Economic Update and Outlook for Quarter 2 – 2024

Our research partners, Innova Asset Management, have released their Quarter 2 – 2024 Market Commentary report.

Here’s a quick look into the dynamics that shaped the financial terrain:

– In January, expectations for rate cuts in the US were highly optimistic and unrealistic. Many expected the first rate cut to happen as early as March, with 6-7 cuts of 0.25% each predicted for 2024.

– This optimism helped boost equities, but as the quarter progressed, the expected date for the first rate cut was delayed, and the number of expected cuts significantly reduced.

– Since October/November 2023, consumer sentiment has improved, reflecting a more positive economic outlook. Positive economic data, especially from the US, has led to increased optimism, higher bond yields, and a new “reflation” narrative for 2024.

– While GDP growth revisions have been positive, there are concerns about sustainability. Consumers have shifted from spending excess savings to using credit cards, which isn’t sustainable long-term. However, increased household wealth has made this more manageable, creating a “wealth effect” that benefits consumers.

– Among 55 managers in the HUB24 Balanced SMA universe, three of Innova’s portfolios ranked in the top five for performance in March. Over a three-year period, three of our portfolios remain in the top ten performers.

Watch the full video breakdown below, or read the attached commentary here on the current key issues, a comprehensive review of Quarter 2, and how we are positioning our Innova Active portfolios for clients.

What has happened in markets | Q2 2024

Market outlook & positioning | Q2 2024

Income in Retirement: 3 Options for Retirees

Are you often wondering how you’ll manage financially once you step away from the workforce?

With increasing lifespans and fluctuating global financial markets, ensuring your retirement savings lasts is more crucial than ever. Many retirees find themselves trying to figure out how to spend their savings effectively, risking not fully benefiting from their years of hard-earned superannuation.

Thankfully, with the right strategies and modern financial solutions, you can find a balance between enjoying your retirement now and securing your finances for the future.

Maintaining a steady income once you retire is essential, and thankfully, it doesn’t mean giving up the financial stability you’ve grown accustomed to during your working years. Adjusting our financial mindset and planning appropriately can make transitioning from a regular paycheck to retirement income seamless and stress-free.

Continuous Income in Retirement

Many people are used to the comfort of a steady income stream during their working years. Entering retirement shouldn’t mean giving up this stability. Shifting from earning a salary to relying on various sources of retirement income can be smooth with the proper planning and adjustments to our usual financial perceptions.

Superannuation forms a crucial component of your retirement strategy, but it’s not the sole source. Most retirees will also draw income from other investments such as shares, property, or even the Age Pension (more on the Age Pension below).

Diversified Retirement Portfolio

Like any investment strategy, a diversified approach to sourcing retirement income helps balance risks and returns.

A fulfilling retirement is a goal shared by all, and it comes with a common requirement… income.

Retirement products designed to provide lifetime income offer guaranteed payments, ensuring a reliable income stream regardless of lifespan. With a robust investment portfolio, you can spend confidently and enjoy your retirement without financial worries.

Understanding Key Retirement Income Sources

Let’s explore three primary sources of income for retirees, clarifying some common misconceptions along the way.

Income from Your Super: Account-based Pensions

One popular option is converting your superannuation into an account-based pension, which provides regular income during retirement. You have the flexibility to decide the frequency and amount of your withdrawals as long as they meet the minimum withdrawal requirements. While this allows for adjusting withdrawals to match inflation, there’s a risk of depleting your funds depending on how much you take out and the returns on your investments.

A common and critical misunderstanding about account-based pensions is the assumption of endless payouts. In reality, once your super balance is exhausted, so too are the payments.

Lifetime Income Streams (Lifetime Annuities)

Lifetime income streams, such as lifetime annuities, offer a fixed, regular income in exchange for a lump sum investment from your super or savings. Our annuities can be tailored with options for fixed payments or those adjusting with inflation, interest rates, or market changes. Annuities ensure income for life, covering you and potentially your spouse, thus safeguarding against longevity risk.

Combining an annuity with an account-based pension is not only possible but advisable. This strategy allows you to secure a portion of your income for life, enhancing confidence in your financial stability throughout retirement.

Income from Age Pension (Centrelink Age pension)

Upon reaching the eligible age, the Age Pension may serve as a supplementary income source, subject to Centrelink’s assets and income tests. While the Age Pension provides a safety net, it often falls short of covering all living expenses, making it clear that relying solely on this government benefit is insufficient for a comfortable retirement.

Crafting a Resilient Retirement Portfolio

Intelligently blending your income sources ensures you have adequate funds for today and the future.

A comprehensive retirement income plan should ensure that all your bases are covered by establishing a safety net income that covers basic living expenses. This can be achieved by supplementing the Age Pension with annuities, securing a steady flow of funds for your essential day-to-day needs.

For more flexible financial needs such as dining out or travel, allocate income from less certain sources like account-based pensions. This approach allows you to enjoy discretionary spending without impacting the stability of your core financial needs in retirement.

A strategic approach to retirement income planning ensures that your transition from earning a salary to utilising your retirement savings doesn’t keep you up at night. By understanding and utilising various income sources effectively, you can achieve both the peace of mind and the financial stability needed to fully enjoy your retirement years.

Collective Wealth Advisers provides a financial roadmap centred around making the most of your money. Through proven wealth planning, tax minimisation and cash management strategies, we facilitate clarity and security when you need it most throughout your retirement journey.

Our team of experienced advisors is available to assist you throughout the entire process and provide answers to your questions. Get in touch with us now to begin your retirement planning journey.

Forced Into Early Retirement? Here are 4 Things To Consider

Are you facing an unexpected early retirement? The uncertainty can be overwhelming, but fear not – you might be better prepared than you think.

Many Australians find themselves retiring earlier than they had in mind. While the average planned retirement age hovers around 65, the reality is closer to 56. Unexpected circumstances like job loss, health issues, or caregiving responsibilities can force us into retirement prematurely.

The ideal retirement varies from person to person, whether globe-trotting, volunteering, or quality time with family. Regardless of the circumstances, careful planning and goal setting can help you achieve your plans or, at the very least, prepare you well if you are unexpectedly forced into retirement.

If early retirement catches you off guard, don’t fret. This post will explore four crucial steps to make the most of an unexpected retirement.

1. Assess Your Current Financial Situation

If retirement knocks on your door earlier than expected, evaluating your financial standing is vital. Begin by checking your superannuation balance to determine the resources available if you retire unexpectedly.

When assessing your situation, consider your assets, debts, and any income you might get from sources like government support. For example:

– How much do you have in your superannuation?

– Do you have any savings you’ve accumulated?

– Do you still need to pay debts like credit cards or mortgages?

– Can you get income from personal investments, such as stocks or property?

Additionally, it’s worth exploring whether you meet the criteria for the Government Age Pension.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

2. Calculate Your Living Expenses

Once you’ve grasped your financial assets and income streams, it’s time to calculate your day-to-day expenses. This will give you a clear picture of the annual budget you’ll need during retirement.

These expenses encompass various aspects of retirement life, such as housing costs, utility bills, groceries, entertainment, vacations, insurance, home and vehicle maintenance, and healthcare expenses.

Understanding your financial needs will help gauge whether your superannuation or savings can sustain your desired lifestyle.

3. Know When You Can Access Your Superannuation

Accessing your superannuation typically depends on your preservation age, which is determined by the government and ranges from 55 to 60 based on your birthdate. To access your superannuation, you must fulfil certain criteria:

– You must permanently retire.
– Opt for a transition to retirement while you are still employed.
– Cease employment with an employer after turning 60.
– Reach the age of 65, even if you continue working.

In some exceptional circumstances, you may be eligible for early superannuation access due to financial hardship, compassionate reasons, or permanent disability.

4. Explore Income Options With An Account-Based Pension

If you face early retirement unexpectedly and meet the requirements, exploring your income options is important. One of those options is to receive your superannuation as a lump sum payment, which means you’ll get all your retirement savings at once.

Another option is to transfer your superannuation into a dedicated retirement account, an account-based pension. An account-based pension is a financial product designed specifically for retirees. Here’s how it works:

Regular income payments

When you choose an account-based pension, your retirement savings remain invested, and you receive regular income payments from the invested balance. These payments are typically made on a regular schedule, such as monthly, quarterly, or annually. The amount you receive is calculated based on the balance of your account and factors like your age and the performance of your investments. Think of it as receiving a regular income similar to a salary or wages during your working years.

Flexible access

Unlike taking a lump sum payment, which provides you with all your retirement savings at once, an account-based pension allows you to access additional funds from your superannuation whenever you need them. This flexibility can be valuable, especially if unexpected expenses arise during your retirement.

Investment opportunities

With an account-based pension, your remaining balance is typically invested in various assets, such as stocks, bonds, and other investments. This means that your retirement savings have the potential to continue growing through investment returns. While this growth is not guaranteed and comes with some risk, it allows you to benefit from potential increases in your retirement wealth while still receiving regular income payments.

By considering these income options and understanding how an account-based pension works, you can make informed decisions to navigate unexpected retirement more confidently while maintaining financial stability.

Get Professional Financial Advice

Planning for an early retirement frequently depends on your pension for an extended duration. While this might seem daunting, seeking advice from a financial adviser can offer valuable insights and bolster your financial confidence. The earlier you embark on your retirement planning journey, the greater control you can exert over your financial future.

Transitioning Out Of Full-Time Work With The TTR Pension

Dreaming of sipping cocktails on a beach but worried about retiring without financial security? You’re not alone. Many dream of a gradual shift into retirement, and the Transition to Retirement (TTR) Pension might be the key.

Retirement brings significant changes, emotionally and financially. Downsizing and superannuation can seem overwhelming after a lifetime of work and planning. Yet, retirement doesn’t mean the end of joy and productivity.

In this post, we’ll discuss the TTR scheme’s benefits, such as income boosts and tax advantages, and potential obstacles, like eligibility criteria and tax implications, to help you decide if it can make your dream retirement a reality.

What is the Transition to Retirement (TTR) Scheme?

The Transition to Retirement (TTR) Scheme is a financial strategy that allows individuals of a certain age, typically close to retirement, to reduce their working hours while maintaining access to their superannuation benefits. It is designed to help individuals ease into retirement gradually.

Under the TTR scheme, you can begin accessing a portion of your superannuation savings as a regular income stream or lump sum while you continue to work. This can provide several advantages, including increased financial flexibility, potential tax benefits, and boosting your retirement savings.

The key features of the TTR scheme may include:

Reduced work hours – You can reduce your working hours from full-time to part-time or other flexible arrangements, giving you more leisure time.

Access to superannuation – You can access a portion of your superannuation savings, which is transferred to a pension account, to supplement your income.

Tax benefits – TTR income streams may enjoy concessional tax treatment, potentially reducing tax liability.

Superannuation contributions – You can continue contributing to your superannuation, potentially benefiting from tax advantages.

It’s important to note that while the TTR scheme offers advantages, it also comes with limitations and potential tax implications. So, consulting with a financial advisor or expert is recommended to determine if the TTR scheme suits your retirement goals.

Retirement, often seen as the end of one chapter and the start of another, doesn’t have to be a sudden shift. A transition to retirement strategy offers a gentle glide into this new phase, allowing you to make changes at your own pace.

TTR Key Advantages

Retirement is a major change in any working adult’s life. A transition to a retirement strategy offers a smoother journey than suddenly going from full-time work to full retirement. Gradual transition lets retirees adjust at their pace, making it flexible and adaptable.

You Can Work Less

Reducing your work hours can lead to better mental and physical health, increased job satisfaction, and improved financial security as retirement approaches. This gradual shift and supplementing your income with superannuation can alleviate concerns about the future and help maintain your sense of purpose.

Explore Your Passions

Moving into retirement gradually gives you the time to complete work projects, explore new interests, and refine existing ones. With more free time, you can volunteer, visit desirable travel destinations, and simply engage in activities that bring you joy and satisfaction.

Enjoy The Tax Benefits

A slower transition can offer substantial tax advantages. By staying in a lower tax bracket, you can withdraw from retirement accounts without higher taxes, thanks to concessional tax treatment on superannuation income.

Grow Your Savings

Rather than immediately relying solely on your super balance, a gradual transition distributes your income between your employment earnings and superannuation income. This approach can help preserve and even grow your retirement savings.

Make Tax-Free Withdrawals

If you’re over 60, you may access some of your superannuation tax-free! Contributing extra funds to your super can also reduce your taxable income, enabling you to withdraw that money from your superannuation fund tax-free.

Incorporating these strategies can make your transition to retirement more gradual, financially sound, and personally fulfilling.

TTR Disadvantages:

Where there are benefits, there are disadvantages, which you should be aware of to ensure you’re making an educated decision, especially regarding the financial repercussions of a slow and gradual transition away from work.

Having To Negotiate Working Hours

Opting for a gradual retirement has drawbacks, like negotiating work hours. Employers may not favour flexibility, leading to a balancing act for retirees (E.g. More freedom but potentially less job security). Awareness of these hurdles is very important, and mental and professional preparation can help ease the transition.

Contribution and Withdrawal Limits To Your Super

Many retirees overlook super fund rules. Australia’s retirement savings focus on the long term, and withdrawing too much too soon can harm your financial safety net.

Caps exist on annual and total super contributions to avoid tax penalties. If you’re planning a gradual retirement, keep these limits in mind and monitor your super regularly for a smart financial future.

TTR Eligibility:

In Australia, you can transition to retirement once you hit the “preservation age.” This age can vary, ranging from 56 to 60, depending on your birth. If you were born on or after 1 July 1964, your preservation age is 60.

When you reach this age, you’re not required to retire fully. Instead, you can access some or all of your superannuation savings. This gives you the flexibility to plan your retirement, manage your income, and adjust your lifestyle while still working, ensuring financial security during your Golden Years.

Refer to the Australian Taxation Office’s (ATO) guidelines for your specific preservation age.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

Seek Advice From a Retirement Planning Expert

It’s important to note that while the TTR scheme offers advantages, it also comes with limitations and potential tax implications. So, consulting with a financial advisor or expert is recommended to determine if the TTR scheme suits your retirement goals.

Collective Wealth Advisers provides a financial roadmap centred around making the most of your money. Through proven wealth planning, tax minimisation and cash management strategies, we facilitate clarity and security when you need it most throughout your retirement journey.

Our team of experienced advisors is available to assist you throughout the entire process and provide answers to your questions. Get in touch with us now to begin your retirement planning journey.

Investing In Your Future: The Shift From Viewing Financial Advice as a Cost To An Investment

When it comes to financial planning and seeking professional advice, many people are often deterred by the costs associated with it. The common perception is that financial advice is an expense, and one that can be avoided to save money. However, it’s crucial to change this mindset and start considering financial advice costs as an investment in our future rather than just a cost. Here’s why:

Financial Guidance Can Secure Your Financial Future

The primary reason to view financial advice as an investment is that it can have a profound impact on securing your financial future. Financial planners are experts in helping you make informed decisions about your money, investments, and financial goals. By engaging with their expertise, you’re taking steps to ensure that you’ll have a more stable and prosperous financial future. In this context, the cost of financial advice is an investment in building a secure and comfortable life for you and your loved ones.

Maximizing Returns on Investments

One of the key roles of a financial advisor is to help you make wise investment decisions. They can provide insights into opportunities, strategies, and asset allocation that can lead to higher returns on your investments. These returns can significantly outweigh the cost of the advice, essentially turning it into a profitable investment.

Risk Management and Wealth Protection

Financial advisors also play a crucial role in risk management. They help you diversify your investments to reduce risk, source insurance policies that protect your assets and income, and create contingency plans for unforeseen events. By paying for these services, you’re essentially safeguarding your wealth and minimizing potential losses.

Tailored Solutions for Your Goals

A financial advisor creates a personalized financial plan tailored to your unique goals and circumstances. This customized approach ensures that your financial resources are directed toward achieving what matters most to you. In essence, you’re investing in a roadmap that leads you to the life you desire.

Financial Education and Empowerment

A significant part of financial advice involves education. Financial advisors don’t just make decisions for you; they explain the reasoning behind them. This educational component empowers you to make more informed choices in the future, reducing the risk of costly mistakes. Investing in financial advice is, therefore, an investment in your financial literacy and capability.

Long-Term Financial Stability

Building long-term financial stability often requires expert guidance. Financial advisors assist in managing debt, creating savings plans, and planning for retirement. By paying for their services, you’re investing in your own financial stability and peace of mind for years to come.

Tax Efficiency

Tax planning is an essential aspect of personal finance. Financial advisors can help you make tax-efficient decisions, potentially saving you a significant amount of money over the years. This means the cost of their advice is offset by the tax savings you gain.

Emotional and Behavioral Support

Emotions can significantly impact financial decisions, often leading to irrational choices. Financial advisors offer emotional and behavioral support, helping you stay on track during turbulent financial times. This aspect alone can save you from making costly emotional decisions that could erode your wealth.

A Holistic Approach to Financial Wellness

A financial advisor takes a holistic approach to your financial wellness. They consider all aspects of your financial life, from investments to insurance to estate planning. This comprehensive approach ensures that every aspect of your financial health is in good shape, and you’re not missing out on critical opportunities for growth and protection.

It’s essential to shift our perspective and start viewing financial advice as an investment in our future. While there’s no denying that there is a cost associated with seeking professional financial guidance, it’s crucial to recognize that the benefits far outweigh this expense. By investing in financial advice, you’re securing your financial future, maximizing your returns, managing risk, and gaining the knowledge and confidence to make informed financial decisions. So, the next time you consider seeking financial advice, remember that it’s not just an expense; it’s an investment in a brighter, more financially secure future.

Ready to start investing in your future? Call us on (07) 3371 0866 and begin your pathway to a brighter financial future with a Collective Wealth Advisers expert.

Economic Update and Outlook for Quarter 3, 2023