Advice Factory

Why you just need to save more

The most important thing a financial adviser can do for you is help you understand:

• Where you are today financially 
• Your financial goals in dollar and time horizon terms
• Your appetite for risk

For most of us - that is those not considered high net-worth investors - getting a handle on this shouldn't be too complex.

But, what if like most people you are NOT on track to meet your financial goals?

Well, if we take away all the confusing financial terminology - for most of us average Joe's, if you are not on track to meet a goal there are only FOUR things you can do about it!

1. Lower your goal
2. Move the goal date further away
3. Invest more aggressively  in higher risk, higher reward investments
4. Save more

So, if we presume you want to maintain your goals and investing more aggressively scares you (particularly after the 2008 market downturn).

Then the best thing a financial adviser can help you do is work out how to save more!

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Business Expenses Insurance?

Do you run a small to medium business? And are you the main income generator for that business? You may have income protection insurance in the event of you being unable to work due to an accident or an illness however this is often not enough to keep the business going and cover the operating expenses such as office rent, leasing costs, utilities etc.

Your income protection insurance, which at the most is 75% of your income, would typically not be enough to pay for the ongoing expenses of the business in order to keep it viable and you may find that your business will suffer or that your income protection benefit will go towards these expenses and leave little or none left for your own personal expenses.

Business expenses insurance lets you to insure up to 100% of the regular expenses that your business would have even if you were unable to work to an accident or an illness.

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Trauma Insurance?

Trauma recovery insurance provides a lump sum payment in the event that you are diagnosed with any of a list of critical medical conditions. Most policies will cover the major medical conditions - stroke, heart attack, coronary bypass, cancer and kidney failure – in addition to a number of other conditions including major organ transplant, Alzheimer’s disease, Multiple Sclerosis or Paralysis.

Tragically, statistics show that the chance of being afflicted by at least one of these major medical conditions is high.  If this happened to you then how would you manage to pay your bills? How would you cover all the medical expenses? And what if you needed to alter your lifestyle as a result of the trauma – could you afford to?  The purpose of trauma insurance is to assist with your current financial responsibilities, the financial responsibilities incurred as a result of a trauma and to allow a change of your life-style if required.

Unlike income protection insurance, trauma insurance is not dependent on your employment. So if you are a home maker or if you change your employment situation at times then you can still insure yourself in the event of a trauma.

>It is also important to understand that, in most cases, once the trauma claim has been paid then the trauma cover will finish, however, many contracts will then allow you to repurchase the cover as term life insurance. This is often after a nominated waiting period and will not need further underwriting. This is well worth considering to cover you against the unfortunate possibility of the illness returning and causing death.

There are usually waiting periods for some conditions so it is important to get advice on a trauma insurance policy that will best suit you and your situation.

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Income Protection Insurance?

Imagine if you are unable to work because of an accident or illness – what would you do? How would you manage to pay the mortgage or your other bills? Income protection allows you to cover your expenses and maintain your financial commitments while you are ill or injured and while you are recovering.

If you have income protection insurance it will provide you with a monthly income of up to 75 per cent of your salary until you have recovered sufficiently to work again, or up until the maximum benefit period as stated in your policy. This can usually be either 2 years, 5 years or up to the age of 60 or 65. You must be employed and work a minimum of 25 hours per week to be eligible for income protection insurance however even if you are self employed and work more than 25 hours per week then you could be considered eligible.<.p>

If you decide to take out income protection insurance it is important to get advice about a policy that suits you the best.  You will need to understand exactly what is and is not covered, what is the period of time before the income protection payment will begin to be paid, are the payments indexed with CPI rises – are just some important questions that should be answered.

Also of importance, the definition of a disability can vary widely depending on the policy that you take out. A disability can be defined as being unable to work a specific occupation or it can be defined as being unable to work at any job at all.

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Total and Permanent Disability - TPD?

Unfortunately accidents happen. What if you were to become permanently disabled - how would this affect your life? How would you manage to pay for your usual expenses? And how would you manage to pay for the costs of hospital bills, rehabilitation or possible home and transport alterations? How would you feel if the ‘for sale’ sign was erected in your front yard because you are unable to make your mortgage payments?

Total and permanent disability insurance is available as a stand-alone product or is often taken out as an option on your life insurance or trauma recovery policy. A total and permanent disablement option on a life insurance plan will enable you to protect your family financially if you were to become disabled and not just in the event of your death. This insurance will provide a lump sum payment in the event of you becoming totally and permanently disabled.

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

But I already have life insurance!

That is great! However is it enough? When did you last review your plan and have your circumstances changed since then? Have you married? Have you had dependent children? Or have you started your own business? Most Australians are actually underinsured and will find that if they need to make a claim then the benefit will not be enough to cover their needs. It is important to review your cover regularly and keep it up to date with your current situation.

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What insurances do I need?

Depending on your stage of life, your employment situation and your financial obligations there will be a policy or perhaps policies that will suit your needs the best. Sometimes you may get the best cover by combining more than one type of insurance policy. For example, if you are single and have no dependents then perhaps total and permanent disability (TPD) insurance will be best for you or maybe TPD and trauma. You may wish to take out a small life plan merely to cover the expenses of a funeral in the event of death so as not to burden any family members. However, if you are married with a couple of young children and a mortgage then you may need to consider life insurance with TPD and trauma. Our advice will help you to decide what cover is best for you.

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

Can they cancel my life insurance?

Once insured with a personal insurance policy then this policy is generally renewable for life without any further underwriting. That is – you will not need to undergo any further medical testing to be eligible for renewal.  If you wish to increase your cover, then only the additional amount of cover will need to be underwritten and your original policy will remain unchanged. So, as long as you maintain your premiums, then you are the only person who can cancel your policy.

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

Why should I have life insurance?

What if something were to happen to you? If you died suddenly would your loved ones be financially secure enough to stay in the family home, to educate your children, to pay the bills? Unfortunately, a tragedy can occur at any time and the grieving process is long and difficult enough for a family without the added financial stress.

If you have life insurance then your beneficiaries will be paid a lump sum in the event of your death. Do you insure your car and your house? You probably do to protect against a possible loss or accident. Then why not protect against a possible tragedy to you?

Both males and females up to the age of 75 can usually take out a life insurance policy and this policy usually can be renewed for the life of the insured. You can also increase your insurance when you change the circumstances in your life such as marriage or the birth of a child. It is also important to know that most policies have the option to increase the sum insured with CPI increases./P>

I feel fine - why do I need insurance?

This is the best time to organise your insurance. Nobody knows ‘what lies around the corner’ and unfortunately illness, accidents and unexpected death can occur at any time to anyone. We don’t want to dwell on the ‘it could be me’ issue however the fact is – it could. If you are not financially prepared for such an event then your lifestyle and/or that of your family and dependents could be severely affected.

And, when you are well can be the easiest time to be eligible for insurance. The policies available are often referred to as risk insurances - that is because you are insuring against the risk of possible financial loss. And once you are suffering from an illness or an accident then there is no longer any risk involved and it will be too late to apply for insurance. This is the time that you will need it!

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

Will my super be enough to retire on?

One of the biggest questions that everyone has is will my super be enough for when I retire ? The precursor to that question is "How much do I need to retire?" or even more basic "How much does retirement cost?"

Firstly, as a benchmark in 2008 the current maximum age pension for a single person is $546.80 per fortnight or $14,216.80 per annum and for a couple $456.80 per person per fortnight or $23,987.60 per annum. How does that fit with what you spend today ?

How much for a 'moderate' or a 'comfortable' retirement?

The Association of Superannuation Funds of Australia Limited (ASFA) has done some great research on defining what it means to have a 'moderate' and a 'comfortable' retirement lifestyle.

Their analysis done in conjunction with Westpac and called the Westpac ASFA Retirement Standard makes for great reading and defines a modest lifestyle for a single person requires $18,920 per annum and for a couple $26,531. And for a comfortable lifestyle those costs increase to $26,607 for a single person and $48,962 per annum for a couple. (click here for a link to the AFSA site for the full details)

So right now we have a short fall of the maximum pension being as follows:

For a single person the maximum pension covers approximately 75% of the 'modest' lifestyle definition and approximately 53% of the 'comfortable'.

And for a couple the maximum pension is covers approximately 90% of the 'modest' and approximately 49% of the 'comfortable'.

So the big question is how is your super tracking now?

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Members Choice?

In Australia, since July 1, 2005, most employees have the right to choose their own superannuation fund instead of one chosen by their employer. The main exceptions are some public sector employees who are in special government funded super schemes.

This means that you are not locked into the super fund that your employer recommends and you have the right to nominate your preferred fund. A lot of us have casual jobs or, over our working life time, can expect to work for a number of firms. Setting up your own preferred super fund means that you won't end up with many smaller super fund balances in different funds.

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

How does superannuation work?

For most employees your employer will pay an amount equal to a minimum of 9% of your 'ordinary time earnings' into the superfund of your choice on your behalf unless you are exempt. This money is coming out of your pre-tax earnings  and is called the Superannuation Guarantee.

Ordinary Time Earnings are what you earn for your ordinary hours of work and include paid leave, allowances and commmisions. It does not include usually include overtime or bonuses.

For example, if your ordinary time earnings for 2008-09 is $50,000 a year, then the minimum employer contribution is:
$50,000 x 9% = $4,500 for the year (or $375 per month) into your superannuation.

$4,500 is the Superannuation Guarantee.

The superannuation fund will invest the money on your behalf to maximise the return for the associated risk profile that you specify. Have a good look at your superannuation statements as you will see a lot of fees and management charges coming out of your super. The superannuation fund will charges you fees to manage and grow your super balance.

Employers do not have to pay the Superannuation Guarantee in certain circumstances. For example:

• employees earning less than $450 per month
• employees under the age of 18 who work 30 hours per week or less
• employees over 70 years of age
• anyone paid to do domestic or private work for 30 hours per week or less

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What types of superannuation are there?

There are two main types of superannuation funds.

Most of us will only have access to 'Accumulation Funds' where the benefit is dependent on the contributions paid in by both you and your employer over the period of your working life plus the increase in value of those super funds through their proper investment.

The other type are 'Defined Benefit Funds'. These are used mainly in the public sector and by some employers however they are becoming less common because they are more expensive to run. These funds pay a defined benefit pension, lump sum or combination of both. The amount may be calculated on your length of service and age at retirement.

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

What is Superannuation anyway?

Superannuation is a long term savings and investment plan linked with your working life to ensure that you can have a comfortable retirement. Compulsory superannuation began as a government initiative in the early 90's and, as an employee in Australia, your employer would be contributing an amount of at least 9% of your 'ordinary earnings' into a recognised superannuation plan.

Superannuation is different from normal investment planning because:

• For most Australian employees your employer contributes an amount equal to a minmum of 9% of your ordinary earnings into a super fund of your nomination. This is called the 'Superannuation Guarantee'.
• You generally can't touch the money until you retire.
• There are many tax benefits and government incentives for contributing to your super.

Australia is one of the few countries in the world that have mandatory superannuation contributions as part of government legislation. While most other countries are trying to incentivise their citizens to opt into superannuation, Australia took its medicine in the early 90s.... go us!

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Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.

Consolidating your superannuation

If you have already worked for a number of employers, then chances are that you already have your super spread across a number of funds. On top of this, most of us will not work for one employer our whole lives so it pays to think hard about which provider you are with.

Having your super spread across a number of funds isn't disastrous in itself, however your natural intuition tells you that, from a life time management point of view, it is going to cost you more plus you will probably be paying more fees in the long run.

However, if you choose to move accounts, you could be charged fees – such as termination fees from the old fund and contribution fees for the new one – so make sure that you do your homework.

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Got a question about this article? Click the 'Ask Us' button and send your questions to our team of qualified advice professionals. 

Important Note: Any information or advice in this article does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you before taking any actions.