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INDUSTRY INSIGHT BY BOB CUNNEEN

August 4, 2020 1:10 PM

Bob Cunneen, senior economist and portfolio specialist, MLC Asset Management

This content is produced by The Australian Financial Review in commercial partnership with MLC.

History is scarred with dramatic events that can shatter economies and political systems. Just over a century ago, the terrible suffering of World War I and the Spanish flu pandemic marked the start of a tumultuous period for the global economy. Communism and fascism came to the fore as capitalism and democracy descended towards the abyss with the Great Depression in the 1930s.

Does the coronavirus pandemic in 2020 mark the starting line of another “low dishonest decade” that the poet WH Auden lamented of those times? Alas, we do not know what the long-term future holds.

So, is there any reason to hope of better times ahead? No-one can be sure.

There are promising signs this virus can be contained by effective public health advice, testing and tracing processes. Conversely, without a widely available vaccine, a return to our pre-coronavirus lives seems very distant.

Where business and consumers can draw some solace is central banks and government have recognised this health and economic crisis as a pervasive threat. The policy responses in terms of central banks expanding their balance sheets to support credit availability has been bold. The US Federal Reserve has expanded their balance sheet by an extra US$2.8 trillion or 14 per cent of Nominal GDP by buying government and corporate bonds as well as mortgage securities.

The Reserve Bank of Australia (RBA) has crossed the Rubicon by providing a “funding for lending” program to the banks to support business lending as well as buying government bonds to keep yields lows. While it’s only a modest 7 per cent of Australian GDP, the RBA is playing a constructive role.

Governments have also opened up their spending taps. Australia’s $214 billion in fiscal stimulus measures is at the modest end of the spectrum at 10 per cent of GDP compared to the US at 14 per cent and Germany at 28 per cent.

However, there is likely to be criticism from some on the effectiveness and scope of these stimulus measures.

The recent discovery of a $60 billion shortfall in Australia’s JobKeeper payment for example could be used to suggest the federal government could have been more generous in providing benefits to those employees of small businesses who did not meet the -30 per cent decline in revenue threshold.

As the pandemic continues there is likely to be persistent requests for the government to extend support benefits to those in the gig economy and recognise the dramatic loss of income for those in the arts and higher education sectors.

We also need to take into account that the coronavirus may have dramatically changed our behaviour for a very long time. The RBA’s May policy statement noted the “current economic disruption … could also affect mindsets and the behaviours of consumers and businesses”.

For example, will people continue to catch crowded buses and trains, or catch flights for business or holidays given the recent trauma? Arguably, business models for many industries have changed dramatically with this virus.

Global politics may also have been transformed by the pandemic. The peak in globalisation may have passed and an age of protectionism been initiated. Nations will look to become more self-sufficient in key areas such as food and health equipment.

President Trump’s “America first” rhetoric could potentially be echoed across the world as nationalistic voices try to rally voters with promises of keeping jobs at home. China’s status as the “factory to the world” is likely to diminish. Global corporations are likely to diversify their manufacturing bases to places like India, Indonesia and Vietnam to manage political risk.

Australia’s challenge is we are a very small economy heavily reliant on commodity exports, education and tourism. We try to “punch above our weight” but regrettably we do not have the reach and reflexes to mitigate all the blows of dramatic global economic and political changes. So the key advice to investors in these troubling times is to remain flexible and nimble to avoid being put on the canvas by this virus.

Disclaimer: This information does not take into account your personal financial situation or needs. You should consider whether it is appropriate for your circumstances prior to making any investment decision.

3 RETIREMENT INCOME STRATEGIES FOR YOU TO CONSIDER.

February 10, 2020 2:23 PM.

One of the biggest misconceptions about retirement is that in order to have enough to last the distance, you need to have accumulated a significant amount during your working life.

While this is in fact true, it's not the complete story.

In addition to your super, you can continue to generate an income in retirement to create a steady cashflow. And there's other benefits too.

By continuing to accumulate wealth, you'll not only place less pressure on your retirement savings to keep up with the rising costs of living, you'll also help to safeguard your money from external factors such as market volatility.

So, if you're wondering what retirement income strategies are available that you could consider implementing depending on your circumstances, here's three.


  1. Manage your retirement income spending

    Managing your spending in retirement sounds like a no brainer, but it's not uncommon for retirees to access too much of their savings too soon.

    Having a retirement income strategy that controls how you drawdown on your savings, may help to ensure your money lasts the distance.

    And it doesn't necessarily need to be complicated. Using an online calculator to understand how long your money will last, and then keeping an eye on what you're spending, is a great starting point.

  2. Keep your retirement income in line with inflation

    Most people are now living to around 81 years of age which leaves roughly 25 years in retirement. To maintain your current lifestyle throughout this period, your retirement income will need to keep up with the rising costs of living.

    Having a conservative investment portfolio – primarily focused on low growth assets like cash – will certainly help to protect you from market volatility and short-term losses. However, it may not be enough to keep pace with inflation.

    Diversifying your investment portfolio to include both low and high growth investment options, may help to even out your risk and return ratio so you continue to grow your capital (original investment).

    If you are considering diversifying your portfolio, working out how to do this well does take some effort so you may want to seek professional financial advice. Alternatively, investing via a managed investment fund provides access to a broad range of assets or markets without having to do the background work – this is taken care of by investment managers. There are fees associated with this approach however, which are usually set out in the relevant Product Disclosure Statement.

  3. Use Government benefit entitlements to help boost your retirement income

    Age Pension

    You may be able to receive the Age Pension depending on how much income you generate from other sources like investments and what your assets are worth.2 If your income or assets exceed a specific threshold however, your pension payments will be reduced or you may not be eligible to receive these benefits.

    Concessions and health cards

    Even if you don't receive the Age Pension, you may be able to access other government benefits to help boost your retirement income. This includes things like travel concessions, reduced rates on prescription medicine and other health services as well as reduced council/water rates.

    The Department of Human Services also offers loan options if you're unable to access this via a bank.3

    Tax

    There are additional income tax offsets which may also be available to you depending on your age, income and eligibility for government pensions. These enable you to earn more income without paying additional tax.4


Consider financial advice for managing your retirement income

If you're unsure about whether you'll have enough income in retirement, a financial adviser can help you formulate a plan. This may include strategies to help you generate more retirement income or may help you reduce your tax. Better still, they may find ways to help you retire early depending on your circumstances.


Bottom line

A steady source of income in retirement is possible, but it takes planning. Being able to save diligently, invest with diversification in mind, and utilise government concessions available to you, may help to ensure you continue to grow your retirement savings to keep pace with inflation.


1 Australian Institute of Health and Welfare: https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

2 MoneySmart: https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/age-pension

3 MoneySmart: https://www.moneysmart.gov.au/life-events-and-you/over-55s/your-money

4 Australian Taxation Office: https://www.ato.gov.au/individuals/seniors-and-retirees/tax-offsets/


Important information and disclaimer 

This article has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’), registered office at 105 –153 Miller St North Sydney NSW 2060. GWMAS is a member of the National Australia Bank Limited group of companies (“NAB Group”).  Any advice provided in this article is of a general nature only and does not take into account your personal objectives, financial situation or needs. Please seek personal financial, tax and/or legal advice prior to acting on this information. If any financial products are referred to in this article, you should consider the relevant Product Disclosure Statement (PDS) or other disclosure material before making an investment decision in relation to that financial product. Information in this article is current as at 28 January 2020. In some cases the information has been provided to us by third parties.  While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way and no liability is accepted by GWMAS nor any member of the NAB Group, nor any of their, directors, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change.  Any tax information provided in this article is intended as a guide only. Any investment returns referred to in this article are hypothetical examples for illustrative purposes only and do not reflect the historical or future returns of any specific financial products.

Disclaimer: This information does not take into account your personal financial situation or needs. You should consider whether it is appropriate for your circumstances prior to making any investment decision.

BE PREPARED FOR LIFE'S CURVEBALLS.

October 9, 2019 4:59 PM.

By Dean Pearson, Head of Economics at MLC

This article originally appeared in the Australian – Special Report

Historian and best-selling author Yuval Noah Harari covers a lot of ground in his latest book, 21 Lessons for the 21st century.

Among the observations about modern life, there’s a sense that the pace of change is now relentless. With change comes uncertainty, which is why he suggests this is the first time in history when nobody has any idea what life will look like in 30 years.


Change is relentless

Uncertainty is everywhere you look. There was widespread shock when Donald Trump was elected as US President, the British public voted to leave the European Union and the Liberal government won another term at the recent Australian federal election.

And yet we didn’t even have to wait a day before people started popping up on the internet to say these things were obviously going to happen. Where were all these experts in the weeks and months before these events?

To a greater or lesser degree, we’re all guilty of this hindsight bias but the reality is that we can’t know what the future will hold.

Not having enough knowledge to make decisions causes uncertainty

People like certainty and feel unsettled by not having enough knowledge when making decisions. Fear has a habit of filling in the gaps whether planning for a comfortable retirement, thinking about your relevance in a rapidly changing world or worrying about the future prospects of children and grandchildren.

We’ve done research asking people to think about when they were much younger and how their life today compares to what they envisioned at the time. This wasn’t about making judgments on whether life is better or worse, just whether it looks anything like they had anticipated.

On a scale of one to 10, where 10 is exactly how you imagined, the average rating was just 3.6. When speaking with young people, I try to emphasise the positives in this because it means many of the fears they have today may be unfounded. But it’s also a clear indication that we’ll all have to deal with events and circumstances that we didn’t anticipate.

And to throw in another complication, there’s clear disconnect between what people want at different stages of life. Your perspective as a 20-year-old will be very different at 30, 40 or 50.

It’s even starting to look like there’s a significant difference when people are 65 or 75.


Perceptions about retirement differ

Retirement also looks so very different from one person to the next. The image of people retiring in their mid-60s and spending their days pottering around the garden just doesn’t fit for a large and growing number of people. One in two Australians retires earlier than they expected, sometimes because they have made enough money but more commonly because of ill health, while others are embracing the gig economy and working well into their 70s.


Despite concerns of not having enough to retire, people lack action

In these times of unprecedented global and personal uncertainty, the worst strategy is to do nothing. It’s never been more important to have a retirement masterplan and yet our Wealth Behaviour Survey shows many people fail to take any action, despite concerns they won’t have enough money for retirement.


The key lies in adapting to change

We’re trying to teach our kids to be flexible and prepared for an uncertain future but this needs to be taught to older Australians as well. Start by thinking about what makes you happy, and what you want from retirement, but take comfort from how bad we are at predicting the future rather than feeling threatened by it. The key lies in adapting to change and remembering that the fundamental values underpinning what makes us happy are the same.


Regardless of age, personal safety remains important

Whether you’re 18 or 80, our Australian Wellbeing Survey shows we take great comfort in a sense of personal safety and the homes we live in. Family and personal relationships are important, as are standards of living and feeling part of the local community.

None of us know what the future holds but there’s merit in a flexible retirement masterplan that you revisit frequently. This will take you in the right direction today but ensure you’re best placed to make the most of new opportunities and deal with life’s curveballs. Your plan will change as your life does and that’s just fine.


Disclaimer: This information does not take into account your personal financial situation or needs. You should consider whether it is appropriate for your circumstances prior to making any investment decision.

FORECASTING YOUR FAMILY’S FUTURE.

September 25, 2019 10:00 AM

This article originally appeared in the Good Weekend.
By Laura McGeoch

Most of us don’t have to look far to see that modern Australian families encompass more than the traditional form of mum, dad and a couple of kids.

The Australian Bureau of Statistics says there have been considerable changes to our family dynamics in the past 25 years, with the traditional family unit making up only 45 per cent of the 6 million families in Australia. This has declined from 54 per cent in 1991. In that same period, single-parent families grew from 13 per cent to 16 per cent of all families.

On a smaller scale there are blended families – in which two people come together with children from previous relationships and go on to have children together – and stepfamilies, as well as families with same-sex couples as parents. 

"Just as the types of households and life stages are far more diverse these days, retirement planning has to be pretty flexible and adaptive,” says social researcher and demographer Mark McCrindle.


However, he says one change is affecting the retirement plans of all types of families with children: parents are financially responsible for their children for longer, often into their adult years. This includes couples who may have had children later, and are raising them beyond their 50s, or have adult children living at home burdened with student debt and finding it hard to afford to rent or buy in an expensive property market.

“It’s not unusual for people in their late 50s who are thinking very seriously about retirement or downshifting from full-time roles to still have dependants,” McCrindle says. This means would-be empty-nesters are delaying downsizing their family home and any opportunity to invest excess money from the sale, he says.

Pressure to help adult children is a challenge for older Australians

Pressure to help adult children financially, especially with buying a property, is a big challenge for older Australians, many of whom “just can’t afford to give away large sums of money”, says Laura Menschik, a director at WLM Financial Services. The risk is that they leave themselves with little for their own retirement.

Retirement planning and intergenerational wealth transfer are emotive and complex issues for all families. Yet they can become even more complicated in blended families and stepfamilies, Menschik says.

Blended and stepfamilies should resist putting retirement planning off

Blended households make up 3.7 per cent of Australian families, while stepfamilies account for 6.4 per cent. Menschik says couples in these households should resist putting retirement planning in the too-hard

basket. “They need to sit down with a clean slate and work out what each brings to the relationship, and also what they want to happen in the future,” she says. As well as financial concerns, such as paying for education, they need to agree on living arrangements, including what would happen if one or both of the parents in the new couple were to die or become disabled.

Retirement planning for same-sex couples has become easier

Menschik says planning for a post-working life has become easier for same-sex couples with children. This is because of improved legal rights, such as same-sex marriage and being able to nominate a same-sex partner as a superannuation beneficiary.

Single parents continue to face challenges

However, single parents face the challenge of planning a retirement with only one income. And while, as McCrindle notes, the divorce rate is generally declining, it has increased slightly among those aged 65 and

over. “This is where the idea of ‘un-retirement’ comes in,” he says. “Where someone was retired but suddenly needs to go back to work.

Or perhaps they’re moving from a couples pension to a singles pension.” When it comes to divorce at an older age, Menschik adds that women who haven’t been the main breadwinners and who weren’t across the couple’s finances often come off worse in this scenario.

Composition of Australian families continue to evolve

Looking ahead, the composition of Australian families is expected to continue to evolve. The Australian Bureau of Statistics predicts that by 2029 the most common type of family will be couples without children.

These couples will accumulate much more wealth for retirement, McCrindle says. Whatever your family situation, there is no room for complacency, says Menschik, who argues retirement planning should start as early as possible. “When you’ve got a plan, you can always go back and revisit it,” she says. “But at least you can relax a bit.

Disclaimer: The information contained in this communication is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for your personal circumstances prior to making any investment decision.

19 AUSTRALIAN WOMEN SHARE THEIR NUMBER 1 MONEY TIP

October 27th 2020 1700 pm

A smart saving strategy is just one element of achieving financial security – you also need a deliberate plan to manage and make the most of what you have.

Here, 10 money-savvy women share one tip that’s helped them get their finances into a healthier state.


1. Don’t put all your eggs in one basket

Millionaires know that diversification is the key to building wealth – they typically have multiple income streams. If you’re serious about securing your financial future, it makes sense to follow their lead. There are plenty of options – think property, shares, bonds, superannuation, your own business or a ‘side hustle’. Treat your finances as a portfolio and start to spread the opportunities and the risk, even if it’s on a small scale, and you’ll be on your way.

Emma Isaacs, Founder and Global CEO, Business Chicks


2. Develop smarter spending habits

I was never bothered about budgeting until I fell pregnant and wanted to take a year off with my baby. Cutting back on expenses was a shock to the system but only because I wasn’t used to it. Develop smarter spending habits – comparing prices, finding cheaper alternatives, setting budgets for activities and outings and so on – and it soon becomes possible to live on a lower income without feeling like you’re missing out. Continuing to do those things, even after I returned to work, has made a big difference to our financial position.

Jade Cerfontyne, Project Manager


3. Seek advice – and follow it!

I spent my twenties and thirties with my head in the sand when it came to money. That finally changed when I was in my early forties and my accountant sent me to see a financial planner. If you’re not comfortable managing money and you don’t know where to get started, professional advice can be so valuable. Work with them to create a plan and start following it. Doing this has helped me to see where I’m heading financially for the first time in my life, and that’s very empowering.

Dale Pope, Founder, Dance by Dale Pope


4. Set aside regular money-management time

It’s easy to tell yourself you’ll get your affairs in order when you have a moment. In my experience, that moment can be a long time coming. Make a date with yourself to do it – and keep it! Mine is an annual ‘money in March’ session where I evaluate my position, review my spending and budget, and set goals for the year ahead and plan how I’ll achieve them. It can take as little as a couple of hours to get on top of things. If you want to ensure your money is working as hard as it can for you, then it’s time you can’t afford not to spend.

Helen Murdoch, MLC General Manager, Workplace Super


5. Don’t leave your financial future in someone else’s hands

During the course of a long marriage, I allowed my former husband to manage all the money matters. That meant I had an extremely steep learning curve when the relationship broke down and I had to take responsibility for myself and my four sons. Maintaining ownership of your finances through your life is the smartest thing you can do, regardless of whether you’re single or in a relationship. Your financial future is too important to leave in someone else’s hands.

Anthea Woodhill, Flight Attendant


6. Pause before you purchase

In today’s world, there’s a lot of pressure to buy everything new and it’s killing our finances. Most fashion purchases are only worn a handful of times and many women discard clothes after a single wear, or even unworn. The best solution to wasteful impulse purchasing is to write down the thing you think you want and wait – for 24 hours, or two days, or longer. Whatever works for you. I call it PauseB4UPurchase. If you practise it regularly, you’ll be left with a lot more in your wallet for the things you really want and need.

Rachel Smith, Author of Underspent: how I broke my shopping addiction and buying habit without dramatically changing my life


7. Set your sights on buying your own home

There are lots of ways to build wealth but, in the long-term, the security of your own home is hard to beat. Striving to get a foothold in the property market, however modest, while you’re young is something you’ll really thank yourself for a couple of decades down the track. My friends were shocked when I bought a house at 21, but I am where I am today because I took that first step.

Joanne Ke, Self-funded retiree


8. Educate yourself about the financial products you use

It’s difficult to manage your money effectively if you don’t understand the way things work. Getting to grips with the financial products you use – your mortgage, personal loans, credit cards and superannuation – will help you make better decisions. Get good information that explains it in a straightforward way and you’ll find it’s not as complex as you expect. If you don’t take control, you may end up losing some of your own money – I don’t think any of us want that!

Jenny Rolfe-Wallace, Financial Educator and Founder of Sprout Education Group


9. Stash as much as you can into super

Working for many years for a company that made additional contributions on my behalf helped me to accumulate a healthy super balance. It’s made a big difference to the lifestyle I can enjoy in retirement. That’s what super is really all about – freedom and choices – and that’s why keeping it front of mind from the start of your working life is so important. Sixty comes around very quickly and if you don’t make building your balance a priority, it may not happen.

Melanie Schwarzman, Self-funded retiree.

10. Make money management a daily activity

Starting my own business was a calculated risk, and maintaining tight control of my finances has helped me to make it a success financially. I look at my bank account every day and allocate all the money I earn to different accounts, for different purposes. Know exactly where you stand with your finances at all times and there’ll be no nasty surprises. That’s a really good feeling!

Georgia Norton Lodge, Founder, Georgia Draws a House.

 

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