Australians need to look at long-term saving options that sit outside superannuation if they are to have enough money to maintain their current lifestyle in retirement, according to investment group IOOF Research from the firm has shown more than a third of respondents to its consumer survey believe they will not have enough money to maintain their current lifestyle when they retire, with only 29 per cent believing they could carry on as normal. More than one-third of survey respondents still plan to use superannuation as their sole source of income.

“It’s alarming to find out that many Australians believe compulsory superannuation will be enough to maintain their current standard of living, the harsh reality is that in many cases it won’t,” said IOOF’s investor solutions general manager, Renato Mota.

Mota added that those looking to top up their super through voluntary contributions would find their saving potential has been limited following recent cap reductions imposed on voluntary contribution levels. As a result, he advised consumers to look at a selection of investment vehicles as a means of saving for retirement.

IOOF’s survey, which was conducted by AC Neilsen, found 33 per cent of respondents saw retirement as the most important thing for which to save, however, almost one-third had yet to begin long-term planning. Shockingly, despite the lack of financial knowledge among Australians, almost 80 per cent of respondents had not sought professional financial advice for their retirement.

If you need help with determining how much you will n eed in retirement and how to get there, please feel free to contact me at super@protectmywealth.com.au

Source: Moneymanagement.com.au
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We’ve all seen and read the ads for Industry Super. The guy that goes up the escalator vs the guy who goes down, representing their investments due to commissions being paid. Now I have always said there is value in Industry Funds, depending on what value you place on Super.

One side is that you save ‘a small amount’ of fees on your super with industry funds, but the other side is that nobody monitors your super, gives advice on where your money is supposed to be invested, and generally, there is nobody to talk about salary sacrifice, government co-contributions, etc.

An adviser, or financial planner can always help with these scenarios, but of course there is a fee involved. We don’t live in a benevolent society, and you get what you pay for. Most would understand this. Well, this week uncovered the under the table commissions paid to a fund manager by an industry fund. Sure, it’s not paying a trail commission from your account to an adviser, but instead it’s paid $1 Million to a firm to provide service on a SunSuper investment.

Where does that money come from? The SunSuper accounts. The member accounts! It comes directly from the interest returns of the members.

Please CLICK HERE for the full article. I would love to get your opinion on what you think.

PD

An interesting story in News today about the promising property cycle in Australia. This is not just a property spruik, but contains some great ‘facts’ about why this is the case. Like I’ve been telling for quite a while, now is the time to invest for the long term. The wealthy of tomorrow are the ones who acted at this time in history, but ONLY if you are financially able to do it (and stick to the investment rules of location).

AUSTRALIA’’s property sector is about to catch a wave but homeowners and investors do not need to worry about a wipe-out.

While a bubble in the first home owner segment of the housing market is set to burst with the winding back of government grants in two months, industry experts say investors will fill the breach.

They don’t expect the property market to follow the big slumps felt in Britain and the US, where prices have fallen by more than 20 per cent.

In the US, in particular, the problem is too much supply and not enough demand.

“Fundamentally, America has 1.1 million properties in oversupply,” says Damon Nagel, the managing director of property investment  company Ironfish.

“In Australia, it’s more than 180,000 in undersupply. We can keep building for 18 months and only catch up to demand.”

But the buyers of property are expected to increasingly be investors, rather than owner occupiers, once the Federal Government First Home Owner Grant starts to wind down from September 30.

“I think you’ll find first home buyers next year will be like rocking horse droppings – few and far between,” Nagel says.

Professionals Real Estate Group agency principal Claudine Deneuve says buyer inquiries have risen as people realise interest rates are unlikely to fall further.

She’s expecting investors to return to the market as first home owner activity falls in coming months.

“House-price growth will be fairly moderate, with a much slower global economy,” Deneuve says.

“We have avoided the 30-40 per cent drops of the US and UK because our economy was in far better shape than our peers at the start of this historic global recession.

“If the global recession drags out too long, Australia’s economy may become at risk.”

A report released last month by forecaster BIS Shrapnel says conditions are ripe for a sustained recovery in residential property prices.

“Low interest rates, solid growth in rents and housing shortages are evident in most markets,” the report says.

But not everybody believes the outlook is for growth.

Morgan Stanley chief economist Gerard Minack says Australian residential property remains expensive “and will likely prove to be a poor medium-term investment”.

“Whether there are big price declines will depend on employment,” he says.

“In markets where employment and incomes have taken a big hit . . . we have seen big price declines.”

But some do not think prices will drop while houses are still in short supply.

“Demand stems from population growth,” .

“With 190,000 migrants coming into Australia, there’s a shortage of housing, and people need accommodation.”

Some industry names say now is a ‘‘once-in-a-generation opportunity” for investors.

“It’s probably a good time to buy in the right spot, but be careful,”.

PD

Yesterday, I covered off how to actually pick a planner. Hopefully, when looking around, you will be lucky enough to find one local in your area. This post today is to cover off who you shouldn’t pick as a planner.

There are thousands of planners and advisers in the market today. The industry itself has a bad reputation for some reason, but I think it’s unfairly earned. Many years ago, the industry had many rogue traders, but were since traded out by the government through strict licensing regimes called Policy Statement 146 (PS146). This requires anyone advising on money and insurance to have the appropriate diplomas called ‘Diploma of Financial Planning’ which takes much study and complex tests to complete.

There are expetions to the rule in many cases, and I believe there is one when talking about this area. Banks! Yes, they are a bunch of Bankers.

Banks have been immune to many of the rules and regulations set on the financial services industry that has kept it clean for the past few years.

One of the rules is that ‘independent’ advisers MUST offer independent advice to clients from several financial institutions, making it unbiased of course. Bank employees are influenced by the banks products, limiting their choice in advice to you.

When choosing a planner, make sure you look into their product offering, which can be obtained by asking them for their Financial Services Guide (FSG), and that will give you an idea of what they can offer.

If you are in a small town and the only planner available is bank staff, then you may want to also ring another town or city and discuss over the phone so you can compare.

No more than 3 planners will be enough for you to get a feel of what is acceptable. And above all else, make sure you feel comfortable with the person, but remember, they are qualified and if you take their advice, FOLLOW IT. They don’t say it for nothing.
Good luck. I would love to hear any stories from you about success stories of visiting a financial planner. If you haven’t visited one and would like contact to one, please Contact Me and I will give you a list of some you can interview.
PD

With an ageing population, more people are starting to look seriously at the prospect of how much they will actually need once they ‘retire’. There are many areas to take into account when considering retirement. Like, which fluffy shoes to buy for your mid morning stroll to the front lawn to pick up your newspaper, looking for the next holiday destination in your new motor home.

My guest writer for this topic is Sean Prosser , from Lighthouse Financial Advisers based in Sydney. Sean is an experienced financial planner and specialises in retirement planning and wealth creation.

The question about how much you need to live on in retirement is an old chestnut, where “old” is probably the operative word. Studies in the US show that life expectancy could reach 100 years of age by 2030. If that is the case  if someone were to retire at age 65, that means 35 years in retirement.
So it’s not just a question of having enough income each year in retirement, but also one of whether you will outlive your retirement savings.
The Association of Superannuation Funds of Australia, together with Westpac, found that to have a comfortable lifestyle, retired singles who live in their own home need to spend $36,607 a year and couples $48,648.

Recent life expectancy figures issued by the Australian Government Actuary estimate that a 55-year-old woman has a 35 per cent change of reaching 95 years and a man of the same age has a 19 per cent chance. But 71 per cent of 55 year old women will live till they are 85 and 58 per cent of men.

On average a 55 year old woman has a life expectancy of 89.7 years and a 55 year old man 86.2 years. So that’s quite a number of years that people will be spending in retirement.

Compulsory superannuation at nine percent a year will not get you that sort of money, so you will need to make additional contributions along the way.

So while it makes sense to get as much of your retirement savings into super so you can enjoy the tax-free environment, you will need to adopt a steady-as-she-goes strategy to achieve this end.
What that means is you should be looking at making additional super contributions from your 30s onwards rather than leaving it until the last moment.

Aside from the tax-free status of money drawn down from super after you are 60, there are plenty of other incentives to encourage you to make additional contributions, such as the tax concessions available during the accumulation phase of super.

The most accurate way of assessing your retirement needs is to work out a realistic budget. However, if that’s a daunting prospect, a good rule of thumb is approximately 60%-70% of your pre-retirement income.

So how much do you need in dollar terms per annum?

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Once you have determined your required annual income, you then need to establish exactly how big your retirement nest egg needs to be to provide that level of income for life.
The table below shows the savings you will need at retirement for some income levels, assuming retirement at age 65 years and that the income will be paid for an average life expectancy.
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This is general information and everyone’s needs and requirements are very different.
So if you are at all concerned with your retirement plans, talking with a qualified financial planner may be a good idea, it’s never too late to start planning.

To ensure you are on the right track to retirement, and having enough funds to get you there, Sean has offered an hour of his service at no cost to readers of this blog. This offer is only available to 50 readers, so you need to be quick. Sean can be contacted by EMAIL or visit his website at www.lighthouseonline.com.au

Whole of Life, or Endowment policies, as they were known, used to be offered in Australia up until about 5 years ago when the previous government changed regulations pertaining to the taxation of these types of products.

The main tax concession available with these policies were If no withdrawals are made in the first ten years you do not have to pay income tax on the investment gains of the plan. If withdrawals are made during the 8th or 9th year a tax rebate may be available. But on a sliding scale.

If you currently hold an ‘Endowment’ or ‘Whole of Life’ policy, you may find some answers in this AMP Fact Sheet for their old funds. But still the fact remains that you can’t apply for new policies anymore. One main reason would be that fund managers weren’t making enough money on them either. Fancy that.

If you have a Whole of Life policy, you may want to consider talking to someone about whether it is still suitable for you or not. These policies have two parts to them.

1) A Life Insurance component - A premium is paid for a small amount of life insurance in the fund.

2) A savings component - Part of the money you put in goes towards the savings portion of your policy.

For example, if you pay $50 month toward your policy and possibly $30 of that will go to pay for the life insurance. In the beginning it may only have been $5 or $10, but as you get older, the premiums increase an that eats into the savings component of your fund.

This is why I get so many people asking me why they only have a small amount of money to cash in at the end of the policy when they’ve been paying into it for over 10 or 20 years. Sometimes, the best option is to look at premiums the other companies are offering, (who also have better benefits that the original policy you may have) and put the savings component into super, your mortgage, or even a savings account.

PD

Yes, the finance industry is the foremost expert on 3 letter acronyms, and IPO is another example. Standing for Initial Public Offering, it basically means offering shares to the public for the first time, usually with a prospectus that details the investment offer.

IPOs are often described as flotation, going public or listing. Prior to an IPO, enterprises that sell shares to investors are considered to be privately held. The IPO allows investors to liquidate some or all of their interest in the particular entity when it becomes a public company.

Selling Stock
An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO.

Companies fall into two broad categories: private and public.
A privately held company has fewer shareholders and its owners don’t have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. Did you know that IKEA, Domino’s Pizza and Hallmark Cards are all privately held?

It usually isn’t possible to buy shares in a private company. You can approach the owners about investing, but they’re not obligated to sell you anything, and probably won’t anyway. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as “going public.”

This form of investing can be relatively high risk, but at the same time, if you know much about a company looking at an IPO, and you do your due dilligence on the business, it could give you returns far exceeding many other investments in this category. Once again, do your research and never invest in anything you don’t know much about.

That concludes the simple series of investing in shares. There are many websites dedicated to shares and books on investing. Warren buffet has a very down to earth look at investing and it obviously works, considering he is the second richest man in the world by doing this. I hope this series helped you.

PD

One of the reasons shares are bought is to receive an income. Each time the listed company has profits at the end of each year, they pay a share of the profits to their shareholders, which is called a dividend.

I know this is not rocket science for many people, but you would be surprised how many people don’t understand different parts of shares. Wikipedia’s definition of a dividend sums it up quite well:

Dividends are payments made by a corporation to its shareholders. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

These dividends can be paid franked or unfranked. Franked means that the shares have had the tax paid on the earnings already, and unfranked means the tax hasn’t.

So many people invest in shares, in fact nearly every Australian worker has some form of shares at the moment, through superannuation. If you haven’t gone to the extent of actually purchasing shares yourself, then there are a few things you will need to understand before taking ‘the plunge’.

To help you with the basics of understanding shares, I’ll run a short post series. If you have any feedback or suggestions on what you would like to hear more about, please post a comment below and I’ll post the information for you.If you go to the ASX website, and click on shares to search for a company, you will find the following facts: This first post is about Price Earnings Ratios (P/E ratio).

What Does Price-Earnings Ratio - P/E Ratio Mean?
A valuation ratio of a company’s current share price compared to its per-share earnings.
Calculated as: Price-Earnings Ratio (P/E Ratio)

For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

The Eearnings Per Share is usually from the last four quarters (also called trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four.

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

The P/E is sometimes referred to as the “multiple”, because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, that would mean that an investor is willing to pay $20 for $1 of  current earnings.

It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

I hope this post helped you understand the P/E Ratio, and be sure to keep an eye on the next post.

PD