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Archives for December 2020

Retirement presents a number of new challenges as well as uncertainty for many Australians.

Planning for your retirement

Retirement presents a number of new challenges as well as uncertainty for many Australians. The current economic volatility and low return on cash savings are increasing drivers for Australians seeking advice. It is important to obtain appropriate and tailored advice as it will help retirees navigate the change from saving for retirement to relying on your savings during retirement.

The danger of running out of money is the second biggest worry for retirees, with 53% of Australians concerned about outliving their savings. (National Seniors Australia 2020[i])

There are many ways we can provide value when planning for retirement:

  • Reviewing your historical spending to determine likely spending habits during retirement to know how much you need to support your lifestyle.
  • How to structure your savings to minimise or even eliminate tax.
  • Review your risk tolerance and understanding of the risk-return relationship.
  • Assist eligible retirees to access Centrelink benefits to supplement income and extend retirement asset longevity.
  • Ongoing review service to ensure you remain on track and are coping outside of employment.

The COVID-19 global pandemic is the current driver of volatility and low interest rates. The need to maintain a long-term investment strategy and avoid instinctively making emotional decisions is imperative to ensure that your retirement savings continue working for you.

Understanding your needs and objectives allows us to provide tailored and relevant strategies to support effective decision-making and a long-term plan that guides you through a stress-free retirement.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

[i] https://nationalseniors.com.au/uploads/0120203573PAR-RetirementIncomeWorry-ChallengerRpt-FNREV.pdf

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Before seeking financial advice it is important to think about your goals.

The importance of having goals

It’s a common occurrence as a financial adviser when someone asks me what I do for a living, and when I tell them, the reply is “oh, I need to see one of those”. I like to ask what they are wanting to see an adviser about. Inevitably it is to build wealth, but often they haven’t explored what they want the wealth for.

A key step when engaging with a financial adviser is having an understanding of your present circumstances, and having ideas, maybe not definitive, of goals you want to achieve. Sounds easy?

Not everyone knows what they want to do, achieve or what might even be possible.  Depending on the stage of your life, your goals could range from buying a house, travel, retirement, debt reduction, or even estate planning and the priorities for each goal will continue to change over time. This is where your financial adviser can assist to work through your goals and objectives with you, establish a financial plan suited to your needs and help you on the way to success.

Sometimes we have a goal, but can’t define it. When setting goals, we need to think S.M.A.R.T.

Is the goal;

  • specific,
  • measurable,
  • achievable,
  • relevant to you; and,
  • has a timeframe been set?

Having a S.M.A.R.T goal is shown to improve a client’s focus, whether it be saving money to travel around Australia next year, to paying debt off by retirement, knowing the ‘end game’ and what is important to you is essential.

A couple more ideas when setting your goals;

  • “Don’t be afraid to dream” – not everything will always be possible, but if you don’t aspire to a goal, then chances are you won’t make it.
  • In setting personal goals there is no right answer except the one that works for you.
  • “Share your goals” – discuss with your partner and family what you want to achieve. Working together on a family goal like saving for a pool at home is a great activity and can show the kids the value of budgeting.

Finally, everyone must have goals, dreams and ambitions. Even if you don’t know what you might want, discuss your ideas with your adviser who will be more than happy to assist you.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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The dreams of retirees are changing due to the COVID-19 pandemic

11 key findings on retirees dreams during the pandemic

Much like how the Global Financial Crisis hit the economic wellbeing of many retirees so has COVID-19, with confidence in the quality of life in retirement and how long money will last being shaken.  Returns on cash and term deposits are negligible and that doesn’t look like changing anytime soon, which augurs well for growth assets given interest rates appear to be ‘lower for longer’.

Allianz Retire+ conducted some research during the pandemic some months ago and they received over 1,000 respondents from current and prospective retirees.  Here are some key findings.

1. Money is a recurring worry for retirees

24% of the respondents said they worried about making ends meet whilst 20% indicated money was a constant worry.

2. Spending even less on necessities, luxuries

75% of retirees said they were spending less on luxuries due to COVID-19. 68% of respondents said they were only buying necessities.

3. Many retirees did not feel financially secure

51% of those surveyed did not feel secure in their financial position.

4. Wealth destruction

36% of respondents said they had lost money during the COVID-19 market downturn. 13% believed they had experienced financial losses that would not be recovered during their retirement.

5. Vulnerable to another financial shock

61% did not believe their financial situation was safe in the event of another economic downturn.

6. Lack of control

45% did not feel in control of their financial future. Heightened market volatility was making many retirees feel they were at the mercy of global financial markets and unable to control their financial future.

7. Quality of life worries

34% of retirees worried about whether their finances would allow them to have a good quality of life.

8. Illness, market uncertainty top concerns

Top five concerns were:

  • becoming ill (55%)
  • unexpected costs (45%)
  • losing a loved one (44%)
  • not having enough money to live the life they wanted to live in retirement (34%)
  • the risk of one-off market downturns (32%)

9. More conservative approach

62% of surveyed retirees said they were taking a more conservative approach to their retirement because of COVID-19. Given that many retirees already live conservatively, the finding added to the broader survey theme of retirees cutting back further and taking fewer financial risks during the pandemic.

10. Retirement expectations being downgraded

23% of retirees now had more negative expectations of their retirement due to COVID-19.

11. Wary of financial advice

23% of respondents sought financial advice, even though they were feeling less financially secure. Allianz Retire+ research consistently finds that retirees who used professional investment advice felt more confident in their financial position.

Some confidence has returned to markets over the last 5-6 weeks as vaccine rollouts appear to be close to happening.  The U.S election result has also calmed investors some. It would be interesting to view the results of the survey if it were conducted today.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Piggy Bank

RBA cuts rates to record low

Philip Lowe, Governor of the Reserve Bank of Australia (RBA) announced a further cut to the cash rate down to 0.1% on 3 November 2020. This is a 0.15% reduction from 0.25%, which was held since March 2020. This is broadly in line with market expectations and brings Australia’s official interest rate in line with rates in comparable countries (which is around zero). For investors, it means lower rates for longer, with a rate hike unlikely in the coming years.

What is driving the latest easing?

Put simply, the RBA’s economic forecasts show that it does not expect to meet its inflation and employment objectives over the next 2 years and sees the recovery as being bumpy and drawn out. The RBA has been undershooting its 2-3% inflation objective for the last 5 years now.

Will the banks pass on the RBA rate cuts?

Passing all of the 0.15% cut will bring some downward pressure on bank profit margins as a significant chunk of deposits are already at or near zero rates. However, I believe the banks will pass most of it on as they will be under pressure from the RBA and the government who have been providing them with a lot of support (including cheap funding which is now 0.15% cheaper). If they do not, they will face public backlash.

Implications for investors?

There are a number of implications for investors from the latest easing by the RBA.

First, ultra-low interest rates will likely be with us for several more years, keeping bank deposit rates unattractive, so it is important for investors in bank deposits to assess alternative options.

Second, the low interest rate environment means the chase for yield is likely to continue supporting assets offering relatively high sustainable yields. This is likely to include Australian shares where despite sharp cuts to dividends, the grossed-up for franking credit dividend yield on shares remains far superior to the lower yield on bank term deposits. Investors need to consider what is most important; getting a decent income flow from their investment or absolute stability in the capital value of that investment. Of course, the equation will turn less favourable if economic activity deteriorates again.

Third, the ongoing decline in mortgage rates along with easing lending standards will help boost house prices, but bear in mind that high unemployment and a hit to immigration will likely impact throughout the year ahead. The housing outlook also varies dramatically between cities given the rising demand for outer suburban and regional houses over inner city units.

Finally, lower rates and increased quantitative easing will help keep the Australian Dollar lower than otherwise, but it is still likely to rise over the year ahead if global recovery continues and this pushes up commodity prices.

If you are not satisfied with the interest rates on your savings or require assistance in reducing the interest rates on your mortgage, please speak to your financial adviser or a mortgage broker.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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2020