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How to stay the course in retirement

In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

         

In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

Although it might feel like things are calming down a little as markets begin to seesaw with less extremity, it's still the case that uncertainty ahead is likely to be the only constant. Even for the most measured of investors, staying the course in such times can be challenging, and perhaps particularly so for those who have retired.

You may have read in the news that many investors are “buying the dip” and taking advantage of trading opportunities caused by the volatility, with the view that share prices will eventually rise again. But for many in retirement, the first instinct is not to capitalise, but to protect. And advice to stay the course, while important, can feel a little off base when your super fund's portfolio has dropped sharply and you are starting to feel a bit helpless.

Here are three options to consider if you're in the retiree camp.

Reassess your asset allocation

Staying the course doesn't necessarily mean do nothing. More practically, it means sticking to your investment plan but periodically re-evaluating your asset mix to ensure it's still aligned to your goals, time frame and appetite for risk.

In light of all this volatility, perhaps you are now realising your tolerance for market risk is not as high as you previously thought – or you were comfortable but hadn't got around to updating/reviewing since you retired. In a severe market event like this you want to avoid trading in response to market moves and locking in losses. But it does make sense to revaluate your risk tolerance and consider how to rebalance your portfolio and lean towards fixed income products. One way to do this can be to redirect your investment distributions to conservative fixed income funds so you can build up the defensive portion of your portfolio over time.

Rethink discretionary spending

Reducing spending where possible goes without saying during difficult times but nobody would label it an ideal solution. But while you can't control the market nor predict its movements, your discretionary spending is however a factor that you can adjust.

For example, let's say your portfolio was valued at $950,000 at the beginning of the year.

Assuming a six per cent average annual return throughout retirement, you estimate you have a total amount of $4,750 to spend a month. If all other factors remain the same but your portfolio balance declines by 25% (to $712,500), your estimated monthly income drops by almost $1,200 a month (to about $3560).

For the time being, tightening your belt slightly in step with your reduced portfolio balance might help ease financial stress and help navigate through the crisis.

Relay concerns to a trusted adviser

The value of a good financial adviser often shines most brightly during periods of market uncertainty. When you're not sure what best to do, advisers can offer guidance and support that's tailored to your individual circumstances.

According to some research Vanguard recently conducted into the value of financial advice, it was noted that instead of purely focusing on portfolio and financial value, it is also worth assessing the value advisers can bring from an emotional standpoint.

Peace of mind can't be quantified in dollar terms but it is perhaps just as important as the figure on your portfolio statement. A second, professional opinion can calm your nerves or boost your confidence during these unsettling times. And if you're feeling particularly affected by the last few weeks, it might also help you readopt the right mindset to make considered investment decisions for your future.

Staying the course isn't always as easy as it sounds, but by keeping emotions in check and focusing on the factors you can control, you might weather this storm better than you think.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
15 April 2020
vanguardinvestments.com.au

 

 

ATO releases JobKeeper alternative test

The alternative decline in turnover test rules for the JobKeeper payment scheme has now been registered by the ATO.

         

The legislative instrument, Coronavirus Economic Response Package (Payments and Benefits) Alternative Decline in Turnover Test Rules 2020, has now been registered.

The alternative tests will only kick in if an entity cannot satisfy the basic decline in turnover test.
The explanatory statement notes that the alternative tests will only apply to seven circumstances.

These include where an entity commenced business after the relevant comparison period in 2019 or the business did not exist in the relevant comparison period and as a result there was no relevant comparison period in 2019.

It will also cover a circumstance where an entity acquired or disposed of part of their business after the relevant comparison period in 2019, and where an entity has restructured part or all of their business after the relevant comparison period in 2019.

Entities who had an increase in turnover by 50 per cent or more in the 12 months immediately before the applicable turnover test period, or 25 per cent or more in the six months immediately before the applicable turnover test period, or 12.5 per cent or more in the three months immediately before the applicable turnover test period, will also be covered.

The alternative test will also cover entities affected by a drought or other natural disaster in the relevant comparison period in 2019, and entities who have an irregular turnover that is not cyclical, such as what can occur in the building and construction sector.

A sole trader or a small partnership where the sole trader or one of the partners did not work for all or part of the relevant comparison period because they were sick, injured or on leave during the relevant comparison period, and those circumstances affects the turnover of the sole trader or partnership, will also be covered.

Each of the seven circumstances has its own alternative test that is detailed in the legislative instrument.

“The commissioner cannot determine an alternative decline in turnover test in all circumstances,” said the explanatory statement.

“It is only in those circumstances where there is an event or circumstance, be it internal or external to an entity, that is outside the usual business setting for entities of that class which results in the relevant comparison period in 2019 not being appropriate for the purpose of an entity in the class of entities satisfying the decline in turnover test.”

 

Jotham Lian
24 April 2020
smsfadviser.com

 

 

Our Website, your resources

Coronavirus resources have been added to the many others we supply our clients.  Resources such as many latest news articles, educational videos (updated recently), client portals, calculators, and stock prices.  You have 24/7 access to all these tools and resources.  Any question, simply ask. *

         

Latest News. 7-9 individual articles every month and all chosen for their relevance. Our website is a great place to stay informed.

Videos. All are relevant, interesting, educational and interesting. Videos that are changed three times a year to ensure you and your family are able to lean about many issues related financial issues and topics.

Calculators. A good range of calculators to help you better understand and manage your personal and family financial issues. Four of the more popular are: Pay calculator, Budget Calculator, Loan Calculator, and Super Calculator

Client Portals. Portals are quite common on many sites and can be used to store your data, pay bills, log onto investment systems.

Ask us a question at any time. If you have a question on any related topic then don’t hesitate to use a form on our site to ask.

Your information is private and confidential and should be treated that way. Using Secure File transfer means your information is encrypted when sent in either direction over the Internet.

Many sites also have a message window feature that displays messages of interest or that cover topics and deadlines you should be aware of.

 

* Not all are on every website.

Your Financial Planner

Consumer satisfaction up for SMSFs, down for industry funds

New data from Roy Morgan has shown self-managed superannuation and public sector funds both increased their customer satisfaction rates in March, despite significant market upheaval, but their industry and retail counterparts were not so lucky.

           

Self-managed super funds received the highest level of customer satisfaction (75 per cent), up by 0.3 of a percentage point from February, while public sector funds increased by 0.3 of a percentage point to 74.5 per cent. 

In contrast, industry fund satisfaction fell by 1.1 per cent in a month to 64.4 per cent, while retail funds were down by 0.2 of a percentage point to 60 per cent. 

Roy Morgan chief executive Michele Levine said that although longer-term trends show increased customer satisfaction levels, shorter term it is a very different picture.

“The average satisfaction rating across all superannuation funds is 64.2 per cent in March, a 3.4 per cent increase from a year ago,” Ms Levine said.

“However, this annual comparison misses a fall of 0.6 [of a percentage point] in the month of March after the ASX 200 market peaked in late February.

“Driving this fall has been a monthly decline of 1.1 per cent for industry funds in March.”

She noted the early super withdrawal option over the next six months will add to further challenges for the retail and industry funds.

“Industry funds based on employees in hospitality and retail industries are particularly exposed to this policy as many of their workers have been stood down in recent weeks as Australia fights the COVID-19 coronavirus pandemic,” Ms Levine said.

“A majority of industry funds had declining month-on-month satisfaction in March, and the challenge for all superannuation funds going forward will be finding ways to maintain customer satisfaction amid trying market conditions, reduced returns and ongoing uncertainty.”

 

 

Sarah Simpkins
24 April 2020
smsfadviser.com

 

 

Superannuation for younger investors

The Australian superannuation industry has been in the headlines almost every day in the past few weeks, with the Federal Government predicting that as many as 1.7 million people will look to access their superannuation early as part of COVID-19 relief measures.

       

The key message is that accessing your super may be a critical matter of meeting life's necessities in the wake of a global pandemic – but explore all other options first because the long-term cost on your potential retirement savings is significant.

An interesting by-product of all the discussion about early access to superannuation is that it may have sparked the interest of younger investors who haven't always paid the closest attention to their own situation.

According to a research report by the Financial Services Council, the majority of young adults do not check their superannuation accounts and those under 35 were more likely to not know how much money they currently held.

With superannuation so topical, now could be a good time to learn a little more about it, even if retirement seems a long way away – particularly if you do not need to access but have rediscovered multiple accounts that you may have not got around to consolidating and still costing you in fees.

Superannuation 101

Superannuation is essentially money you regularly put into a fund in preparation for when you retire. It is deducted from your pre-tax earnings and when you stop earning a wage, your superannuation funds will be what helps provide you with a regular income in retirement.

Your employer is responsible for paying your superannuation into your specified fund at a compulsory contribution rate of 9.5 per cent of your annual salary. This applies to everyone who earns A$450 a week before tax.

Your superannuation fund then manages your money for you and invests it – either in their default fund or in the investment option of your choice.

Superannuation strategies

One of the simplest things you can do to manage your superannuation is to make sure you only have one account. If you've had multiple jobs in the past, your employer may have selected a default superannuation fund for you. And the more accounts you have, the more fees you are paying and the more your balance gets eroded. You can access ATO services to consolidate your superannuation via the MyGov website.

You are also able to select an investment option for your super, typically growth, balanced or conservative. Each investment option differs in their risk and return. A growth option will usually invest more of your superannuation in higher risk assets such as shares or properties, whereas a conservative option will invest more in lower-risk assets such as fixed income or defensive assets.

One of the key advantages that younger investors have is time, for the simple fact that the longer you have to invest, the more opportunity you have to realise returns. Choosing a high growth investment option earlier on means that although it may be riskier, you have the time to ride out market cycles and capitalise on the good years before you reach retirement. You also have time to reap the benefits of compounding interest on your superannuation balance.

Another strategy to consider is voluntarily contributing funds to your superannuation if you are in a position to do so. Even small amounts add up over time, and could reduce the tax you pay. According to the government's Money Smart website, these concessional contributions are generally tax effective if you earn more than $37,000 a year as they are taxed at 15 per cent. This might be lower than your marginal tax rate. But just remember there is a cap to how much you can voluntarily contribute a year.

Early access

While ultimately the decision to withdraw superannuation should be determined by your own financial situation, it is also important to understand the potential impacts of doing so. Based on an average net return of 6 per cent per annum, the value of $20,000 (the maximum you can withdraw) could grow to approximately $205,000 in 40 years.

Drawing down on your superannuation right now also means you are selling assets when the market values have fallen because of the uncertainty around COVID-19 and the economic impacts. You are asking your superannuation fund to sell your assets at a lower market price and even if you intend to repay it over time cashing out now may mean you can't recover this value when the market rebounds over time.

Conclusion

For those in their 20s or 30s, superannuation won't seem like a priority when you may have only recently entered the workforce. And day-to-day living expenses take precedence so voluntarily contributing more to your superannuation won't seem too appealing when you usually can't access those funds until you turn 67.

But superannuation is more than just a distant pile of money for future you, it also represents financial independence and freedom, and is best cultivated from an early age. This is especially true in recent years where millennials are experiencing record low interest rates, a tough housing market to crack and low wage growth. Making the right investment decisions about your superannuation may be an accessible way to growth your wealth right now.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
29 April 2020
vanguardinvestments.com.au

 

 

How early super withdrawals add up

The coronavirus pandemic is having profound effects on Australian families, communities, businesses, the financial markets and the global economy.

       
Many people have lost their jobs and there is much uncertainty around the depth and duration of the current crisis. Governments and policymakers across the globe have announced unprecedented fiscal and monetary packages to provide some offset to the downturn.
 
The Australian Federal Parliament has approved the JobKeeper payments ($1500 per fortnight), boosted JobSeeker payments up to $1100 per fortnight, and allowed the unemployed and people whose hours have been cut by 20 per cent to dip into their retirement savings to help them weather the coronavirus crisis.
 
People will be able to apply online through the myGov web site to access up to $10,000 of their super, tax free, before 1 July 2020, and then another $10,000 after the new financial year begins, also tax free.
 
While some will have to access these funds to make ends meet, others may have a choice. Should they or should they not use the early access to superannuation?
 
How early withdrawals add up
 
Withdrawing superannuation funds now means an investor selling part of their portfolio in a depressed market, crystallising current losses and giving up the benefits of eventual recovery in investment markets. It will also erode the investor's retirement wealth by forgoing future compound interest.
 
Consider the impact that an early withdrawal could have on an investor's superannuation balance. The calculations below are for a balanced multi-asset managed fund containing a mix of equities and fixed income, with an average net return of 6 per cent per annum.
 
For an investor who has 20 years until retirement, the value of a $10,000 withdrawal is estimated to be worth $32,100 at retirement. Over the course of 40 years, the impact of the $10,000 withdrawal on the retirement savings climbs to $102,900, while a $20,000 withdrawal means an investor would have $205,700 less at their disposal. For this investor who chose to withdraw funds right now, it could mean delaying retirement for a number of years.
 
Comparing potential withdrawal impacts at different ages
 
Investor's current age Years to retirement Value of $10,000 at retirement Value of $20,000 at retirement
67 0 $10,000 $20,000
57 10 $17,908 $35,817
47 20 $32,071 $64,143
37 30 $57,435 $114,870
27 40 $102,857 $205,714
 
Source: Vanguard calculations
Notes: This is a hypothetical scenario for illustrative purposes only. All values are nominal.
 
A disciplined approach
 
Global evidence supports the importance of disciplined saving for retirement outcomes.
 
In 2018, the World Economic Forum named low levels of savings by individuals amongst the six key challenges facing the retirement system worldwide. Many people delay retirement savings until they are in their 40s or 50s. This is not unusual as at each life stage, more immediate financial priorities come first – for instance, saving a deposit to buy a home, paying down a mortgage or investing in kids' education. In addition, more often than not, savings intended for retirement do not last until retirement; sometimes they are drawn for medical emergencies or critical housing repairs, or during periods of unemployment.
 
As Australians live longer and spend more time in retirement, we require higher levels of savings to sustain our longer lifetimes and adequate lifestyles. The World Economic Forum estimates that combining auto-enrolment to superannuation, increasing savings over time and avoiding dipping into the superannuation savings prior to retirement is expected to increase wealth at retirement by 70 per cent.
 
Many people are currently doing it tough and will need to rely on the early access to superannuation as they do not have other means to support their families. For investors who have a choice, taking a long term perspective may prove to be beneficial. We recommend investors seek financial advice and explore other ways of obtaining financial assistance first.
 
Stay the course
 
Vanguard founder Jack Bogle famously said: “The courage to press on – regardless of whether we face calm seas or rough seas, and especially when the market storms howl around us – is the quintessential attribute of the successful investor.”
 
Historically bull markets last substantially longer than bear markets, and this downturn will eventually be over.
 
The best thing investors can do is to stick to their investment principles and philosophy, and “stay the course” to have the best chance for investment success.
 
 
Inna Zorina
Senior Investment Strategist 
Investment Strategy Group
15 April 2020
vanguardinvestments.com.au
 

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Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients' circumstances into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider yours and your clients' circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This website was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
 

AFP teams up with ATO, Treasury in COVID-19 tax fraud taskforce

The Treasury has confirmed that it will be working with the ATO and an Australian Federal Police taskforce in investigating any cases of fraud related to the government’s COVID-19 stimulus measures.

         

Fronting a Senate inquiry into the government’s response to COVID-19, Treasury Deputy Secretary Jenny Wilkinson confirmed that her department has been involved in discussions with a fraud taskforce established by the Department of Home Affairs.

“I am aware there is a fraud taskforce which is sitting within the Department of Home Affairs and I know the Australian Federal Police are involved in that taskforce and it is also the case that the ATO and Services Australia are involved in those discussions,” Ms Wilkinson said.

The Treasury’s confirmation comes after Home Affairs Minister Peter Dutton had warned businesses that any attempt to fraudulently access stimulus measures, including the JobKeeper payment, would be dealt with swiftly by the new AFP taskforce.

“Those people need to hear a very clear message: now more than ever, you are likely to be caught,” Mr Dutton told 2GB radio.

“If people do the wrong thing, they can expect a search warrant to be executed by the AFP and they can expect their assets to be frozen.

“With those people who claim with good intent but have done the wrong thing, they will have to repay that money, but the criminals who exploit the system, the technology that we’ve got now to look at algorithms, look at transfers, to look at money diverted to different shelf companies — those people will be under a lot of scrutiny. They should think twice about what they’re doing.”

The ATO has been unequivocal about fraudulent schemes, warning that it will pursue action against business and agents that engage in such arrangements.

This image highlights some of the targeted schemes listed by the Australian Tax Office, schemes that may be used to artificially create or inflate an entitlement to the cash-flow boost, and will also begin applying scrutiny to arrangements that help an entity satisfy the turnover test to qualify for the JobKeeper payment.

“Integrity rules are in place to deny or reduce an entitlement to JobKeeper payments if schemes are contrived to ensure payment conditions are satisfied, such as temporarily reducing or deferring turnover. Exceeding your turnover predictions by itself does not trigger these integrity rules,” the ATO said.

“Our compliance focus will be particularly directed towards schemes where there has not been a genuine fall in turnover in substance, but arrangements are contrived to ensure the turnover test is satisfied.”

 

 

Jotham Lian
29 April 2020
smsfadvier.com

 

 

ATO extends initial JobKeeper payment deadline

Employers looking to enrol for the first two JobKeeper fortnights have now been granted a further extension of time to enrol and pay employees.

         

The ATO has now announced an extension of time for employers who wish to enrol for the first two JobKeeper fortnights to 31 May, an extension from 30 April.

Crucially, for the first two fortnights that run from 30 March to 12 April, and 13 April to 26 April, the ATO will now accept the late payments of the minimum $1,500 per fortnight as long as they are paid by 8 May.

“This means that you can make two fortnightly payments of at least $1,500 per fortnight by 8 May, or a combined payment of at least $3,000,” said the ATO in an update on Monday.

Speaking to Accountants Daily, the Institute of Public Accountants general manager of technical policy Tony Greco said the payment extension was particularly welcome, considering how the previous deadline of 30 April was hard for employers to meet.

“The onus was on the employer to make the payment and then hope the employee is eligible, so they are taking a leap of faith and if they didn’t make the payment, they wouldn’t get the reimbursement,” Mr Greco said.

“If this date is not met, then the employer will lose the JobKeeper reimbursement and, more importantly, their employees may also be denied the benefit of the first two fortnight payments which will be an unnecessary loss assuming both the employer and employee are eligible.”

The extension in time to meet the wage condition comes after the ATO registered the alternative tests late last week and the Treasurer revealing that further changes would be made to the JobKeeper rules.

Assistant Treasurer Michael Sukkar said the extension would help the 500,000 businesses that have now enrolled for the JobKeeper scheme pay more than 3 million employees in time.

“This extension allows businesses further time to consider their circumstances and remove any cash-flow pressures arising from financing arrangements that have not been finalised,” Mr Sukkar said.

“Importantly, this extension does not negate the obligation on businesses to ensure they continue to pay eligible employees $1,500 in each JobKeeper fortnight.

“Businesses have until 31 May 2020 to formally enrol to claim JobKeeper payments. However, the sooner an employer pays their staff for April and enrols, the sooner the ATO can reimburse them the JobKeeper payments.”

With the major banks now stepping up with dedicated JobKeeper hotlines to provide bridging finance to businesses ahead of the ATO’s reimbursement, Mr Greco said it was pleasing to see the Tax Office adopt a flexible approach to give employers more time to meet the first payment date.

“There are a lot of dates flying around and this could be lost in translation,” he said.

“It is a very simple message, but I think everyone is working at a rate of knots that simple messages have just been lost.”

The ATO’s updated guidance on enrolment date and payment date can be viewed here.

 

 

Jotham Lian
28 April 2020
smsfadviser.com

 

 

COVID-19: Early Childhood Education and Care Relief Package

From Monday 6 April additional support for Early Childhood Education and Child Care Services and their families.

           

On 2 April 2020, the Australian Government announced the new Early Childhood Education and Care Relief Package. From Monday 6 April 2020 weekly payments will be made directly to early childhood education and care services in lieu of the Child Care Subsidy and the Additional Child Care Subsidy, to help them keep their doors open and employees in their jobs.

Payments will be made until the end of the 2019-20 financial year and families will not be charged fees during this time. These payments will complement the JobKeeper Payment announced by the Prime Minister on 30 March 2020.

Early childhood education and child care services do not need to apply for the payments, they will be paid automatically. 

In addition, up to and including 5 April 2020, services can now waive gap fees for families due to the impact of COVID-19. This can go back as far as 23 March 2020 and is in addition to changes already announced..

For more information:

 

 

Source:   education.gov.au

Avoid SISR traps in early access to super scheme

A law firm has warned trustees to consider several factors to ensure they’re complying with the Superannuation Industry (Supervision) Regulations 1994 (SISR) before deciding to access the government’s early access to super scheme.

NB:  Beware also scams surrounding the early release of super funds, they are on the increase.

         

The temporary early access to super (TEAS) scheme was one of several major changes to superannuation in the government’s second stimulus package in response to the economic effects of the COVID-19 outbreak.

The maximum amount that a member can access is $20,000 in the following increments, noting that a separate application is to be made on each occasion:

  • Up to $10,000 in the financial year ending 30 June 2020
  • Up to $10,000 in the financial year ending 30 June 2021

But according to Daniel Butler and Allison Murphy of DBA Lawyers, trustees should consider a range of other factors before accessing the scheme, including:

  • Whether the SMSF deed requires updating to enable a TEAS withdrawal, given this is a new condition of release that many SMSF deeds may not authorise.
  • The financial impact that any TEAS withdrawal will have on the member’s overall superannuation retirement nest egg over the long term.
  • Ensuring the fund has sufficient cash flow to fund any TEAS withdrawal together with its ongoing operations in view of any financial stress on the fund resulting from the coronavirus.
  • Preparing relevant trustee resolutions and updating the fund’s records.

As for members currently being paid an account-based pension or a transition to retirement income (TRIS) in retirement phase, Mr Butler and Ms Murphy said the amount required to fund the TEAS payment should first be commuted to accumulation before being paid to the member as a TEAS amount.

However, if a member is being paid a TRIS that is not in retirement phase, they said the amount should also first be commuted to accumulation before being paid as a TEAS amount, noting that a TRIS amount generally cannot be commuted, but new reg 6.19B of SISR authorises a payment of preserved money (after a TRIS is commuted).

“If the payment is not appropriately managed, a contravention of [SISR] could occur, resulting in potential penalties and the amount forming part of the member’s assessable income rather than being tax-free,” Mr Butler and Ms Murphy said.

“You should ensure the SMSF deed authorises this payment and prepare appropriate trustee resolutions.”

 

 

Adrian Flores
02 April 2020
smsfadviser.com

 

 

 

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