable. Instead, market analysts expect a shift to ‘value’ stocks. These include traditional industrial companies and banks which were sold off during the pandemic but stand to gain from economic recovery.

Property market resilient

Against expectations, the Australian residential property market has also performed strongly despite the pandemic, fuelled by low-interest rates.

National housing values rose 4 per cent in the year to February, while total returns including rental yields rose 7.6 per cent. But averages hide a patchy performance, with Darwin leading the pack (up 13.8 per cent) and Melbourne dragging up the rear (down 1.3 per cent).^vi

There are concerns that ultra-low interest rates risk fuelling a house price bubble and worsening housing affordability. In answer to these fears, Governor Lowe said he was prepared to tighten lending standards quickly if the market gets out of hand.

Only time will tell who wins the tussle between those who think inflation is a threat and those who think it’s under control. As always, patient investors with a well-diversified portfolio are best placed to weather any short-term market fluctuations.

If you would like to discuss your overall investment strategy, please reach out to the Sherlock Wealth team here to help look at what’s right for you.

i Trading economics, viewed 11 March 2021, https://tradingeconomics.com/united-states/government-bond-yield

ii Trading economics, viewed 11 March 2021, https://tradingeconomics.com/australia/government-bond-yield

iii https://www.reuters.com/article/us-oecd-economy-idUSKBN2B112G

iv https://www.smh.com.au/politics/federal/growth-prospects-for-australia-and-world-upgraded-by-oecd-20210309-p57973.html

v https://rba.gov.au/speeches/2021/sp-gov-2021-03-10.html

vi https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/

vii https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf

June 23, 2021

admin In Videos, Wealth Protection

Ensuring your peace of mind

Ensuring you have peace of mind with personal insurance

Personal insurance can provide security against the unexpected events in life to protect and provide for your family.

Recent changes might have impacted your cover. Life insurance policies within super accounts that have not received contributions for at least 16 months are being closed down from July 1st 2019. It’s important to check your cover in view of this and ensure that you maintain the appropriate level for your needs.

Personal insurance includes different types of cover. Life insurance can leave your beneficiaries with a lump sum or income stream to help look after their financial wellbeing in your absence. Total and permanent disability (TPD) insurance can pay a benefit should you become unable to work due to illness or injury. Critical illness insurance can provide you with a lump sum if you suffer from a serious injury or illness. Income protection insurance can replace a portion of your income if you’re unable to work in the event of temporary disablement.

As your life changes, so will your insurance needs. Talk to us to ensure you’ve got the right level of cover for your circumstances. We’re here to help if you need a hand.

Watch Here

June 23, 2021

admin In Videos, Wealth Protection

Personal Insurance – are you covered?

Personal insurance – are you covered?

Under insurance is a significant concern for Australian households and can lead to financial hardship for individuals and their families.

The median life insurance cover is generally only twice the median household income. However, those with young families may need up to eight times their family income to continue their present lifestyle if one parent were to die. Similarly, total and permanent disability (TPD) cover is generally only three times the median household income when four times is ideal.

Personal insurance is a must for most people, but it will be of limited use if you don’t have adequate cover. By regularly reviewing your cover, you can better prepare for the unexpected and protect yourself and your loved ones. We’re here to help if you need a hand.

Watch Here

June 23, 2021

admin In Videos, Wealth Protection

Life changes, so should your insurance

Life changes, so should your insurance

Insurance might not always be top of mind, but it’s important to review your policies regularly to ensure you’ve got the right cover for your circumstances.

As your life changes, so will your insurance needs. You should consider reviewing your cover whenever your situation changes, such as taking on a mortgage, starting a family, getting married, getting a significant pay rise or a pay cut and retirement.

We can work with you to ensure that your personal insurance provides you with the appropriate cover to support your loved ones and to ensure they live the life you had planned. We’re here to help if you need a hand.

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June 23, 2021

admin In Videos, Wealth Creation

Maximising your super

Maximising your super

Taking a few steps now to boost your super can make a big difference. Engage with your super and check your statements, locate lost or unclaimed super and consider consolidating multiple accounts. You can also make extra contributions.

Salary sacrifice contributions are paid into super from your pre tax salary by your employer.

Personal deductible contributions may be made after tax. Contributions into your spouse’s accounts are not tax deductible but, if eligible, you may get a tax offset.

For low income earners, it’s worth investigating federal government contributions and the low income tax offset. Watch your $25,000 concessional cap. A $25,000 cap applies to all pre tax contributions. This includes your employee contributions and any salary sacrificing. If you go above these limits, you may pay extra tax.

Catch up on concessional contributions.

You can carry forward unused cap amounts for up to five years as of July 1st 2019. You must have a total super balance less than $500,000 on the previous June 30.

Review your super regularly to ensure that the investment options you have selected are right for your goals, time to retirement and comfort with risk. Super is one of the best ways to save over the long term.

We’re here to help you set yourself up for a long and happy retirement.

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June 23, 2021

admin In Videos, Wealth Creation

Making diversification work for you

Making diversification work for you

Diversification involves spreading your investment portfolios across and within different asset classes, industries and geographic regions. Diversification manages the risk-reward trade off by selecting investments to assist you in achieving more consistent returns over time. Once you have a mix of investments that meet your needs, keep on track with regular checkups and rebalancing to remain in line with your risk profile.

Speak to us today to ensure your portfolio includes a diversified investment mix and is balanced and in line with your appetite for risk.

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June 23, 2021

admin In Videos, Wealth Creation

Maintaining Focus during market events

Maintaining focus during market events

Following a prolonged bull market, concerns over the economic impact of Covid-19 have caused a significant market correction and subsequent volatility. When markets are declining, there is temptation to sell and retreat to safer, more conservative options. However, selling as markets fall locks in losses and does not give you access to the inevitable recovery. It’s impossible to predict how long or severe a market correction will be, but history tells us that market corrections are ultimately followed by recoveries.

It’s important to keep your financial goals in the front of your mind and not to get swept along by media reporting and fear. Remain calm and considered in your approach. Stick to the fundamentals of good investing and maintain an approach that takes into consideration your situation and your comfort with risk. Investing always carries an element of risk, regardless of how well you manage it.

We can work with you to ensure that your investment approach is appropriate to your situation, goals and tolerance for risk.

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June 23, 2021

admin In Videos, Wealth Creation

Balancing Risk and Return

Balancing risk and return

When it comes to investing, there is generally a trade off between risk and return. High potential returns usually come with greater volatility and higher risks. Shares are a classic example of a high risk-high return investment that can provide less stable returns. A bank account is a good example of a low risk investment that offers lower, but stable returns.

Risk is inevitable when investing, but there are ways to manage it. Comfort with risk differs between individuals, circumstances and over time.

Understanding your risk profile

To be successful in investing, you must understand your tolerance or appetite for risk and structure your investments accordingly. Time is your friend – longer time frames can work to minimise short term volatility. While your investments may experience short term fluctuations, over a longer time frame, your investment performance will generally show a consistent trend. longer periods may also give your investments time to gain back any losses.

Diversification spreads risk

Diversification involves spreading your investment portfolio across and within different asset classes, industries and geographic regions. Applying the principle of diversification to your investments mitigates risk by reducing the impact of economic poor performance in one area.

Investing always carries an element of risk regardless of how well you manage it. We can work with you to ensure that your approach to investing is appropriate to your situation, goals and tolerance for risk.

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admin

Supporting your kids, without sacrificing your own retirement

Advice for couples at tax time

Bonds, inflation and your investments

Why are bond yields rising?

The risk of inflation

What does this mean for investors?

Shares shaken but not stirred

Property market resilient

Ensuring your peace of mind

Personal Insurance – are you covered?

Life changes, so should your insurance

Maximising your super

Making diversification work for you

Maintaining Focus during market events

Balancing Risk and Return

In a world full of choices,
this is why our clients chose us:

Want to know more?
Sign up to our e-news today!

admin

Why are bond yields rising?

The risk of inflation

What does this mean for investors?

Shares shaken but not stirred

Property market resilient

In a world full of choices, this is why our clients chose us:

Want to know more? Sign up to our e-news today!

In a world full of choices,
this is why our clients chose us:

Want to know more?
Sign up to our e-news today!