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Retirement Planning? A Tailored Financial Plan is The Key to Success

By Blog, Uncategorized

For most Australians, the definition of retirement means different things to different people. Whereas previously to retire meant a departure from paid employment, nowadays lifestyle factors affect our work-life cycle and, for some, retirement has morphed into a combination of semi retirement, career change, lifestyle change and travel.  Whichever is the best fit for your individual circumstances, targeted retirement planning is mandatory to ensure you are able to comfortably accommodate your goals and aspirations.

A recent media release from the Australian Bureau of Statistics (March 2016) announced Australians are intending to work longer than ever before. In the survey conducted in 2014-15, 71 per cent of persons intended to retire at the age of 65 years or over, up from 66 per cent in last survey result of 2012-13 and 48 per cent in 2004-05. For those in the labour force who intended to retire, the most common factor influencing their decision was financial security.

Planning for Retirement

At Elston, we understand that financial security begins with a customised financial plan. We work with our clients to develop the right long term structure so they’re not forced to sell assets at a loss at retirement. We encourage clients to structure their wealth so they have the flexibility to work as much or as little as they like, while improving their long-term capital preservation and sustaining their living requirements for retirement.

Navigating the different options available can be challenging. How do you generate a passive income stream? Where should you invest? What are the latest changes to taxation and other regulations relating to superannuation? Our advisers offer up-to-date advice on a range of retirement planning solutions in alignment with your individual circumstances, assets and liabilities; your short and long term financial goals; and your ideal retirement plan. Some of these options include:

Self Managed Super Funds (SMSFs)

A self-managed super fund (SMSF) provides greater flexibility and control over your investments and financial future. With many Australians unsure where their superannuation is invested in traditional industry and retail funds, and many delivering average, or below average performance, the benefits of an SMSF make it an attractive component of a long term retirement plan.

SMSFs are proving to be a solid investment vehicle, with the Australian Taxation Office touting them as a viable way of saving for retirement. Indeed, an SMSF must be run for the sole purpose of providing retirement benefits for the members or their dependants. The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees. This means the members of the SMSF run it for their own benefit and are responsible for complying with the super and tax laws.

Superannuation Funds

With traditional super funds professional, licensed trustees are responsible for managing the fund and bear the compliance risks. While some allow control over the mix and risk level of your super investments, generally you are unable to select specific assets your super will be invested in.

If an SMSF isn’t a good fit for your current financial situation, there are many options available for leveraging and maxmising your traditional superannuation fund.  Additionally, you can make your own contributions, organise a salary sacrifice arrangement, or take advantage of eligible government superannuation co-contributions.

The right advice – the right plan

Everyone has unique goals, limitations and assets; and accessing the right financial advice is as important to your retirement plan as the structure you use. An experienced financial planner will use a ‘big picture’ approach, taking the time to discuss your personal circumstances and identify your goals, before matching you with a plan designed to actualise your retirement goals by harnessing your financial potential.

Control your wealth – control your future

Retirement dreams are never a one-size-fits-all ideology, and retirement planning is never a one-size-fits-all financial solution. Whether you dream of caravanning around Australia, spending more time with the grandchildren, cruising the world, or taking on part-time or hobby income streams, you need the financial security to embrace your dreams with confidence.

To control your wealth is to control your future. Whether it’s building wealth through an investment strategy, or tapping into the benefits of an SMSF, Elston can help you achieve financial security with a customised retirement plan.

Door Closing On Super Opportunities

By Blog, Uncategorized

“Our lives are defined by opportunities, even the ones we miss.”  – Eric Roth

For anyone who wants a comfortable retirement, 1 July 2017 is a very important date, as this is when the majority of the government’s proposed super changes are likely to come into effect.

Although it seems like super is constantly under attack, it is still the most effective way to provide for retirement. It remains a tax-free retirement option, and the only legal way to ensure you pay no tax on ‘decent’ retirement incomes.

In fact, super is so good that the government is looking to reduce how much we can use it. One way they are doing this is by reducing the contributions you can make. Among the various proposals is a significant restriction on Non Concessional Contributions (NCCs).

What are NCCs?

An NCC is an amount that is transferred into super from after-tax monies. Over the years, it has been a very effective way to move money from you own name (where it could attract tax in retirement) into super (where it can be tax-free).

Commonly, this might occur when you receive an inheritance, take a redundancy, sell a business or realise a sum from a property sale. NCCs can also be used when you transfer an existing investment (such as a share portfolio or a commercial property), into a self-managed super fund for tax purposes.

What is changing? Currently, anyone eligible can put $180,000 worth of NCCs into super each year. And if you’re under 65, you can make three years’ worth of NCCs in one hit – allowing $540,000 to be put into super. However, from 1 July 2017, these rules will be amended so that:

  • The annual limit is reduced to $100,000
  • The three year ‘bring forward’ limit is reduced to $300,000
  • Once you have $1.6m in super, you can no longer make NCCs at all.

These are significant changes that will greatly reduce your ability to move large sums into super.

Make the most of this window of opportunity now!

Thankfully, a window of opportunity still exists for you to move large sums into your super. While the current rules are still in place, it is possible for a couple to put over $1 million into super. Once the rules change, this opportunity will be lost forever. So now is the time to act.

If you fit into one or more of the following categories, you may be impacted by this rule change:

  • You are 50 plus, with super of $750,000 or more
  • You are aged 62 or older
  • You will have more than $1.3 million in super as at 30 June 2017
  • You have significant assets (like cash, shares, managed funds, properties) outside of super – which you may be better off having inside your super.

What’s the next step?

With only months until this change becomes law, urgent action may be needed before this opportunity is lost forever.

Can you afford the retirement you want?

By Blog, Uncategorized

One of the most common questions we are asked by clients planning for retirement in the next 5 or 10 years is ‘How much do I need?’ Compared to those who retired 20 or 30 years ago, future retirees need to plan for longer life expectancies and lower investment returns. In the past, investments of $1 million may have allowed for a very comfortable retirement, but this may not be enough in the future.

When addressing the cost of retirement, it’s important to consider the lifestyle you wish to lead. As a starting point, we often consider the ASFA Retirement Standard.  Under this measure, for a couple to have a ‘comfortable’ retirement, an amount of $59,236 is required ($43,184 for a single person).

Our experience at Elston, however, is that many retirees like to be more active than what’s allowed for by the ‘comfortable’ ASFA standard. For example, many retirees like to budget for an annual overseas trip, adding around $20,000 pa to the cost.  Other costs such as helping the kids, home renovations, car upgrades and health care needs should also be considered. For these active and involved retiree couples, the annual cost of retirement can easily reach $80,000 pa or more.

Does the cost of living really fall as you get older?

Experience also tells us that the cost of living doesn’t always fall that much as people age. The 2015 Intergenerational Report noted that many more Australians will now live beyond the age of 90. We are also likely to remain healthy longer, with many over 80s enjoying active lifestyles, including travel.

In fact, the ASFA calculations show that for a retired couple aged 85 years, the cost of a comfortable retirement today is only $5,000 pa less than it would be for a 65 year old couple. A similar gap applies to single retirees.

Increasingly it will be up to retirees to fund retirement themselves. While an Age Pension safety net is always likely to be there, the income it provides will be far less than the amounts above. Pension changes on 1 January 2017 will also reduce access to part pensions.

How much do you need to self fund your retirement?

The question of how much investment is needed to self fund your retirement is a difficult one. Post the Global Financial Crisis, global investment returns have been subdued. This has caused concern as to whether old rules of thumb will hold true in the future. Certainly, if recent low returns continue for an extended period, it will mean the amounts that a person needs to fund retirement will be larger.

This said, we should never base our long term assumptions for the future on the short term past. Interest rates are unlikely to stay at today’s levels forever; just as they didn’t stay at the heights they reached in the late 1980s. However, we also cannot assume that the significant growth in asset prices of the last 30 years will be repeated in the next 30.

Individual factors need to be considered

Ultimately, how much you might need will depend on a range of factors including your desired lifestyle, the legacy you want to leave, the possibility of accessing the age pension, how long you might live and your risk profile.

While it is definitely possible to live a nice life on less, many people aspire to have a retirement that is active and filled with adventure, choice and freedom. To guarantee certainty around this requires significant capital, so it’s important to set goals and start planning early.


The World (and $1 million) Is Not Enough

By Blog, Uncategorized

In the financial world, there are often quoted ‘rules of thumb’. A common one is: “If you own your home and have $1 million invested, you’ll be right for retirement.”

Sounds reasonable, but is it true?

We have examined the idea that an income of $60,000 for a retired couple is often considered sufficient for a comfortable lifestyle. We suggested that for those aspiring to have more, income above $80,000 was probably closer to the mark. So how much invested capital is needed to produce this? The answer to this question is a difficult one.

Post the Global Financial Crisis, investment returns have been subdued. Just take a look at the income that 5 year government bonds currently produce.

Country5 year bond yield
United States1.10%
Great Britain0.40%

So, do old rules of thumb still apply?

While other asset classes can produce better income, low returns have caused concern as to whether old rules of thumb will continue to hold true.

In the United States, there has been a rule of thumb that has stood more than 20 years. This says that a retiree can afford to draw 4% of their initial investment in the first year, increasing with inflation annually. The theory goes that if this rule is followed, the retiree’s capital is guaranteed to last at least 30 years.

This was based on a 1994 study that examined returns on a portfolio over periods going back to 1929. The assumption was that the portfolio owned 50% in US Bonds and 50% in US shares. The testing showed that even in the very worst 30 year period, the retiree would not run out of money, if they stuck with the 4% rule.

Given the low US Bond yield, some US commentators are suggesting that the 4% rule should become a 2.85% rule. This would mean a retiree with $1 million can only afford to spend $28,500 per year. It would also indicate that to reach the suggested $80,000 retirement income, a retiree might need as much as $2.8 million invested!

Should investors lower their expectations?

At SB Wealth, we don’t agree that investors should set their return expectations quite this low. It is unwise to assume that the current (extreme) situation will persist forever. Interest rates are unlikely to stay at today’s levels; just like they didn’t stay at the heights reached in the 1980s.

Typical Australian retirees often have what is referred to as a ‘balanced asset allocation’. This is made up of 30% in cash and bonds, and 70% in shares and property. In the current environment, an average gross income of 4.10% would be produced using this strategy. This is not as conservative as the 50/50 split used in the US study.

We should also consider that over the long run, the shares and property in such a portfolio should allow the income and capital to grow with inflation. With these assumptions, to have $80,000 pa indexed to inflation with money lasting 30 years, you might need at least $1.565 million. This assumes no age pension is available.

What’s your ‘magic’ number?

If we come back to our original question – is $1 million enough, the answer is – it depends. Rules of thumb make good discussion points for articles, but actually should never be used to plan a retirement. Instead, you need to consider your personal situation and goals.

Factors such as desired lifestyle, the legacy you want to leave, the possibility of accessing an age pension, how long you might live, and your comfort with investment risk, all play a big role. So, while $1 million may be plenty for some, for others it will simply not be enough.

To better understand your number, speak to our adviser today.


Don’t Be The Bigger Fool

By Blog, Uncategorized

By Grayden Taylor – Investment Manager

I was recently going through some old photo albums and came across some photos of myself in the 80s, sporting a classic mullet hairstyle and wearing a pink, green and yellow fluoro shirt. It immediately made me think of negative interest rates. It may seem a bit of a stretch, but there are some phenomena we get caught up in at the time, only to find ourselves looking back years later and asking, “What were we thinking?”

This tends to be the nature of financial market bubbles, with probably the quintessential example being the ‘tech bubble’ of the late 90s, where the valuation of companies bore no semblance to their future profitability. Companies with no revenues and massive expenses were trading at ridiculous prices, with analysts and market participants inventing new metrics, in a vain effort to justify what was going on.

Hindsight is a wonderful thing

After the inevitable happened and reality (and sanity) returned, those same market participants looked back, and with the benefit of hindsight, acknowledged that the price movements didn’t make sense and should never have happened. In the end, the only way people were going to profit from investing in these companies, was to sell them at a higher price to someone else prepared to pay an even more ridiculous price – in other words, to find a bigger fool.

As bubbles form and continue to gain momentum, this can be a very successful and profitable strategy, but it can be brutal on those left holding the can, when there’s no one left to pay a higher price.

While not as crazy as the tech valuations, the concept of negative interest rate policy is something we will need to look back on to understand the true impacts and consequences it has had. Negative interest rates are not completely new. In Switzerland during the 70s, negative rates were used to stop the rapid appreciation of the Swiss franc, as investors sought to avoid inflation in other parts of the world. What is new however, is the widespread occurrence of negative interest rates across Europe and in Japan, with a third of global government debt (about $7 trillion worth)1 now having negative interest rates. This means that investors are effectively paying to keep their money with the bank or to lend money to a borrower.

As a real world example, imagine if you could get a car lease at a negative finance rate. You could turn up to the dealership, drive away a brand new car, return it years later at the end of the lease and receive a payment from the car yard! I’ll take a Bentley Continental GT please, one of the convertibles! Why would they do this? Quite simply, they wouldn’t! But investors, it seems, are expecting economic stagnation, and ultimately deflation for an extended period of time.

Global growth forecast better than expected

However, while not exactly racing along, the data for global growth doesn’t really support quite such a bleak outlook. In January, the World Bank downgraded its 2016 growth forecast to 2.4%, from the previous 2.9%. Despite problems in Europe and emerging markets such as Brazil and Russia, China is still projected to grow at 6.7%2 and the US at 2%3.

So if we’re not likely to get a deflationary environment, the only thing left for buyers of bonds with negative rates to have a positive return, is for them to find a buyer for those bonds at an even more negative interest rate – a bigger fool. A period of stronger than expected global growth and an uptick in inflation, should it occur, will mean that the buyer is unlikely to appear, and we’ll see an end to the bond bubble that has grown over the past decade. Should this occur, the massive capital appreciation we’ve seen in the bond market will reverse, and we’ll get a normalisation of interest rates along the yield curve. So make sure you’ve locked in the interest rate on your Bentley – those things are expensive!



Grayden Taylor
Grayden is a member of the Investment Team at Elston and is responsible for portfolio management. His experience spans domestically and internationally in several sectors of the financial markets including equities, equity derivatives, trading and market making. Grayden worked as a market maker in bond and equity derivatives on the Sydney Futures Exchange before managing portfolio trading operations in Hong Kong and Brazil prior to working at Elston.


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While recent market volatility is concerning for investors, for those with a long term plan to accumulate wealth there is a silver lining. In fact, for investors who are committed to regular savings, declines in investment values could ultimately leave them in a better position.

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How much income is enough for a comfortable retirement?

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With the upcoming Federal Budget, there is once again speculation around possible changes to superannuation regulations, including changes to contribution caps or the introduction of lifetime contribution limits. While we have no particular insights into what may actually change, if anything, we do know that both the size of their asset base and the return earned on it are important determinants as to whether retirees will be able to enjoy the lifestyle they seek.
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Retirement Planning? A Tailored Financial Plan is The Key to Success.

By Blog, Featured

For most Australians, the definition of retirement means different things to different people. Whereas previously to retire meant a departure from paid employment, nowadays lifestyle factors affect our work-life cycle and, for some, retirement has morphed into a combination of semi-retirement, career change, lifestyle change and travel. Whichever is the best fit for your individual circumstances, targeted retirement planning is mandatory to ensure you are able to comfortably accommodate your goals and aspirations.
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