» Retirement Planning

House Prices – Are they too high and implications for retirement

admin — Tue, 15 Jun 2010 18:46:05 +0000

I had a meeting with some potential clients yesterday and the discussion turned to their (to me anyway) lack of preparation for retirement.

The husband (like all good dominant alpha males with a strong case of denial) advised that given that they had not accumulated anything other than their house, would be able to sell that to fund their retirement.

This always concerns me when I hear it for a couple of reasons:

1) Yes you can sell your house – but you will still need to live somewhere and very few people want to move from where they are comfortable to a smaller house in a less affluent suburb;

2) There is a social stigma to doing this – “It doesn’t bother me,” they say – 10 years before they have to, but when they do have to, they cannot move. Actually it also amazes me when people say they can live quite frugally if they have to but have a house full of plasma televisions;

3) Downsizing for many people is a smaller property – but usually at the same price; and

4) I am yet to actually witness a family selling their house to fund their retirement – have seen a few have to sell their house because they hit hard times or the breadwinner died, but that is a story for another day.

So it is with interest that I again read that market commentators say that our housing market is one of the 2 most overvalued in the world and needs to fall by 42% to reach its long term price ratio compared with family incomes – I have mentioned this a number of times in the past, see the following link : http://www.thebfsreport.com.au/featured/house-prices-again-is-it-a-bubble-or-not/

But I do think that Australians need to be aware of housing trends, particularly if they do think it will be the mainstay of their retirement income – have a look at this article, the link is attached and let me know what you think: http://www.theaustralian.com.au/business/housing-market-a-time-bomb-says-investment-legend/story-e6frg8zx-1225880119320

PS – The couple won’t be clients; they didn’t pass my screening tests.

If you do have any questions about this or would like to know more about us, please email me at paul@bronsonfs.com.au or visit us at www.bronsonfs.com.au

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Cost of Living Increases – the Past decade and the implications for investors

admin — Fri, 11 Jun 2010 09:15:22 +0000

For the past 2 years we have heard how tough all people are finding it in the real world.

An article in the Financial Review on Saturday June 5 actually quantified price increases for the past decade – given my view that we are now post GFC more accountable for meeting our income needs in retirement and this actually made me a bit nervous – am I doing enough, are you doing enough, but look at the table below to see what has increased by how much over the past decade:

Item	10 year Increase
Fruit and Vegetables	60%
Milk	36%
Cheese	66%
Bread	49%
Beef and Veal	44%
Lamb and Mutton	109%
Beer	64%
National Electricity Prices	91%
*Wages*	*44%*

In the past 10 years, household indebtedness as a percentage of disposable income – what you owe divided by what you earn has grown from 90% to 156% – this is far greater than in the UK and the US – and they are supposed to be the basket cases – we better hope China does not slow down.

Interestingly, according to RP data, house prices have risen by 146% nationally in that time with Brisbane showing the highest gain of 185%. Melbourne rose by 153% and Sydney by only 83% – I think this could be the better than building a gate at the border to stop the southerners coming on – they simply won’t be able to buy a house here, actually none of us will, last person out, please turn off the overpriced electricity.

What this means for the average investor is that you really do need to ensure you discuss with your advisor the strategies you can employ to ensure that your portfolio manages to keep pace with inflation, capital growth needs to be an important part of your forward planning.

If you do have any questions about this or would like to know more about us, please email me at paul@bronsonfs.com.au or visit us at www.bronsonfs.com.au

Please Note:

The transfer of wealth between generations….maybe

admin — Wed, 09 Jun 2010 02:48:48 +0000

You’ve probably seen those ads for retirement planning featuring retirees on Harley Davidsons saying “Retirement is payback time” or have seen the stickers on the caravans of the grey nomads that say “I’m spending my children’s inheritance.” Or even better, “Live long enough to be a burden on your children”.

We have probably all laughed at that and thought not in my family, I don’t need to plan for retirement, I will get what my parents or grandparents don’t spend. The 2004 Survey of Consumer Finances noted that 21% of people born after 1964 thought they would inherit some money someday. After all, most of them still have living parents or grandparents. I am not sure what the numbers are here in Australia, but I would expect them to be comparable.

So what’s the reality?

Well retirees have a lot of demands on their savings. Living costs, for one, are rising fast. At the same time, many people are not waiting until they die to help their children and grandchildren financially. Finaly the current market turmoil is seeing many people concerned about how long their retirement savings will actually last.

So for these reasons, I come up with 5 reasons why people born after 1964 (and this includes me), need to take accountability for their financial health and no rely on Mum and Dad bailing you out again

People who make it to 65 will live a lot longer. Modern medical advancements will simply keep us alive a lot longer. At age 65, the average male has a life expectancy of 18 years and an average female has a life expectancy of 21 years That’s a combined 39 years of living expenses for couples, and it isn’t easy or fun to scale back your standard of living.
Social Security will probably change. There is not too many people who think that the government will be paying out more in the future that it currently does now. With the talk about keeping people in the work force for even longer, there is even the chance that you may have to wait longer to qualify for a benefit.
Marriage Breakdowns. It is not unusual for a couple to divorce in retirement. After years of being together, they sometimes find in retirement that they have grown apart and simply want to go their own ways. As a result the family fortune is split sooner and between the living parents. Splitting up can be expensive in itself, and maintaining two households for decades afterward will often cost more than sharing a dwelling.
The desire to unlock a home’s equity to meet lifestyle and other costs. The good old reverse mortgage. The reality is that homeowners can tap into the equity in their home without the need to repay it until the house is sold at their death.
There is also the view that the transfer of wealth will increasingly happen while the older generations are still alive. People in the latter halves of their lives now find themselves school fees and university fees for grandchildren. Indeed we have seen people who have been helping their children and grandchildren out with home deposits and even simply bailing them out of mounting debts and a host of other financial calamities.

So that’s some reasons why waiting for the folks to pass it on may not be a smart idea. It may be that now is the time for you to work out an alternative plan just in case this one does not work for you after all.

Please Note:

House Prices Again – Is it a bubble or not

admin — Thu, 25 Mar 2010 07:28:27 +0000

I overheard two people talking about their land valuations today – we got them in the post yesterday.

One said to the other that he was surprised to see his land had gone down in value over the year. The other agreed, saying that he had read in the papers forecasts of houses being worth millions of dollars in 20 years, or some such stuff.

I do actually recall the forecasting that was mentioned – its a bit misleading, but many people do believe whats written in the newspaper.

Consider the following (it is past of a newsletter I send to my clients every month and was written about a month ago).

The House Price Saga.

This seems to be the number topic again, so I will chip in for my 2 cents worth – again.

This year we are again in a time when first home owners will not again be able to afford a new home – last year they could, but not this year.

An article appeared in the Sunday Mail on February 21 in the Smart Money Section regarding home prices.

I have done a table below that summarizes some of the salient points of the article:

Year	Average House Price	Average Income	House Price / Income	% of Household Income for Mortgage repayment
1960	7,000	2,073	3.38	15%
1980	44,800	12,580	3.56	23%
2000	110,600	38,558	2.86	34.4%
2010	481,310	57,691	8.34	29%

What does this mean – well in 1960, the average house was 3.38 times the average income, now it is 8.34 times.

Or if you like to look at it this way, house prices have increased since 1960 at 8.83% per annum and wages have increased at 6.88% per annum since 1960 – this is not a cause for alarm, however since 2000, house prices have increased by 15.84% – more than twice the 50 year average, while wages have increased by 4.11% – less than half the 50 year average.

Interestingly interest rates were at their lowest over that time in 1960 – at 5%. We are at the second lowest level now at 6.64% (although not for much longer) and repayments are at 29% of income – the only time they were higher was during the recession we had to have when house prices were at 3.56 times annual earnings.

Does this matter to you – well given that nearly all Australians have their wealth concentrated in their houses, yes it does matter.

Affordability is not an issue so long as rates stay low – rates stay low when the economy is not performing.

What are our headlines saying at the moment? That we have dodged the recession bullet, interest rates will rise and prosperity is on the way.

Also the other question is can house prices keep increasing at the rates they have in the past 10 years, or will they revert to normal – or dare I say it, less than the long run return.

Its possible that returns will be lower in the longer term as we do have a rapidly ageing population – in short more old people than young people – young people buy more houses than older people. With less young people (unless we have rapid increases in migration) demand for housing will probably subside, as a result prices will decrease also.

What will support the growth in housing returns – shortage of supply – although I can’t see that happening. A rapid increase in wages – not if the Reserve Bank have their way. Or finally an asset bubble where prices are artificially increased through measures such as the first home owners grant.

I am not sure, perhaps you have a view, I am willing to listen to any thoughts you may have.

But what I will say is that coupled with the inadequate level of savings that many Australians have (and that is all savings) and the increasing taxes or decreasing level of services our governments will be able to provide as a result of the money spent on preventing our recession that forgot to turn up, there are going to be a lot of Australians that hit retirement – the longest holiday of your life with very little money – hope they all have a contingency plan.

Please Note:

What is a superannuation binding nomination?

admin — Wed, 22 Oct 2008 00:43:06 +0000

Does your superannuation fund allow you to provide a binding nomination? Do you know what a binding nomination is? Don’t get confused with the nominated beneficiary box you ticked when filling out the superannuation paperwork that came with the new job you just started.

Few people understand the difference between binding nominations and nominated beneficiaries and few superannuation funds clearly explain the different nominations to their members. Some don’t even offer the provision to nominate anyone. Unless you’re lucky enough to stumble across the paragraph on nominations in the super fund’s member booklet full of fine print that’s too wordy or too legalistic for the average person to understand; or worse, the prints so small that you will need your strongest nana glasses to read it, many people aren’t even aware that such nominations exist.

You may have thought you had all bases covered when you initially filled out your super paperwork and nominated who you wanted to receive your super in the event that you died. While your intentions may have been that it was your spouse or children who would financially benefit from your super and any insurance payouts in the event of your death, unless you have a binding nomination it is the trustee of your super fund who ultimately decides on who receives your benefits.

Generally a fund’s trust deed states that a benefit is paid to a dependant or anyone who is financially dependent in any way on the member. While the deed may in fact reflect your intentions, the super trustees must also go through a claim staking process, which involves notifying anyone who may be entitled to claim on your super. This may encourage people to make a claim, purely because it has come to their intention that they may be entitled to a benefit.

As a result the distribution of a member’s super death benefit can become a time consuming and sometimes costly process. Beneficiaries can appeal the trustee’s decision through the Superannuation Claims Tribunal and due to the processes involved, the distribution of the superannuation proceeds can take many months and even years.

In the meantime, your loved ones are left to deal with the financial, emotional and physical devastation of no longer having you in their life. To add to their difficulties, they are left to deal with the stress of the superannuation claim appeals process, not to mention the disintegrating family relationships that may result from such a process.

Completing a binding nominate will stop this situation from arising. A binding nomination binds the trustee of your super fund to follow your wishes and distribute your benefits to those you have nominated.

You will need to keep your nominations up to date, especially if you marry, re-marry or have children. You will also be asked to update or confirm these nominations every three years, which provides a timely reminder to review your estate and ensure your estate planning is to date.

For more information on binding nominations, contact your super fund and ask for a binding nomination form. If they can’t help you, talk to your financial planner or give us a call on 1300 766 323.

Please Note:

The super facts of life

admin — Wed, 20 Aug 2008 04:51:05 +0000

It’s not hard to lose a couple of hours daydreaming about THE TRIP whether it be touring through Europe, or tripping round Australia caravanning under the stars surrounded by miles of emptiness. Most of us hope to do such a trip when we retire along with the hobbies and activities that so far have been pushed aside as we grapple with the mortgage and the school fees.

But how well prepared for retirement are you? It’s never too early to start planning so if you haven’t thought about your retirement yet, here are a couple of facts to get you thinking ….

Surprisingly Australians are one of the world’s greatest investors, beating the Americans, the French and the Swedes in the investment stakes. But we still fall short of the investment needed for a comfortable retirement. If you wanted to retire on a comfortable income equivalent to about $48,000 in today’s terms you need a lump sum of at least $600,000. How do you compare? The average super balance for those over 60 is about a third of what investors need to comfortably retire on. You may need to save more than you expect.

I’m not sure how the Americans, French and Swedes intend financing their retirement but for us Aussies, super is an excellent incentive to save. It provides great tax benefits and it’s also convenient because it’s compulsory and often done automatically by an employer. Super gives you access to a wide range of investments and as a long term investment, it has time to grow. A long term investment strategy also helps smooth the highs and lows that inevitably occur with any quality investment.

Retirement doesn’t happen overnight yet I am still amazed at how many people are financially unprepared for this major life event. For those aged 45 and above, on average 42 percent of their wealth is tied up in the family home with only 17 percent of their wealth held in super. Your home is a worthy asset, but bricks and mortar don’t pay the bills – that is unless you intend selling the family home. Take an active role in preparing for your future by creating an investment plan. Planning investment strategies to suit your circumstances will give you flexibility and choices in your retirement. It’s a good idea to do your homework but with so much information around … where do you start?

From our research we know most people want to learn more about investing and planning for their retirement. Almost one third of Australian use a financial planner, and 84% of those who saw their financial planner in the last 12 months said they were fairly confident they would have enough money to retire on. As a professional, it’s our job to keep abreast of investment information so we can advise you on setting your financial goals, superannuation, retirement planning, managing debt and much more.

So, if you haven’t had a chat to a financial planner about your future, now is as good a time as any to pick up the phone and make that appointment.

Please Note:

Self Managed Super Funds – Are they for You?

admin — Wed, 04 Jun 2008 22:52:58 +0000

An article appears in today’s Australian Financial Review about the growth in Self managed Superannuation funds (SMSFs) and the fact that many people do not understand the requirements placed on them by the legislation and indeed whether or not it is actually appropriate for an investor actually hold their superannuation funds in such a vehicle.

Now what must be stressed first and foremost before we go any further is that superannuation is not an investment – it is a legal structure for holding investments on behalf of the investor until the investor has reached retirement.

Therefore comments about how good an “investment” superannuation is actually reflect a lack of understanding by the commentator on the topic. The same investments that appear in a superannuation fund (whether it be retail, industry, wholesale or self managed) can basically be owned by an individual – shares, property cash and fixed interest investments.

What I see happen is that a person gets “advised” that a Self Managed Superannuation Fund is the best way to hold their assets for retirement. Now this might be the case and in all reality you should have a long discussion with your Financial Planner about the appropriateness of such a legal structure. You also need to look at the costs involved and whether you have the skills, interest and desire to manage the investment process along with all the other things you do with your life.

While there are many stories of people who have managed their SMSFs quite successfully and have actually been able to grow their funds better than if they were invested in another option, I put to you that there are far more who have gone nowhere and in fact have destroyed any chance of a comfortable retirement by taking on a job they cannot really do.

Let me share with you 4 stories about actual people who owned Self Managed Super Funds and could not understand why they did not make much money (please note that these people are not clients, but people who have passed through our practice over the past couple of years):

Case 1: Client was short of cash, had recently lost a court case so he took $50,000 out of his fund to pay his legal fees – there are so many breaches there that I shudder to think to how this fund could pass an audit.

Case 2: Client gets told by a mate that he should look after his own superannuation, as he will get better returns. End result client rolls over his $25,000 into an SMSF at a cost $1,500 to set up the fund, does nothing for 2 years and wonders why his superannuation goes nowhere. At the age of 50, this person has problems.

Case 3: Client sets up a Self Managed with $300,000. Puts the cash into a cheque account for 3 years. When I asked why, the client said he did not know where he should invest the money and could not be bothered learning about the stock market. Hello, don’t the words self managed mean anything to you?

Case 4: Another client set up a fund with about $80,000 and the proceeds to put all the funds into a wrap account. The wrap account has fees of about 1.6% of the balance and the client pays accounting fees of about $1,500 per annum. Why bother?

So before you get involved in the hype you really should talk to a Financial Planner who works in this area as I have not even touched on any of the other issues and obligations that you take on as a trustee. SMSFs – good for some, but maybe not for all.

Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Your House or Your Superannuation?

admin — Tue, 20 May 2008 07:48:11 +0000

Recently the Australian Institute of Superannuation Trustees (AIST) commissioned a report into attitudes on superannuation.

A list of the key findings and a thought or two are listed below:

35% of those surveyed thought paying off the house produced a much better return than superannuation;

Many Australians do see their house as a cashable asset they can sell to fund their retirement. The reality is that many of those who do downsize to fund their retirement expenses find that they cannot find a house or suburb of similar standing to that to which they had become accustomed – they end up having to reestablish themselves in a community they do not like.

41% of respondents thought the Age Pension would not exist when they retire;

If that is you I hope you have made provision for your retirement – even I think this will be the case – one day, just not sure when.

66% believe that the government would change the rules by the time they retired;

Many people tell me that they won’t invest into super because the government always changes the rules. Let’s look at a few of those changes – the Superannuation Guarantee levy – that’s good, Tax free after 60 – that s great, Preservation – makes sure it is there for its original purposes, The tax on contributions – can’t fathom the logic behind that – let’s hope that the changes that people think will happen relate to the contributions tax. It’s hard really to find fault with many of the changes – super really is super.

30% were worried that their fund would go broke and their nest egg will be gone;

So what are they doing about it? Diversification could probably help in this regard, as would paying a little attention to your investments.

30% said they knew nothing or very little about their superannuation;

Probably the same people who complain about government being involved in everything they do and then complaining that government needs to do something because they didn’t.

Only 6% were confident they would have enough to retire on;

And probably expect someone else to take responsibility for their inaction.

20% don’t know how much superannuation they have;

I really wonder what these people think will happen when they retire – this is really scary, we as individuals and adults need to be responsible for our own financial well being.

27% could not imagine the day they will stop work.

Me neither, but it’s going to happen one day – either we die, get made redundant or too sick to work, but everything ends one day.

I apologise if any of this seems harsh, but really our laissez faire attitude while endearing is a recipe for disaster especially when it comes to taking responsibility for our own retirements. It has been said many times that the average person will live about 20 years in retirement while their investments will live about 3 years – I hope you are not one of the people destined to a life of poverty after all those years of hard work.

Earlier, longer, better: the changing face of retirement

admin — Fri, 28 Mar 2008 00:06:34 +0000

With the first wave of Australia’s estimated 4 million baby boomers starting to retire the traditional retirement landscape has changed dramatically.

Of the retiring baby boomers 50% will spend at least 25 years in retirement .

People are now retiring younger, living longer and want more options. This change in attitude, coupled with recent super legislation transformation, makes it more important than ever to be pro-active to ensure income needs in retirement are addressed.

Modern retirement is now about enjoying a long, healthy and active period of time. With boomers living longer, some opting to retire early and others remaining employed beyond age 65, many of the traditional financial assumptions regarding retirement need to be re-examined.

And with more than half of today’s 65 year olds living beyond 85, incorporating longevity into a retirement strategy is vital.

While you need to plan for the 20 plus years of your retirement that you’ll be active and healthy, you also need to prepare to be financially secure for the later years in retirement. Despite some people’s thoughts that later retirement means less money, almost the opposite is true. Hip replacements, quality aged care and a decent hearing aid all cost money.

And now because the superannuation industry has just gone through one of its biggest reforms ever, Australians have the opportunity to optimise their retirement savings.

ASFA Clare, R ‘A less than super future’ 2005.

Australian Life Tables 2003-2005, Australian Bureau of Statistics