It’s October and, as Spring delivers a bracing mix of weather events from rain and wind to snow and hail in some parts, we’re looking forward to the longer, warmer days ahead.
Interest rate speculation is rife after the Reserve Bank of Australia (RBA) kept rates on hold at 4.35% last month. Economists are now predicting it may be several months before rates fall. It’s a different story in the United States where the Federal Reserve slashed interest rates by half a percentage point in September and forecast two more cuts before the end of the year.
Australia’s inflation rate fell to 2.7% in August, down from 3.5% the previous month in the lowest reading in three years. Falling petrol prices and energy bill relief helped drive the slowdown. The jobless rate remained steady in August at 4.2% with the number of unemployed people falling by 10,500 in seasonally adjusted terms. Spending may be down but our net worth rose for the seventh consecutive quarter. Total household wealth was 9.3% higher than a year ago, largely thanks to rising house and land values. Consumer confidence is also positive with an increase in the ANZ-Roy Morgan index on last year’s figures.
The S&P/ASX 200 index hit an all-time high near the end of the month at 8862 points and a low of 7687 a few weeks earlier. It closed the month at a respectable 8266, up 2.2% for the month and 7.89% for the year. China’s plan to stimulate its economy has led to stronger commodity prices with mining and energy stocks the main beneficiaries.
Planning for what happens when you pass away or become incapacitated is an important way of protecting those you care about, saving them from dealing with a financial and administrative mess when they’re grieving.
Your Will gives you a say in how you want your possessions and investments to be distributed. Importantly, you should also establish enduring powers of attorney and guardianship as well as a medical treatment decision maker and/or advance care directive in case you are unable to handle your own affairs towards the end of your life.
At the heart of your estate planning is a valid and up-to-date Will that has been signed by two witnesses. Just one witness may mean your Will is invalid.
You must nominate an executor who carries out your wishes. This can be a family member, a friend, a solicitor or the state trustee or guardian.
Keep in mind that an executor's role can be a laborious one particularly if the Will is contested, so that might affect who you choose.
Around 50 per cent of Wills are now contested in Australia and some three-quarters of contested Wills result in a settlement.i
The role of the executor also includes locating the Will, organising the funeral, providing death notifications to relevant parties and applying for probate.
Intestate issues
Writing a Will can be a difficult task for many. It is estimated that around 60 per cent of Australians do not have a valid Will.ii
While that’s understandable - it’s very easy to put off thinking about your own demise, and some don’t believe they have enough assets to warrant writing a Will - not having one can be very problematic.
If you don’t have a valid Will, then you are deemed to have died intestate, and the proceeds of your life will be distributed according to a statutory order which varies slightly between states.
The standard distribution format for the proceeds of an estate is firstly to the surviving spouse. If, however, you have children from an earlier marriage, then the proceeds may be split with the children.
Is probate necessary?
Assuming there is a valid Will in place, then in certain circumstances probate needs to be granted by the Supreme Court. Probate rules differ from state to state although, generally, if there are assets solely in the name of the deceased that amount to more than $50,000, then probate is often necessary.
Probate is a court order that confirms the Will is valid and that the executors mentioned in the Will have the right to administer the estate.
When it comes to the family home, if it’s owned as ‘joint tenants’ between spouses then on death your share automatically transfers to your surviving spouse. It does not form part of the estate.
However, if the house is only in your name or owned as ‘tenants in common’, then probate may need to be granted. This is a process which generally takes about four weeks.
Unless you have specific reasons for choosing tenants in common for ownership, it may be worth investigating a switch to joint tenants to avoid any issues with probate.
Having a probate is favourable if there is a refund on an accommodation bond from an aged care facility.
Rights of beneficiaries
Bear in mind that beneficiaries of Wills have certain rights. These include the right to be informed of the Will when they are a beneficiary. They can also expect to hear about any potential delays.
You are also entitled to contest or challenge the Will and to know if other parties have contested the Will.
If you want to have a final say in how your estate is dealt with, then give us a call.
i Success rate of contesting a will | Will & Estate Lawyers
ii If you don’t, who will? 12 million Australians have no estate plans | Finder
Most people intend to retire between ages 65 and 66, according to the latest data and, surprisingly, despite growing superannuation balances, the Age Pension is the main source of income for many retirees.i
The intended retirement age has increased significantly in the last two decades, from just over 62 years on average in 2004.
Australian Bureau of Statistics (ABS) figures show that, in 2022-23, a government pension or allowance was still the main source of personal retirement income. This was followed by super, an annuity or private pension.
More than 60 per cent of those aged over 65 years were receiving the Pension in 2021ii
Am I eligible?
It is important to remember that, while you may not meet the eligibility requirements today, you may qualify later in life.
In 2021, only 44 per cent of people aged 65-69 received either full or part Age Pensions but this increased to 81 per cent for those aged 80 to 84 years.iii
Veterans who have served in the Australian Defence Force may be eligible for pensions or benefits from the Department of Veterans Affairs.iv
You are generally eligible for the Age Pension if you:
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are over 67 years (depending on when you were born)
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are an Australian resident and have lived in Australia for at least 10 years
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can meet an income and assets test
What are the income and assets tests?
The Age Pension means tests considers your income and the value of any assets you own. If the value of your income and assets exceed certain limits, your payment will be reduced.
Income includes money from a job (including salary packaging), other pensions or annuities, earnings from investments and any earnings outside of Australia.v
Assets are items of value you or your partner own or have an interest in such as investment properties and artworks; caravans, cars, and boats; shares; and business assets. While your family home isn’t included in the assets test, your pension may be affected if you sell it.vi
Can I still work?
Singles can earn up to $212 per fortnight without their pension being affected. For every dollar over that amount, their pension will be reduced by 50 cents. Couples can earn up to $372 per fortnight and for every dollar over that amount, 25 cents in the dollar will be deducted from their pension payment.vii
If your income in a fortnight goes over a certain amount, you will not receive a pension payment. This cut-off amount is $2500.80 for a single person and a combined $3,833.40 for a couple. There are other higher cut-off allowances for those affected by ill-health.
The Work Bonus may help you earn more from working without reducing your pension. You don’t need to apply for it, the Bonus will be automatically applied to your eligible income - you just need to declare your income.viii
What does the Age Pension pay?
There are different rates of pension for singles and couples.
The current maximum basic rate for a single person is $1047.10 per fortnight. A couple would receive 1,578.60 per fortnight. With extra supplements, those on a full Pension could receive a fortnightly total of $1,144.40 for singles and $1,725.20 for couples.ix
Get in touch if you’d some help to work out your eligibility for the Age Pension and other government entitlements.
ii, iii Age Pension guide | SuperGuide
iv Eligibility for benefits and payments | Department of Veterans' Affairs (dva.gov.au)
v Income - Age Pension | Services Australia
vi Asset types - Age Pension | Services Australia
vii Income test for Age Pension - Age Pension | Services Australia
viii Who can get the Work Bonus - Work Bonus | Services Australia
ix How much Age Pension you can get - Age Pension | Services Australia
While effective investing is crucial for wealth creation, there is a lot to know and many pitfalls to avoid, as many of the world’s most successful investors have learned over their respective investment journeys.
Those who have achieved success have often spent a considerable amount of time developing the requisite knowledge and skills to achieve solid and reliable returns, learning from their failures as much as their triumphs.
There is a lot to be gained by looking at the methods and philosophies of those who have mastered the art of sustainable wealth creation, and their learnings can serve to inspire you on your own investing journey.
Emphasise long-term value
One of the most enduring lessons from legendary investors such as Warren Buffett is the importance of focusing on long-term value rather than short-term gains. Buffett, known for his role as the chairman and CEO of Berkshire Hathaway, advocates for investing in companies with strong fundamentals that can generate consistent returns over time. His approach emphasises patience and the belief in the intrinsic value of a company, which requires thorough research and understanding of the business.
Diversify your portfolio
Diversification is a cornerstone of successful investing, a principle espoused by investors like Ray Dalio, the founder of Bridgewater Associates. Dalio’s strategy involves spreading investments across various asset classes to manage risk and improve potential returns. His approach, known as “risk parity,” aims to balance risk across different investments rather than concentrating it in a few.
A diversified portfolio includes a mix of asset classes such as stocks, bonds, real estate, and cash. Diversification helps mitigate the impact of any single investment’s poor performance on your overall portfolio.
Manage risk wisely
Managing risk is crucial to preserving capital and ensuring long-term success. Investors like George Soros, known for his successful currency speculation and macroeconomic trades, emphasize the importance of risk management. Soros’s investment philosophy includes a strong focus on assessing and mitigating potential risks, as well as having a clear plan for when to cut losses.
Soros was quoted as stating, "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
Stay disciplined and patient
Discipline and patience are critical traits of many successful investors. For instance, John Bogle, the founder of Vanguard Group and a proponent of index investing, encourages investors to stay disciplined with their investment strategies and avoid being swayed by market volatility. Bogle’s emphasis on low-cost investing and long-term holding reflects his belief in the benefits of staying the course.
One way to emulate Bogle’s discipline is to create an investment plan with specific goals and stick to it, even when market conditions are volatile. Avoid making impulsive decisions based on short-term market movements or hype. Regularly review your investment strategy to ensure it aligns with your long-term objectives.
Learn from mistakes and adapt
Even the best investors make mistakes, and learning from them is essential for growth. Howard Marks, co-chairman of Oaktree Capital Management, is known for his insightful memos on market cycles and risk. Marks emphasizes the importance of understanding market dynamics and adapting strategies based on past experiences and current conditions.
Reflect on your investment decisions and outcomes and be open to learning from both successes and failures. Stay adaptable and be willing to adjust your strategies as you gain more experience and as market conditions evolve.
Enlisting expert help
Finally, successful investors often leverage expert help to enhance their investment strategies and achieve better outcomes.
We can work with you to create tailored investment plans based on individual financial goals, risk tolerance, and time horizons, as well as assist in navigating complex financial products and avoiding common pitfalls. By providing ongoing analysis and adjustments, we can help ensure that investment portfolios remain aligned with evolving market conditions and personal objectives. Our expertise helps investors make informed decisions, manage risks effectively, and optimise long-term returns.
If you would like a hand with any aspect of wealth creation, please give us a call.
