CONNECTION POINT. Spring cleaning your finances. Benefits to be gained in all life stages. Edition Credit Card cleanout

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1 Edition CONNECTION POINT Benefits to be gained in all life stages The articles in this edition reflect the great diversity of benefits available through all life stages when you engage the services of a professional financial adviser. Our financial planning spring cleaning checklist outlines a host of areas that are relevant to all age groups and can form the basis of a review. Our article on organising the death benefit beneficiary nominations on your superannuation also has broad relevance to all working people and is especially important if you have a young family relying on you. Spring cleaning your finances As the days grow warmer and the renewal of nature moves into full swing, it can also be a good time to look at your own financial renewal. Are there issues that need attending to in order to improve your financial organisation, security or growth? Here are a few hints to help you make an assessment and get your financial house in order. Get on top of your budget At a basic level your home budget is a great place to start any financial check-up. A review of your recent spending history may reveal areas that need better control or may help you to re-order your priorities. You don t have to be overly prescriptive about how you budget. It is more a matter of being aware of where the main expenditure is going, checking that you are living within your means and ensuring that you are allocating sufficient funds from your budget toward your longer term financial goals. Credit Card cleanout Do you feel like you are playing catch-up all the time to get your credit cards under control? Perhaps it is time to put some firm plans in place to make them work for you rather than the other way around. Look at what interest you are being charged on your various cards and take steps to attack the debt on the ones doing you the most damage. It may also be worthwhile to try and consolidate down to one or two accounts by using balance transfer offers. Credit cards can be a useful tool to manage spending if used properly but taking advantage of interest free periods and making payments on time is vital to limiting the potentially high cost. Refresh your savings habits Good financial discipline is not just a matter of paying your bills on time, it also means Continued page 2 For those in the latter stages of their working life, we have two features of particular interest. Firstly, a timely warning about the increasing economic burdens falling at the feet of those who are coping with the dependence of both their elderly parents and their children. There will always be a myriad of issues that impact on your financial wellbeing but we are here to help every step of the way. Anthony Monaghan PRINCIPAL Connection Point Edition

2 Continued from page 1 making sure you put a priority on paying yourself by allocating funds for long term saving. It can be easy to save for something that is tangible and desirable, such as a holiday or for a home appliance, but it is equally important to put savings aside for the purpose of building funds to invest. It doesn t have to be a large amount but the important thing is to be habitual about it. If you save regularly it is surprising how quickly the funds can build up. Before you know it you will have sufficient funds to put into some form of investment that can generate capital growth and income for you. Taxing questions Keeping your tax in order is a crucial part of financial planning, particularly for those who are self-employed. Nothing can be more damaging to your financial development than accruing tax debts and delaying tax returns. It not only attracts interest penalties, it can discourage you from taking action in other areas of financial management. If you are facing challenges in this area it can be liberating to simply take the bull by the horns and speak to your accountant or the Tax Office about how you plan to pay down debts and get on top of your tax responsibilities. Super savings Consolidation of super is one of those hidden opportunities that could save you substantial money just by taking some simple actions. If you have had several employers over your working life you may end up with a variety of small super balances left languishing in a range of accounts. This can result in excessive and unnecessary administration fees that could otherwise be working toward your retirement nest egg. Some of these accounts may also be in investments that aren t performing well or do not suit your risk profile. Your super is potentially your largest asset so it pays to get some advice and get it working to its maximum efficiency. Salary sacrifice for super savings Salary sacrificing is simply a way of using before tax dollars to boost your super and to potentially save on tax at the same time. You can speak to your employer about the possibilities or speak to us to investigate the potential benefits and how easy it can be to implement. Audit your insurance protection The foundation of any financial plan is the insurance cover that underpins it. No amount of income, saving, budgeting or tax planning can remedy a lack of proper insurance coverage against sickness, injury or premature death. Insurance is the only way to ensure your financial plans are self-completing if you are ever struck by such misfortune. This is especially important if you have recently undergone any major life change such as buying a home or having a child. Use an adviser to maximise opportunities All of the issues covered in this checklist are areas that we can assist with. We can be a sounding board for ideas and can help you assess your situation, set priorities and put plans in place. If there is anything that we can t directly help with then we can readily refer you to professional advisers, such as solicitors or accountants. Let us help improve your financial organisation. It may be time to review your circumstances. Call us on Connection Point Edition

3 Who can receive your superannuation should you die? Our superannuation funds are growing, due largely to the introduction of compulsory Superannuation Guarantee Contributions. For many superannuation now represents the second largest asset they own behind the family home. But what happens to your superannuation funds if you were to die? Will the super benefits automatically be distributed to your beneficiaries according to your Will? No, not necessarily. The rules applying to superannuation death benefits are complex. Superannuation is not an asset that is automatically included as part of your estate making it all the more important to ensure your beneficiary nominations are up to date. Who can receive your superannuation death benefit? In most situations, the only people that can receive your superannuation funds, including any insurance proceeds held within your super in the event of your death are: 1. Dependants under superannuation law (Superannuation Industry (Supervision) Act 1993); or 2. Your Legal Personal Representative (LPR) A dependant for superannuation purposes includes: a spouse (including de facto, opposite or same sex); a child of any age (including adopted, step and ex-nuptial child of the member or their spouse); any person financially dependent on the member at the time of death; or any person with an interdependency relationship with the member immediately before the date of death. Your LPR is effectively the person appointed as executor or administrator of your estate resulting in your superannuation funds being distributed in accordance with your Will. How can you make sure the right person receives your super? As the owner of a superannuation fund you have options when it comes to nominating who will receive your super payout. The best option for you will depend on your specific situation. Binding Death Nomination (BDN) - a BDN provides certainty as to who will receive the benefit at death. This option, the most popular in recent years, effectively takes away the need for the superannuation fund to use their discretion when deciding who to pay the benefits to. As a result, a BDN helps ensure superannuation proceeds are directed to beneficiaries without any undue hold ups. For a BDN to be valid the notice must be in writing, signed and witnessed and the nominated beneficiaries must be superannuation dependants or your LPR. Generally a BDN will be valid for a period of three years however some superannuation funds offer non-lapsing BDNs. Reversionary beneficiary a reversionary nomination will see the automatic transfer of ownership and continuation of a superannuation pension to the beneficiary. This option is generally available to those already receiving a superannuation pension (e.g. an account based pension) and ensures that the pension payments automatically continue to loved ones in the event of death. Non-binding nomination if you have nominated a beneficiary under a non-binding nomination, it is likely that the superannuation fund trustee will be strongly influenced by this nomination. However, the ultimate decision as to who receives your super funds is made by the trustee and therefore there is no guarantee that your superannuation benefits will be paid to your selected beneficiary. No nomination if you do not have a death nomination in place your superannuation death benefits will be distributed under trustee discretion. Superannuation funds will often have their own processes in place to deal with death benefits where no nomination has been provided (e.g. automatically pay the proceeds to the LPR). Unlike a binding or non-binding nomination, the superannuation trustee has no indication as to who you would like to receive your superannuation proceeds. Example: Why making the right nomination is so important To ensure your wishes are met in the event of death, having an up to date nomination for your superannuation and pension funds is essential. However, knowing what type of nomination will best meet your individual needs is also critical. Talk to us before selecting which type of death benefit nomination you will have as there are both tax and Centrelink implications as Don and Nita discovered. Don (70) and Nita (65) recently sold their family business and now wish to retire. Don has $350,000 in superannuation and plans to commence an account based pension with these funds to provide an income of $24,000 per year to help meet their needs in retirement. Don and Nita liked the idea of setting up a reversionary beneficiary for Don s account based pension. This would mean the pension would continue to be paid to Nita in the event of Don s death. Luckily, Don and Nita obtained advice as in their specific circumstances, electing a reversionary beneficiary instead of a binding death nomination would mean that more income would be assessed by Centrelink when calculating their Age Pension entitlements. Selecting a binding death nomination instead resulted in Don and Nita receiving an extra $ per fortnight. That s $3,762 more Age Pension per year. Plus, even with a binding death nomination in place, Nita will still get the opportunity to receive Don s account as a pension if he were to pass away. Ensure your wishes are met in the event of a death by seeking professional advice. Call us on Connection Point Edition

4 Self Managed Super Funds must consider insurance 4 Connection Point Edition

5 Are you a member of a Self Managed Superannuation Fund (SMSF)? Do you know someone who is? Read on as the rules relating to SMSFs and insurance have changed and it may be time to seek professional insurance advice? SMSFs are the fastest growing sector within the superannuation industry with fund numbers approaching 500,000* in Australia. Yet recent Government figures suggest that only 13% of SMSFs have insurance in place.* This level of underinsurance poses three significant issues for SMSF members, who are also generally the trustees of the SMSF, namely: 1. Is there adequate protection for family and other members of the SMSF should a death or injury occur, particularly if the SMSF has debt? 2. Are you meeting your regulatory obligations by considering the insurance needs of all SMSF members? 3. Do you have the expertise to identify the appropriate type and level of insurance needed by members, especially if the members of the fund are at different life stages? Adequate protection Most industry and large retail superannuation funds provide some form of default insurance cover for members. However, this is not the case with SMSFs. It is essential that members of SMSFs understand the risks associated with not holding sufficient insurance cover in the event of death, disability or an illness or accident that prevents the member from generating an income. As an example, let s look at Toby s situation. Toby runs his own building business and with his partner, owns a SMSF which holds 100% of his accumulated superannuation. Via his SMSF, Toby has borrowed $300,000 to purchase an investment property and he makes regular superannuation contributions into the SMSF to help meet the loan repayments. Toby currently has no insurance cover. In this situation, if Toby had an accident and was unable to work, with no income protection insurance, not only would his (and his family s) financial position suffer, he would not have the money to contribute to his SMSF to make the loan repayments. As a result, the SMSF may go into a negative cashflow position and assets may need to be sold off at the wrong time to repay debt. Regulatory obligations As part of the Stronger Super Reforms, in August 2012, the Government announced that trustees of SMSFs are now required to: > Consider insurance for fund members as part of the fund s investment strategy. This requirement does not necessarily mean that insurance must be included in every SMSF but it does mean that the SMSF must have documentation to show that the matter has been appropriately considered and the fund s auditor will need to sight this documentation or report the fund to the Australian Taxation Office. This trustee requirement to consider insurance needs for all members brings us to the third point. Insurance expertise It takes financial planners and insurance professionals many years of training to become experts in the area of insurance. And the training never stops with ongoing education and regulatory requirement to ensure planners are up to date with the latest laws and trends. As a consequence, seeking professional advice will be of paramount importance to many SMSF trustees to ensure the insurance needs of fund members have been appropriately considered. Most trustees are unlikely to understand the types of insurance available, the features of each policy, the ownership structures and the varying costs. Obtaining professional assistance with the management of this SMSF requirement will be a smart move for many trustees. * Australian Taxation Office - Self Managed Super Funds: A Statistical Overview Most industry and large retail superannuation funds provide some form of default insurance cover for members. However, this is not the case with SMSFs. Make sure your SMSF is not underinsured. Call us on to seek professional advice. Connection Point Edition

6 The challenges of being in the sandwich generation. Have you thought about insurance for your kids? 6 Connection Point Edition

7 The social changes that have occurred over the last 40 years and the economic conditions that we experience today have created a unique situation for 45 to 65 year olds. Caught between the twin pressures of ageing parents and dependent children, they can rightly claim to be the sandwich generation. They may be better known as baby boomers that cohort of the population who were born post-war and have grown up in a generally prosperous era. While they may have benefited from such things as an increasing emphasis on retirement saving and the capital appreciation of the family home during their lifetime, many of them are now confronted with some unique financial challenges caused by the generation either side of them. On the one hand there is the growing trend for children to remain dependent for a longer period than in days gone by. This has resulted from the high costs facing young people who want to establish an independent life for themselves, the need for greater education to ensure a career path and the tendency to marry and have children at a later age. The other slice of bread in the sandwich that these baby boomers are caught in is the challenge of ageing parents who may become reliant on their children for care. Medical advancements mean that the older generations are living longer, which in some cases may mean they run out of funds to care for themselves. Naturally, the sandwich generation feel a responsibility to take on this burden. Normally, as you approach the latter stages of your working life, you would be looking forward to perhaps spending a little more on yourself for things such as travel, a better car, home renovations or entertainment. The demands of being care providers to the generations above and below you however, may mean this welldeserved freedom has to be postponed. Beware the sandwich doesn t become a triple decker If you are in the sandwich generation, one of the key issues that can easily be overlooked is the potential financial threat of a third generation becoming dependent on you as well. Your children may be at an age where they are having children of their own and will therefore incur all the costs of raising a family. This in turn means that an immense liability is created if your children become unable to care for their offspring due to sickness, injury or even premature death. If this was to happen there is a reasonably strong chance that you would need to pick up the tab for the ongoing support and care of your grandchildren, if no financial protection was in place. This means you need to consider what action you can take to remedy the situation before it becomes a problem. Consider how you dealt with the prospect of disability or premature death when you were raising a young family. You no doubt sought advice about how to limit that liability through life and disability insurance, in order to pay out the mortgage and other debts, as well as providing a lump sum to invest to generate an ongoing income for the family. Are your children addressing this situation in the same way? Do they have a financial adviser who can help assess their risk management? Are they even aware of the potential disaster that may be around the corner? Will you inherit this liability? If your adult children do not have the proper protection in place then there is a very real chance that you will be left with the responsibility of making up the financial shortfall if disaster strikes them. This leaves you two possible courses of action to remedy the situation. The first is to strongly encourage them to seek financial advice and have the extent of their financial liabilities assessed and insured. To that end, your ClearView financial adviser would be happy to follow up on any introduction or recommendation that you give to your children. They will then have the benefit of the same professional assistance that you have received. In addition to their insurance planning, we can also assist them with any superannuation or investment needs to further enhance their financial security. The second option is for you to take direct action to mitigate the risk that may default to you if your children are uninsured. This effectively means you initiating and paying for the cover for your children, in case they are unable or unwilling to do it themselves. The policy proceeds can then be used to provide financial protection to your grandchildren and to help insulate you from any financial impact that may otherwise be passed on to you. Many people find the latter option attractive because they have the financial resources to help their kids out and they like the idea of providing something of much higher potential value than simply handing out cash for everyday spending. When you think about it, providing this kind of financial support and security could end up being the greatest gift you ever give your children and grandchildren. If you would like to investigate this further, then we would be happy to discuss the options. See how you can protect your children and help insulate yourself from possible financial impacts. Call us on Connection Point Edition

8 How are we managing your investments? The past 12 months to the end of September 2013 have been very good for investors. Share markets around the world have generally recorded solid gains; fixed income markets have experienced more subdued returns but nevertheless have contributed positively to diversified portfolios. How are we managing your investments in these buoyant times? Our objective is fairly straightforward. We want to keep pace with and deliver the sort of returns that you as investors could achieve by investing in comparable funds. In other words, capture as much of the available strong returns as is possible. Simultaneously we aim to continue to maintain some defensive strategies in your portfolio. This means that if the current positive situation were to be reversed, your investment would have some risk mitigation strategies in place to moderate losses. We have discussed these defensive positions in previous editions and they continue to be in place. They include: an overweight to cash, making sure the portfolio benefits if the A$ falls in value, which should help in down markets, and investing in more defensive sectors of the share market, such as infrastructure. In many ways, including these positions in your portfolio is a little like taking out insurance against being fully exposed to market falls. If we can position the funds to perform in line with, or even slightly above our peers, while still holding these defensive positions; then they act as a sort of free insurance policy. We emphasise this will not totally eliminate risk but it should mitigate the worst outcomes. As investors in the funds you will not, as a practical matter, notice these strategies most of the time. The performance of the funds should be solid and hopefully we never experience circumstances where we need these insurance policies. However, you can never know what will happen next. With the world remaining an uncertain place it should give our investors some peace of mind that we have such strategies in place. In very strong markets, greed tends to overtake fear and there is a temptation to pursue returns to the complete exclusion of seeking to achieve a balance between risk taken and the return earned. Maintaining investment discipline and ensuring that we focus on risks as well as investment returns is, and will remain, a core part of our investment approach. Let s hope the good times continue to roll, but let s also hedge our bets a little with an investment approach that delivers solid returns while maintaining some risk reducing strategies in portfolios. Justin McLaughlin CLEARVIEW CHIEF INVESTMENT OFFICER Maintaining investment discipline and ensuring that we focus on risks, as well as investment returns is, and will remain, a core part of our investment approach. You ll find the latest market update in our next edition of Connection Point or talk to us today. JV Financial Group Level 4, One University Ave (GPO Box 1991) Canberra ACT 2601 T: M: Connection Point is a publication by ClearView Financial Advice Pty Limited ABN , AFSL The material in this newsletter is for general information only and any advice is general advice only and does not take into account your individual objectives, financial situation or needs (your personal circumstances ). Before acting on this information, you should consider the appropriateness of this information taking into account your personal circumstances. All information about taxation, superannuation and other relevant information contained in this newsletter is based on our understanding of the legislation and other government documentation current as at the date of publication. You should consult your Financial Planner for advice in relation to your particular situation. Nothing in this document should be viewed as legal advice. While we have taken all care to ensure the information in this newsletter is accurate and reliable, to the extent the law permits we will not assume liability to any person for any error or omission in the newsletter however caused, nor responsibility for any loss or damage suffered by any person who either does or omits to do anything in reliance on the contents of this newsletter. LMA Monaghan Pty Ltd trading as JV Financial Group ACN is a Corporate Authorised Representative (No ) of ClearView Financial Advice Pty Limited ABN AFS Licence No GPO Box 4232 Sydney NSW Connection Point Edition CVFP_ /13