Connect October 2014
Financial news for tomorrow’s lifestyle
We are continuing to see volatility in the Australian and overseas market. We saw the US market in the early part of October drop 273 points to 16719 points due to global growth worries as they continued to surface ahead of earnings season. Prior to that, there was concerns about China. Then two days later it jumped 274.83 points to 16994 points.
October tends to be volatile each year. The International Monetary Fund has cut its forecast for growth. The Fund sees growth for the global economy growing at 3.3% for 2014 and 3.8% for 2015. The forecast was 3.4% for 2014 and 4% for 2015. There are concerns for growth going for Europe and Japan. The Fund believes these two areas will impact on world global growth. We have seen growth forecasts for China being revised down to 7.1%.
Interest rates are at their lowest since the 1960s and the cash rate has been stuck on 2.5% for over a year. Gold has been volatile and dropping down.
In this climate we are in, more than ever we need to be constantly rethinking our strategies. We need to consider the present time and where to be investing to preserve your income streams and growth for the future.
What really drives the markets?
Is it governments of the day, the Fed or is it people? What do we spend our money on? We start spending at around 18-20 years. The average person today gets married between 26 and 28 years old. At 31 years he or she buys a house and reaches the peak of their spending around 45 to 48 years of age. Spending for some wealthier may go into early 50s. Then we start saving for our retirement and stop spending.
By the time we reach 55 to 60 years we start thinking seriously about retirement and build up our savings in superannuation and consider downsizing into smaller homes. This is what drives the markets – it is people.
Is a little inflation really so bad?
Isn’t it what drives the economy? A sign that people are spending. It is certainly better than deflation which can be caused when people stop or delay spending. This is why governments are printing money not to fight inflation, but to fight deflation. In the US there is 40 trillion dollars of private debt, twice the size of the federal debt of 20.1 trillion dollars.
When private debt is due to be paid back, people and corporations start reducing their loans and stop spending. This is what could cause deflation, and governments of the day are well aware of this. Deflation is the opposite of inflation. Money stops flowing and there is less demand for goods and services.
We are seeing the artificial propping up of the US economy by the Fed coming to an end. Now is the time to closely watch the markets and review our portfolios and strategies in the coming months.
IMPORTANT SOCIAL SECURITY CHANGES FROM 1 JANUARY 2015?
If you are currently in receipt of an income support payment (age pension, disability pension, NewStart, Carers payment), or are eligible to receive this payment before 1 Jan 2015, you may be affected by the new rules.
It may be beneficial for you to commence an account based pension prior to 1 Jan 2015, or at least review your situation so that you can receive the most beneficial treatment for your situation. If you are in receipt of an income support payment and you have commenced an account based pension prior to 1 Jan 2015, then the current rules will be grandfathered (i.e. no change to your situation).
The new rules state that from 1 January 2015, account-based pensions that are not grandfathered will be treated as financial investments for Centrelink purposes. This could result in you being tested under the income test and may result in a smaller Centrelink payment. Currently account-based pensions are treated quite favourably for the income test whereby a portion of the income that you receive from your account based pension is considered a return of capital and therefore does not form part of your assessable income for Centrelink purposes.
What you could do:
- Refresh existing account-based pensions (particularly relevant where you have an SMSF).
- Review account-based pensions and consider the benefits of consolidation.
- Review the current provider/platform of your account-based pension and ensure it is still appropriate.
- Commence an account-based pension.
- Consider adding a reversionary beneficiary, where appropriate, to extend grandfathering status after the death of the primary beneficiary. We need to consider the age of your spouse or dependent and any impact this will have on your payments.
Commonwealth Seniors Health Care Card (bill introduced)
The Government proposes to include deemed income from account-based pension investments in the assessment of income when determining eligibility for the Commonwealth Seniors Health Card (CSHC). Currently the income assessment is based on adjusted taxable income (taxable income plus reportable fringe benefits, reportable employer superannuation contributions, foreign income and net investment losses) which excludes tax-free pension income.
Grandfathering provisions will be in place for account-based pensions commenced prior to 1 January 2015 for self-funded retirees in receipt of the card by that date.
What you could do:
If you are a self-funded retiree apply for the CSHC before 1 January 2015 if you are in receipt of an account-based pension (or are in a position to commence one before that date.)
Please call us today on (02) 9970 3111 and we will work with you to structure the most favourable outcome for your overall aged care needs.
AGED CARE – WHAT YOU NEED TO KNOW
Whether considering options for yourself or deciding how best to help someone close to you, aged care is a complex area and requires careful thought. The uncertainty surrounding where to move, how much it will cost and where the money will come from can be overwhelming and stressful.
There are typically three steps you need to take before moving in to an aged care facility.
Step 1 – Approval
Before entering an aged care facility your health must be assessed to determine your eligibility for care. The assessment can be performed by any doctor, nurse or social worker who is a member of an Aged Care Assessment Team (ACAT).
Step 2 – Find a home
To make sure you find a home that you are comfortable in and that will suit your needs, you may like to visit a few different places. You can apply to as many homes as you like. The accommodation costs for all aged care facilities are published on the Government’s aged care website myagedcare.gov.au. This website also provides description of the rooms and services available at the facility.
Step 3 – Organise your finances
On entry to a facility, you will be required to pay an accommodation contribution or accommodation payment. Some people will have their accommodation costs met in full or part by the Australian Government, while others will need to pay the accommodation price agreed with the aged care home. The Department of Human Services will advise which applies to you based on an assessment of your assets and income.
There will also be a basic daily fee to pay and there may be a means-tested care fee which is determined by your level of income and assets. Some facilities offer you a higher level of service or a higher standard of accommodation or food for an additional daily fee called an extra service fee.
Common questions asked are:
- What upfront costs will I need to pay?
- How much will I pay for ongoing care?
- Can I keep my home or is it better for me to sell it?
- How do I maximise my social security benefits?
- How can I afford to pay for ongoing care?
- Will I have something to leave my family?
- How much tax will I need to pay?
We can guide you through the process and help you with the decisions you need to make and which strategies are best suited to your circumstances. We can also help you keep your plans on track with an annual review, in case your circumstances or external factors such as legislation, change.
For more information speak to your OYA Financial Decisions representative or call Lorena Millet on 02 9970 3111.
PROTECT YOUR FAMILY FROM FINANCIAL BURDEN
Is your family financially protected in the unforseen event something should happen to you?
You probably insure your car, your home and its contents, and sometimes even your pets. But your most valuable asset can often be overlooked. You!
There are many types of insurance to satisfy many different needs. At OYA Financial Decisions we look at your personal situation and make recommendations based on your circumstances, needs and objectives in life.
Life insurance ensures that your debt is repaid in the event of your death, relieving your loved ones of added financial stress.
Total and permanent disability insurance protects you in the event you were unable to ever work again due to illness or injury. Your debts would be repaid and you could focus on your quality of life.
Income protection similarly helps you maintain your current standard of living by ensuring at least 75% of your income will continue to be paid to you in the event that you are unable to work for a certain period of time.
Trauma insurance ensures that the sometimes unaffordable cost of medical treatment for serious illnesses e.g. cancer, heart attack or stroke will be covered by the agreed sum insured.
Of course we, like you, hope that no claims will ever be made on your policies however knowing you and your family have peace of mind is comfort enough.
Over the past few years we have assisted clients to claim the following benefits:
- Life insurance – motor bike accident
- Total and permanent disability – motor neurone disease
- Income protection – shoulder injury, depression, brain tumour, collarbone injury
- Trauma insurance – melanoma, heart attack, prostate cancer, brain tumour
We pride ourselves on assisting you through the claims process in the most efficient and stress-free manner. It is our privilege to assist you in a time of need.