Deeming of ABPs: impact and opportunities?

 Download Deeming Fact Sheet

Q: How do Centrelink and the Department of Veterans’ Affairs (DVA) currently assess account based pensions for the purpose of the income test?

An annual ‘income-free’ amount, also known as a ‘deduction amount’ applies to assets-tested account-based income streams. The ‘deduction amount’ is determined by a number of factors, such as your original pension account value, any lump sum payments made to you on top of your regular pension payments, and your life expectancy at the time you started the pension.

Generally speaking, only the actual annual income drawn in excess of your ‘deduction amount’ is captured for Centrelink assessment. Therefore, if your actual annual income payments are less than your ‘deduction amount’, your account based pension will not have an impact on the income test.

Q: If I am not eligible for an income support payment or won’t be commencing an account based pension until after 1 January 2015, how will the new rules impact me?

When you become eligible for an income support payment, or commence an account based pension after 1 January 2015, the ‘deeming rules’ will apply for the income test rather than the ‘deduction amount’ to determine your income for Centrelink/DVA purposes. ‘Deeming’ means that Centrelink will ‘assume’ a set level of income is paid to you from your pension, regardless of what you are drawing per annum. This means that the ‘income’ for Centrelink/DVA purposes could be more or less than the income payments you actually receive from your account based pension.

As at 1 July 2014, the deeming rates and thresholds are:

Deeming Rates Single Couple
2% First $48,000 of financial investments First $79,600 of financial investments
3.5% Above $48,000 Above $79,600

Other financial investments, such as bank accounts, term deposits, and shares are also income tested in this way.

Q: Will these changes impact Centrelink and DVA income support recipients?

Yes, this new income-test will be applied by both Centrelink and DVA. It will alter the income test assessment for people receiving an ‘income support payment’. An income support payment includes:

  • Newstart Allowance
  • Partner Allowance
  • Parenting Payments
  • Parenting Allowance
  • Age Pension
  • Disability Support Pension
  • Wife Pension
  • Carer Payment

You may also be impacted if you receive a Low Income Health Care Card and have commenced an account based pension.[1]

Q: So, if I have an existing account based pension and I am receiving an income support payment as at 1 January 2015, how will I be assessed?

If you have commenced an account based pension before 1 January 2015, and  are receiving an income support payment from Centrelink as at 1 January 2015, you will be eligible for the ‘grandfathering rules’. That is, you will continue to be assessed under the pre-1 January 2015 rules (ie nominated pension less deduction amount).

Q: If I am eligible for the ‘grandfathering’, does this mean that the new rules will never affect me and my income-support assessment?

No, this does not guarantee that you will not become subject to the new rules in the future. There are a number of ‘trigger events’ which could result in your account based pension being assessed under the new deeming rules. Therefore, it is very important that before you make any changes to your investments or financial circumstances, that you contact your financial adviser to understand what the impact will be on your Centrelink/DVA position.

These ‘trigger events’ include, but are not limited to:

  • becoming ineligible for income support payment for a period, and regaining entitlement in the future
  • switching from one account based pension product to another
  • consolidating a range of account based pension and superannuation accounts
  • the account based pension owner passes away

To understand the implications for yourself, speak to your us on 02 9875 2966.


[1] The Government is also proposing to change the way account based pensions are assessed for eligibility of  the Commonwealth Seniors Health Card. You should speak to your financial adviser to understand these changes.

ThreeSixty Research Market Update October 2014




The Pulse

  • Continuing geopolitical tensions in Ukraine and the Middle East and concerns over the Ebola virus dominate global events.

  • Stronger US dollar due to global currency realignments in September.

  • Further expansion of US economic growth provides a source of stability in 2015.

  • Eurozone data remains weak, impacted by the ongoing crisis in the Ukraine and the Middle East.

  • Stabilising Chinese economy, although a weaker property sector.

  • Australian consumer and business credit growth grinds higher coupled with a slide in the AUD.

Global economies

Despite geopolitical tensions, and weak European data, global economic growth continues at a moderate pace. The IMF recently lowered its global growth forecast for 2014 to 3.3% and 3.8% in 2015 and indicated that the Eurozone and Japan provide considerable headwinds.

It has been a volatile month for global equity markets, impacted by the ongoing geopolitical tensions in the Ukraine and the Middle East. The political protests in Hong Kong and growing concerns over the spread of the Ebola virus have also been of influence.

The US economy continues its upward trend, with Q2 GDP data increasing to 4.6%, from 4.2%. Fixed business investment was a key feature (with a 9.7% increase), and manufacturing data has continued to improve.

Chinese growth remained sluggish in September but has generally been in line with objectives. A weak property market continues to be a challenge in the short term.

Eurozone manufacturing data remains weak with inflation data at marginally lower levels. The European Central Bank (ECB) has provided stimulus to the lagging Eurozone economies, with further measures expected.

There has been continued improvement in Australian business and consumer confidence, albeit from low levels, with further momentum across the residential construction sector.

The RBA kept the cash rate at 2.5% in October and it is anticipated that interest rates will remain at this level well into 2015.


Over to the US, we have seen a stronger US dollar due to a continued increase in economic growth, the prospect of increased interest rates, the weakness in the Eurozone and Japan and the weakness in commodity prices.

The services sector continued to expand, with a rise in new business volumes. The private sector has been driven by weaker energy prices, with capital expenditures improving over recent months.

Stronger non-farm payrolls data resulted in the unemployment rate declining to 5.9%, from 6.1% in August. Job creation has increased significantly from August; however flat hourly earnings indicate there is little to no wage inflation.

The August CPI declined marginally with the annual core CPI at 1.7%.

The US Q3 2014 corporate earnings reporting season has commenced, with expectation that earnings will grow by 4.4% in Q3 yoy – largely due to the earnings growth in the Telcos, Materials, Healthcare and Financial sectors.

Expectations are that the Federal Reserve will scale back quantitative easing (QE3) in October. Federal Reserve officials stressed ‘patience’ in waiting to raise interest rates, concerned about weaker foreign economic growth and the stronger USD.


Heading over to Europe, economic data remains weak; impacted by the geopolitical tensions in the Middle East and the Ukraine.

The Markit UK Manufacturing PMI recorded its lowest level since April 2013.  Growth in new orders slowed for a third straight month, largely due to the strength of the sterling and weak demand in Europe.

Germany and France recorded weaker manufacturing PMI data – a disappointment given these core Eurozone economies showed substantial growth earlier in the year.

An inadequate monetary policy easing has put increased pressure on the ECB to head off the threat of falling prices as annual inflation fell to 0.3% (from 0.4% in August). The unemployment rate across the Eurozone remained unchanged at 11.5%.

The rapid growth in the UK services sector eased slightly in September. Despite the slower economic conditions, the Bank of England has forecast that the British economy will grow by 3.5% this year, putting it on track to be the world’s fastest-growing, major advanced economy. 


Over in China, manufacturing growth stabilised in September.

It is anticipated that the Chinese government’s monetary and fiscal policies will remain accommodative until there is a more sustained recovery in economic activity.  

The August core inflation at 2.0% yoy is significantly below the targeted 3.5%, with the likelihood that the government will undertake additional stimulus measures.

Manufacturing PMI data remained unchanged. The factory sector showed signs of stabilisation; however, the property sector remains a source of concern for the economy.

Interestingly, new export orders (a gauge of external demand) expanded to anear five year-high of 54.5, though domestic demand appeared soft.

Asia region

The Japanese economy continues its slow move forward, with an increase in manufacturing activity in Q3. To continue its growth trend, the government will need to assess consumer spending and wage growth before making any further increases to the sales tax again in 2015.

Core inflation eased to 3.1% in August from 3.3% in July. However, excluding the impact from the sales tax increase, the core CPI is only 1.3%, well below the 2% inflation target.

The continued weakness in the Japanese Yen and the impact on corporate earnings should provide considerable tailwinds for the Japanese equity market through 2015.

The Hong Kong economy has been slightly impacted by the tension between the Chinese government and student protestors over the directive given by Beijing for the Hong Kong elections in 2018.


Back home, the Australian economy enjoyed only moderate growth; adjusting to the decline in investment spending in the resources sector. The RBA expects that growth will remain slightly below trend in the short term.

Inflation is expected to be in line with the 2-3% target over the next two years. The RBA left the cash rate unchanged at 2.5% at its October meeting.

Monetary policy remains accommodative and interest rates remain low. The AUD declined in September, largely due to the strengthening US dollar – but still remains high by historical standards, particularly given the further declines in key commodity prices in recent months.

The job market appears optimistic, despite the unemployment rate increasing to 6.1% in September. The expectation is that the labour market is gradually improving and the official jobless rate will stabilise at just above 6% for the next few quarters before decreasing. The upward trend in job ads continues to suggest solid employment growth in coming quarters.

House price increases have become a concern for the RBA. Specific focus is on the investor market in Sydney and Melbourne where loan approvals are 90% higher than two years ago in NSW and 50% higher in Victoria. Interestingly, average clearance rates across Sydney and Melbourne remain at 78%.

The AiG Performance of Construction Index (PCI) was strong in September – a nine year high due to an increase in house and apartment construction. The industry is expected to continue this trend due to a growing pipeline of residential work.


Equity markets

  • Global equity markets were extremely mixed in September, with considerable country divergence.

  • The Japanese Nikkei Index had a strong month, up 4.9%.

  • The Hong Kong Hang Seng Index was down -7.3%.

  • The US Dow Jones Equity Index was relatively flat (-0.3%).

  • UK (-2.9%) and Germany (0%) reflected the divergence in performances across the Eurozone.

  • Australia was down sharply with the S&P/ASX All Ordinaries Index down -5.8% in the month.

Australian equities

Following the recent positive gains, the S&P/ASX 300 Accumulation Index in September had an extremely disappointing month, declining by -5.37%. The Australian equity market was impacted by weaker commodity prices, the prospect of the completion of the dial down of the US Federal Reserve’s QE3, the prospect of a continued stronger US dollar and a weaker AUD, and global investors withdrawing funds from the higher yielding securities such as banks and A-REITs. The S&P/ASX 300 Industrials Accumulation Index was also disappointing in September, down -5.07%.

The broader S&P/ASX All Ordinaries Index was down -5.8% in September.

For the 12 months to 30 September 2014, the S&P/ASX 300 Accumulation Index posted a solid gain of 5.73%; while the large market caps, represented by the S&P/ASX 50 Accumulation Index, had a similar performance, returning 5.94%.

Interestingly, after strong performances across all sectors in August, sector performances were significantly lower in September. Financials (ex-A-REITs), Materials and Energy were the worst performing sectors, declining by -6.5%, -6.4% and -5.7%, respectively. Although all sectors declined, Healthcare was the best relative performer, down -0.1%.

Big movers this month

Going up:      All sectors were down                     

Going Down:  Financials (ex-A-REITs): -6.5%

                   Materials: -6.4%

                   Energy:  -5.7%

Global equities

The MSCI World ex-Australia (unhedged) Index posted a strong positive return in September, up 4.3%. However, the MSCI World ex-Australia (hedged) Index was down -1%.

Continuing the recent pattern, the global indices recorded extremely divergent performance for the month.

The US S&P 500 Index was down -1.55% in September.

The Euro 100 Index was a strong relative equity market performer in September, up 1.3%.

The Japanese Nikkei Index was the standout performer across global markets in September, up 4.9%.

Over the 12 months to 30 September 2014, the S&P 500 Index was up 17.29%, the Dow Jones up 12.6%, the Nikkei up 11.9%, while the Hong Kong Hang Seng, the Australian All Ordinaries and the UK FTSE were up 0.3%, 1.5% and 2.5%, respectively.


In September, the S&P/ASX 300 A-REIT Accumulation Index was down -5.2%, marginally outperforming the broader Australian market.

On a 12 month rolling basis, Australian listed property was up 12.28%, which significantly outperformed the ASX300 Accumulation Index.

Over the 3, 5 and 7 year periods, global REITs outperformed Australian REITs (A-REITs) and was only marginally lower compared to A-REITs over the 1 year. Global property, as represented by the FTSE EPRA/NAREIT Index, was up 12% over the rolling one year period.

Fixed interest

US 10-year bond yields were up 6.30% in September, closing the month at 2.49%. Australian 10-year bond yields were up 6% and closed the month at 3.48%.

For September, the UBS Composite Bond 0+YR Index was up 1.01%. On a 12 month basis, Australian bonds returned 6.02%, underperforming unhedged global bonds.

Global bonds (unhedged), as measured by the Barclays Capital Global Aggregate Index, posted positive returns for the one year period ended 30 September 2014, up 8.13%. The hedged index posted a strong one year gain of 8.11%.

Australian dollar

In September, the Australian Dollar (AUD) was down relative to all the major international currencies. The AUD declined by 6.3% against the US Dollar (USD), to finish the month at 87.5 US cents. Over the past 12 months, the AUD has declined by -6.17% against the USD.

The AUD declined against the Euro, down -2.57% in September. On a 12 month basis, the AUD was up 0.46% against the Euro.

Against the Japanese Yen, the AUD was down -1.32% in September. On a 12 month basis, the AUD was up 4.74% against the Yen.

Against the British pound, the AUD was down -4.07% in September. On a 12 month basis, the AUD was down -6.34% relative to the British pound.


The information contained in this Market Update is current as at 8/10/2014 and is prepared by GWM Adviser Services Limited ABN 96 002 071749 trading as ThreeSixty Research, registered office 105-153 Miller Street North Sydney NSW 2060. This company is a member of the National group of companies.

Any advice in this Market Update has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs. 

Past performance is not a reliable indicator of future performance.

Before acquiring a financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.

Selling your small business?

You’ve worked hard to build your business from the ground up — you’re finally ready to reap the rewards.

You want to make the most from the sale of your business — but navigating the tax system can be tough on your own. When it comes to turning your business assets into retirement savings, there are a number of Capital Gains Tax (CGT) concessions to help you along the way. Here’s what you need to know.

15-year exemption

Are you aged over 55 and have owned your business for more than 15 years? The good news is, if you’re selling your business because you want to retire or are permanently incapacitated and meet the relevant conditions, then you won’t need to pay tax on the amount you make from the sale of your business. You can put the amount, up to $1.355m, towards your super as a contribution outside of the non-concessional cap — 100% tax-free.

Early retirement

Thinking ahead about your retirement? If you’re aged under 55 but want to invest the proceeds of your business sale into your retirement savings, you can. As long as you put the ‘retirement exemption’ amount of your capital gain into a super fund, you won’t pay any tax on this money. There is a $500,000 lifetime cap on these concessions — so you can either claim all of this on the sale of one business, or use it on multiple business sales until you reach the limit.

50% reduction

You can claim a reduction of 50% on your capital gain. This is on top of the 50% general CGT discount available to individuals — meaning you only pay tax on 25% of the capital gain from the sale of your business. You can choose not to apply this concession – so make sure you make the choice that gives you the best overall outcome.[1]

Rollover to a new business

Planning to buy a new business? You can choose to roll over some or all of the capital gain from the sale of your old business into the purchase of your new one.[2]

Ask the experts

To find out more ways to make the most out of tax concessions for small business, speak to us today on 02 9875 2966 

[1] The use of the 50% active asset exemption is not conditional upon not claiming the other concessions, it is optional.

[2] If the amount rolled over was less than the relevant part of the capital gain then the retirement concession could be applied.

How to grow your wealth

Retirement may still be 20 years off — but that’s why you need to make the most of your savings while you’re still working.

Although you may not be thinking about your retirement yet, the reality is that every little extra you put aside now will pay off later down the track. After working hard all your life, you want to retire in comfort — that’s why you need a financial plan. Here’s five ways you can start to grow your wealth.

1.    Consolidate your super

Think of your super as a long-term investment — because that’s exactly what it is. So the first thing is to avoid paying extra fees from multiple super accounts. While the fees may seem small, they can really add up over time, particularly when lost earnings are taken into account. And remember, your super not only earns you interest but saves you money on tax. That’s why it’s worth making salary sacrifice contributions while you’re working. And because these voluntary contributions are taxed at the low rate of 15%, you could come out ahead in the long run.

2.    Set a financial goal

What kind of retirement would you like to have? Keeping in mind that a comfortable retirement is estimated to cost roughly $58,128 for a couple and $42,433 for a single[1], it’s a good idea to set your financial goals early so you know you’re working towards the retirement you want. In Australia, many people are realising later in life that they aren’t on track with their retirement savings — so act now to make sure you’re not one of them.

3.    Review your investment options

To make the most of your savings, consider putting them into investments. But how can you know if you’re investing in the right places? While you’re younger and time is on your side, you may want to think about which investments are likely to give you the highest growth. Think long-term — and be willing to invest into assets like property and shares that are more likely to maximise your returns in the future. But remember, higher growth also comes with higher volatility in the shorter term, so make sure you speak to your financial adviser to understand the risks.

4.    Check your insurance

You’re working hard to get your finances under control. There’s no better time to think about what a setback might mean to your lifestyle today — and your ability to retire in comfort down the track. Income protection and total and permanent disablement insurance will keep you covered if you find yourself unexpectedly unable to work. And don’t forget to secure your family’s financial security with life insurance — so you can be prepared, no matter what.

5.    Seek professional help

Making the right financial decisions can be tough on your own. To find out more about how to put your financial plan into action, speak to us today on 02 9875 2966.


[1] ASFA Retirement Standard. June 2014.

Enjoy international living — in style

There are plenty of good reasons to think about moving overseas. But are you ready to live it up abroad?
Whether you’re selling up for retirement, want to be closer to family living overseas, or are just looking for a change of scene or pace — moving abroad has a lot of appeal. But before you start packing, there are some important things to consider when choosing your destination.

Cost of living

With Australia now being one of the most expensive countries in the world to live in, more people dream of moving to a country where you can get more out of the dollar. If this is you, it’s important to do your homework first, to understand the true cost of living in your destination location — so there are no expensive surprises once you arrive.
Find out the costs of renting or buying a place to the price of groceries, utilities, recreation and transport. Check the taxation rules for any income you bring to the country or earn — either in the workplace or from your investments. And if you still have family in Australia, factor in some extra money to pay for regular flights back home.


Unfortunately, getting a visa for certain countries may not be as easy as you think. Depending on where you go and what sort of visa you are applying for, you may find you are limited in your choice of country and the time period you are entitled to stay there for. There may even be restrictions on the kind of work you can do. Whether you are thinking of working or retiring overseas, make sure you have done your research on visas before you start planning your move — to avoid ending up being disappointed.

Healthcare and social security

Take some time to consider the health and welfare needs of you and your loved ones — now and in the future. If you are young and enjoy a healthy lifestyle, you may not spare much thought to a country’s healthcare system — but that’s why you need to think long-term.
If you have a family or are planning to have one, how will your children’s health be taken care of and at what price? And if you are older and retiring overseas, you’ll need to consider possible health complications and treatments you may require.
If you currently receive benefits like the Age Pension from the Australian Government — or will be entitled to receive them in the future — seek advice on what you can continue to claim while overseas. You should also find out what benefits you may be entitled to in your destination country, so you’ll have a clear picture of how much you’ll have to live on.

Ask the experts

To find out how to make the most of your move overseas, speak to us today on 02 9875 2966

Make your retirement savings go further

You’ve worked hard all your life and are looking forward to enjoying a comfortable retirement. How can you be sure that your savings will last?

The good news is that with life expectancy constantly rising, you can now expect to enjoy 20 years or more as a retiree[1].

But with Australians spending almost a quarter of their lives in retirement, you want to make sure that your savings are going to last the distance — without cutting back your lifestyle. Here are three tips for making the most of your savings.

1.    Consider your investment options

When it comes to your investments, to help your savings last, consider choosing assets with an opportunity for some long-term growth. That way, your nest-egg can keep earning, even while you draw money to live on. While you probably want investments that will provide you with added income for your retirement, it’s worth thinking about diversifying your portfolio — for example, with managed funds that balance growth potential with risk — so you can maximise your returns down the track.

2.    Maximise government benefits

Are you getting the benefits you deserve? You may be entitled to more than you think. As well as the Age Pension, you may be entitled to apply for a Seniors Card which will give you discounts for certain businesses and public services. Depending on your situation, you may be entitled to other extra benefits — like if you are a veteran or are caring for your spouse.
You might also be able to enjoy tax offsets, depending on your tax and income. And if you are thinking about moving into an aged care facility, make sure you carefully go over your Resident Agreement so you understand your fees, rights and responsibilities — and seek advice on the best way to structure your finances and affairs.

3.    Keep your money in the super system

Once you turn 60 and are able to access your super, it can be tempting to cash out your savings and invest the money into property or other investments. But before you make that decision, it’s worth considering using your super to draw a pension. A super pension allows you to take out  your super as a regular income  — and the good news is, it’s 100% tax-free. This means that you’ll benefit from a steady annual income — and save money on tax.
Ask the experts
To find out more ways to avoid a lifestyle crash in retirement, speak to us today on 02 9875 2966. 

[1] Australian Bureau of Statistics 2014.

Economic update October 2014

Brian reviews events in markets during September and discusses:
· why it was generally a disappointing month for share market investors
· how a range of geopolitical concerns continued to unsettle markets
· why the European Central Bank took further steps to boost eurozone growth
· why Australia’s economic environment remains uncertain, despite signs of improvement in the non-mining economy, and
· which positions in MLC’s multi-asset portfolios added significant value during the month.

Still paying for insurance? Make sure it’s right for you

Why have personal insurance?

Your work life has come to an end, so it’s time to let go of the things you don’t need any more. You’ve probably ditched the work clothes and the briefcase and said goodbye to the 9 to 5 routine. But should you let go of your personal insurance too?

Through your working life, you may have taken out some personal insurance – cover to help give you or any dependants financial security if you were unable to work due to sickness or injury, or if you should become terminally ill or pass away.

Common types of personal insurance are:

  • Income protection insurance – to cover some of your income if you’re off work temporarily due to illness or injury.
  • Trauma insurance – to give you an income if a serious illness means you can’t work for a length of time.
  • Total and permanent disablement (TPD) insurance – if you become permanently incapacitated and can no longer work.
  • Life insurance – to provide your dependants with a lump sum payment if you pass away or become terminally ill.

You may have taken out your cover at a particular stage of your life – perhaps when you took out a mortgage or started a family. Or you may have been given cover through your super. Either way, as you move into a new stage of life, it’s important to review your insurance needs, so you’re not paying for something you don’t need.

Insuring your income

If you are still working – for instance, you are transitioning to retirement and you rely on the money you earn, it can still be a good idea to have insurance that protects your income. By having income protection and trauma insurance in place, a late setback in your health won’t necessarily scuttle your retirement plans.

Nevertheless, if you’ve reduced your work hours as you ease into retirement, it can make sense to reduce your level of income protection or trauma protection too. As some policies will only pay a benefit equal to what you’re earning now, check that you’re not over-insured and paying too much in premiums.

Once you stop working completely, there’s no need to have income protection and trauma insurance, as your income no longer relies on your ability to work.

Life insurance in retirement

If you and your partner are retired and have a reliable income from your super and other investments and you have no other dependants, it could make sense to cancel your life insurance policy. Remember, insurance premiums generally go up the older you get, so ceasing your policy could save you a good sum of money. Many insurance policies cease once you reach a certain age — so if you don’t feel you need it to provide for your partner if you should die, then it may not be worth the premiums you pay.

However, you may want to have a small amount of life cover to be able to provide money for the costs of your funeral or other final expenses, such as outstanding debts or bills. Some people also keep life insurance so they can leave money to a cause that’s dear to their heart or to boost the inheritance they leave to their loved ones.

Ask the experts

To find out more about protecting your retirement income and keeping your family’s financial future secure, contact us on 02 9875 2966.

Three things empty nesters should do before retirement

Who are empty nesters?

Your children have left home, leaving you with time on your hands to do the things you’ve always dreamt of doing. But first of all, here are three things you need to take care of.

Empty nesters are a varied group. Many are living with partners, but quite a few live alone. Some own their homes outright, while others are still paying off their mortgage, or renting their home. And while a few are only years away from retirement, many still have a decade or two to go.

But there are two things that they all share in common. Firstly, now that their children have left home their lifestyle will change — sometimes considerably. Secondly, most are starting to think more seriously about their retirement as it gets closer.

If you’re an empty nester, here are three things you should do to prepare for your next stage of life.

1. Pay down debt

Now that the kids have left home and are no longer your financial responsibility, you’ll probably find yourself with surplus income. Of course, it’s natural that you’ll want to spend some of that doing things like travelling or renovating your home. But if you still have a mortgage, paying this down (and any other personal debt) should be your priority.

Why? Because owning your home outright by the time you retire will mean your retirement income won’t need to go on paying interest that’s not tax-deductible, such as your mortgage or credit card debt. As you won’t be earning any more, it’s important that you make your retirement funds last as long as possible.

2. Review your insurance

If your kids are no longer dependants, you’ve paid off your mortgage or you’re only supporting yourself, you may need less insurance. However, if you’re still working, it’s not a good idea to cancel all your TPD, Trauma or Income Protection Insurance just yet. That’s because you are still depending on your income — so if you were to become seriously ill or disabled, you will still need this protection.

And, even if you no longer financially support your children, your spouse or partner may need financial support to cope if you were to pass away or become terminally ill. Life insurance can also help to cover expenses such as funeral expenses and any remaining debts you have. However, as insurance premiums generally get more expensive as you get older, it may be worth reviewing how much cover you really need.

3. Ask the experts

Being an empty nester can bring a renewed sense of financial freedom with fewer expenses and mouths to feed — but it’s important to use this time to put your money to work. To find out more about how to make the most of this stage of life, speak to your financial adviser today on 02 9875 2966.

Out with the bad, and in with the good

Not all debt is bad — used wisely, debt can be an excellent way to build wealth.

In the last decade, household debt has decelerated quite significantly — down from an average rate of 10% each year in the early 2000s to just 2% at the end of 2013.[1] As a nation, it seems we’ve become far more conscious about our spending and borrowing habits since the Global Financial Crisis.

Cutting back on unnecessary debt is a good thing. But ‘good’ debt can be an excellent tool for building wealth and a financially secure future. Let’s look at how to avoid the bad stuff — and get more of the good.

Cutting out the bad

The kind of debt you want to steer clear of is unsecured debt — in other words, a loan that isn’t backed by an asset that you could sell if you got into trouble paying your creditor back. An example could be using your credit card to pay for a holiday, a night on the town or (more sensibly) your electricity bill or car registration.

You should also try to avoid borrowing to buy depreciating assets, such as computers or cars. Of course, sometimes these items are a necessity, and if it’s a big purchase you mightn’t have the cash. But if you must borrow for these items, make sure to shop around for the best interest rate and have a payment plan that you stick to, to pay it off as quickly as you can.

Payday loans are another type of debt to avoid — while they may seem like a fast and convenient way to access cash, their interest rates can be crippling and can put you deeper in financial stress.

Getting more of the good

Bad debt saps your savings and costs you more in interest. Good debt, on the other hand, can be put to work to make you money. A classic example is borrowing to buy your home — which generally increases in value over time — or borrowing to buy business equipment, which helps to generate extra income.

As an investor, gearing (borrowing to purchase shares or property) can allow you to build an investment portfolio more quickly than if you just used your own money. This could potentially increase your earnings and your capital gains. What’s more, borrowing to invest is generally tax deductible, which can provide additional benefits.

Finally, as you get closer to retirement you could sell your investments then put the proceeds into your super, building your retirement nest egg and potentially paying less tax.

However, while gearing increases your potential to make money, it also multiplies your losses if your investments fall in value. It’s also important to have appropriate insurance in place when implementing a gearing strategy. Given the Australian tax system is complex and everyone’s tax situation is different, it’s important to seek professional advice before deciding whether a gearing strategy is right for you.

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