Financial Newsletter Sunshine Coast

Welcome to Unique Financial Partnerships, keeping you up to date with all financial planning, self managed superannuation funds, tax minimisation, life insurance, on the Sunshine Coast and around Australia.

The information in this newsletter is current at the time of printing. Contact us for updates.

The package comprises $42 billion of expenditure designed to attack, from several directions, the problem of stimulating the Australian economy in the face of a looming recession.

$12.7 billion is being paid out to targeted groups as one-off cash payments in the hope that these people will go out and spend the money. Simple economics states that increasing spending in this manner will allow businesses to retain staff as their turnover increases. This is based on the premise that one person’s expenditure is another person’s income.
Other elements of the package focus on investing in infrastructure, specifically schools and roads. Unlike the one-off cash payments, which provide an immediate stimulus to the economy, these projects are intended to create jobs in the short term as well as providing longterm benefits for the nation.

Not everyone agrees with the government over the size or focus of the package.

The federal opposition is concerned that the current government inherited a budget surplus of $22 billion, but its spending will create a large government debt, projected to be around $200 billion. However, the opposition has offered an alternative package that would create a debt of comparable size, being $20 billion less than the government’s planned expenditure level.

The opposition has also suggested that the timing of the package is inappropriate. They recommend taking a ‘wait and see’ approach, to gauge how the economy is travelling, before committing to any specific level of spending.

The government, on the other hand, is committed to a policy of early intervention and is attempting to ward off any adverse effects of the recession before they manifest themselves.

Governments in many countries around the world, including Australia, are adopting a more interventionist approach to this current global financial crisis than has been taken in the past. This is due partly to the desire to avoid any repeat of the effects experienced in the Great Depression of the 1930s and also the sheer scale of the current crisis.

The money being handed out to the selected groups has put a smile on a lot of faces. Let’s hope the government has the balance right and these smiles will continue as the package helps fend off the recession and keeps more people in their jobs.

TIME TO REVIEW YOUR INSURANCE

The recent natural disasters in Victoria and Queensland highlight the need to keep insurance maintained at adequate levels. “ASIC estimates that up to 81% of home owners could be underinsured.”

The bushfires which recently raged through Victoria and the floods which covered Queensland are a timely reminder to all of us to maintain adequate insurance cover.

With around 2,000 homes destroyed by fire and more than 3,000 homes suffering severe flood damage, insurance claimws are estimated to be well over $500 million in Victoria and over $300 million in Queensland.

Many victims of both disasters have lost all their possessions. A lifetime of hard work could have disappeared in a moment. To make matters worse, the Victorian Premier has estimated that up to 50% of homes in some areas are uninsured or underinsured.

Most people are aware of the consequences of being uninsured: you bear the total loss of whatever damage is suffered. But being underinsured means that you have not insured your property for its full value. This trap is easy to fall into. In fact, ASIC estimates that up to 81% of home owners could be underinsured.

The effects of underinsurance are felt mostly where only partial loss has occurred. Let’s take the example of Peter and Julie who have a home worth $400,000 but have only insured it for $300,000. If the home sustains $100,000 worth of damage the insurance company will only cover three-quarters of the loss, or $75,000.

Most insurance companies now have an 80% coinsurance clause where the level of insurance is compared to only 80% of the property value. In the above example 80% of the property value is $320,000. The insurance cover of $300,000 represents 93.75% of this figure so the insurance company would pay 93.75% of the loss, or $93,750.

It is important to make sure that your insurance coverage is appropriate and adequate. Regular reviews of property values should be undertaken to determine the level of insurance required.

The recent natural disasters also remind us not to forget other types of insurance that may form part of our overall financial strategy, such as life insurance, income protection insurance and total and permanent disability insurance. Your financial planner can assist you with this.

ARE YOU ELIGIBLE FOR A CENTRELINK AGE PENSION?

Due to declining superannuation values an increasing number of people are now eligible for the age pension.

Have you checked your superannuation lately? For most people, superannuation constitutes a major portion of their assets at Age Pension age.

The global financial crisis has resulted in substantial falls in superannuation balances, primarily caused by the falls in share markets around the world. Some superannuation funds have fallen by as much as 50%.

A fall in the value of a person’s superannuation balance can be a frightening experience, especially for those in retirement who have little, if any, opportunity to make further contributions to recuperate the losses. However, this may make you eligible for Centrelink assistance.

As superannuation is included in the value of a person’s assets for Age Pension purposes, any reduction in superannuation balances increases the likelihood of the person qualifying for the Age Pension, or being eligible for higher pension payments.

To illustrate this effect, let’s take the example of John and Susan, a home-owning couple with a combined superannuation balance of $900,000 that has recently fallen to $700,000. We will ignore the value of the couple’s other assets.

Centrelink allows two people living as a couple who own their own home to have up to $243,500 in other assets before the Age Pension is affected. The pension payment is reduced by $1.50 for each $1,000 of assets above this figure, with no pension payable when total assets exceed $873,500.

Initially, the couple would not be eligible for any pension as their superannuation is worth more than $873,500. The reduced value of $700,000 exceeds the threshold by $456,500 thereby reducing the pension by $684.75 each fortnight. The fortnightly amount of pension for a couple is normally $939 so John and Susan would be eligible for a combined fortnightly pension of $254.25, or $127.12 each.

According to Centrelink, in the last three months the number of retirees who have successfully applied for the Age Pension has jumped from 2,000 to 3,000 each week. Many of them would have become eligible for the Age Pension through reduced superannuation balances.

ATTITUDE IN OLD AGE

A story from an aged care nurse

A thought provoking article about how a positive attitude can affect your view on life.

A lovely old lady was moving into our nursing home. Her husband had recently died and she did not feel comfortable living alone.

She was aged 92, petite but very upright. She was well dressed and wore make up although she was legally blind. She used a walking frame to move stiffly from the reception area to the lift.

As I took her to her room, I gave her a description of what it looked like. “I love it”, she said before I could finish. She had the enthusiasm of an eight year old who has just been given a new puppy. I tried to explain that we weren’t there yet but she interrupted.

“What it looks like doesn’t have anything to do with it”, she replied. “Happiness is something you decide on ahead of time. Whether I like my room doesn’t depend on how the furniture is arranged. It’s how I arrange my mind. I’ve already decided that I love it.

It’s a decision I make every morning when I wake up. I have a choice. I can spend the day in bed thinking about the difficulty I have with all the parts of my body that don’t work so well any more. Or I can get out of bed and be thankful for the parts that do still work. Each day is a gift and as long as I’m still breathing I’ll focus on the new day and all the happy memories I’ve stored away just for this time in my life.

Old age is like a bank account, you withdraw what you’ve put in. So my advice is to deposit a lot of happiness in the bank account of memories.” She looked up at me and said, “Thank you for your part in filling my memory bank, I’m still depositing.”

Disclaimer
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