Ways to wealth by pengxiang

VIEWS: 2 PAGES: 27

									Ways to wealth
any age, any stage




                     ISSUE 1 – JUNE 2008
                                                                                                       Ways to wealth

                                                                                                       Whoever you are, wherever you’re at in life, you can
                                                                                                       create wealth by making the most of what you have.
                                                                                                       Everyone’s situation is different and you need to
                                                                                                       consider what’s right for you. However seemingly small,
                                                                                                       good decisions can really add up. These can have a big
                                                                                                       impact on creating wealth over your lifetime.

                                                                                                       How to use this booklet
                                                                                                       This booklet outlines practical ideas to build your wealth – for all ages
                                                                                                       and stages. You can use this booklet in a number of ways. You can read the
                                                                                                       booklet from cover to cover or refer to the age based section most relevant to
                                                                                                       your personal circumstances.
                                                                                                       The timeline on the next two pages outlines the key ways you can build
                                                                                                       wealth at each stage of your life. > These details are overleaf.
                                                                                                       Regardless of the stage you are at now, there are 5 wealth essentials that form
                                                                                                       the foundations for successful investing > These are detailed on pages 4 – 7.




What you need to know
This document is issued by AMP Life Limited ABN 84 079 300 379 AFSL 233671. Any advice in
this document is provided by AMP Life Limited, which is part of the AMP group of companies.                 Quicktip
AMP companies receive fees and charges in relation to their financial products, as set out in
product disclosure statements. AMP employees and directors receive salaries, bonuses and other              There’s no substitute for good
benefits from the AMP Group.                                                                                financial advice, particularly as
The information in this document is of a general nature only and does not contain advice that is            you near retirement. Together you
based on your personal objectives, financial situation or needs. Before relying on it in making any         and your financial planner can
decision, you should consider how it applies to your personal objectives, financial situation               develop a personalised roadmap to
and needs, or speak to a financial planner.                                                                 wealth. If you don’t already have
Before deciding to invest in or make a decision about any financial product, you should read                a financial planner > click ‘find a
the current product disclosure statement for the product, available from your financial planner.            planner’ at www.amp.com.au
Although the information in this document was obtained from sources considered to be
reliable, it is not guaranteed to be accurate or complete. It is current as at 1 June 2008. The laws
(including tax laws) and other matters on the basis of which the information in this document
was prepared may change at any time.
Past performance is not a reliable indicator of future performance.


                                                                                                                                            WAYS TO WEALTH – ANY AGE, ANY STAGE     1
20s                           30s                            40s                          50s                        55+                            60s+
Start budgeting to            Pay off ‘bad’ debt; fast       Pay off bad debt; fast       Get financial advice on    Take advantage of higher       Get financial advice on
manage your cashflow          track credit card and home     track credit card and home   how to pump up your        limits for concessional        accessing your super
and debt; the right           loan repayments                loan repayments              super savings to take      super contributions            Look at ‘refreshing’ your
spending choices now can                                                                  advantage of the                                          arrangements each
                              Consider consolidating         Consider consolidating                                  Get financial advice on
help set you up for life                                                                  55+ opportunities                                         year to increase your
                              debts / super fund             debts / super fund                                      accessing your super
                                                                                                                                                    income payments and
Pay off ‘bad’ debt; fast      accounts / bank accounts       accounts / bank accounts     Review your risk profile   to consider
                                                                                                                                                    contributions to further
track credit card and                                                                     and make sure your          – continue working to
                              Have a regular investment      Have a regular investment                                                              boost your super
personal loan repayments                                                                  investments still suit         tax effectively boost
                              plan and re-invest             plan and re-invest
                                                                                                                         your super, or             Maximise government
Start a regular investment    your earnings                  your returns                 Get financial advice on
                                                                                                                     – reducing your work           benefits by structuring
plan; keep disciplined                                                                    borrowing to invest for
                              Get financial advice on        Get financial advice on                                     hours and accessing        your income and assets
using direct debit and                                                                    the potential to magnify
                              borrowing to invest for        borrowing to invest for                                     your super to              appropriately
re-invest your earnings                                                                   your returns
                              the potential to magnify       the potential to magnify                                    supplement your
                                                                                                                                                    Accelerate your super
Kick-start your super         your returns                   your returns                 Check your insurance           income, or
                                                                                                                                                    savings, if still working:
– find out if you can get                                                                 cover and who it will be   – delaying retirement
                              Take out adequate              Check your insurance cover                                                             – maximise your after-
   a government bonus                                                                     paid to                        until at least age 60
                              insurance: life, disability,   and who it will be paid to                                                                tax contributions while
   of up to $1,500 a year                                                                                                for tax-free access
                              income protection                                           Review your Will and                                         you’re still under 65
– consider keeping                                           Be smart with super                                         to super
                              Be smart with super            – consider getting your      consider estate planning                                  – contribute up to your
   your money together
                              – consider getting                money together in                                    Get financial advice to           tax deductible limits
   in one account
                                 your money together            one account
                                                                                          > From page 32             help you take advantage
– consider a more                                                                                                                                   Release other wealth
                                 in one account              – consider a more                                       of government benefits
   aggressive investment                                                                                                                            – consider reverse
   mix – you’re in for the    – consider a                      aggressive investment                                                                  equity and downsizing
                                                                                                                     > From page 32
   long haul                     more aggressive                mix – you still have                                                                   strategies
                                 investment mix                 a long term
> From page 8                                                                                                                                       Review your Will and
                              – put in extra for you            investment horizon
                                                                                                                                                    estate plan
                                 and your spouse             – put in extra for you
                              – find out if you can get         and your spouse                                                                     > From page 40
                                 a government bonus of       – find out if you can get
                                 up to $1,500 a year            a government bonus of
                                                                up to $1,500 a year
                              Create a Will
                                                             Review your Will for
                              > From page 16
                                                             changing circumstances
                                                             > From page 16




WAYS TO WEALTH – ANY AGE, ANY STAGE                                                                                                         WAYS TO WEALTH – ANY AGE, ANY STAGE
5 wealth essentials

There are 5 wealth essentials that form the foundations
                                                                                     Quicktip
for successful investing. These are relevant for all ages
and stages.                                                                        Are you investing for a short time or a long time?
                                                                                   History shows while returns of investments, like shares, may fall in
                                                                                   the short term, over the long term the returns are higher than less risky
Remember, it’s not what you have that counts – it’s what you do with it.           investments like cash and fixed interest. Cash and fixed interest tend
You can build wealth using a number of sources, including:                         to deliver more stable returns so may be more suitable for shorter
                                                                                   term investing. The following chart shows the relationship between
– your current income (where’s your money going?)
                                                                                   risk, return and your investment timeframe.
– a pay rise, bonus, tax return or tax cut
– the equity in your home or other investments
– minimising tax
– making your investments work harder for you through
   – compounding
   – investment growth
   – the right investment mix
   – maximising super contribution limits
– maximising government benefits
– an inheritance, redundancy or capital gain


     Quicktip
     How are you tracking?
     Building wealth comes down to a simple formula – spend less than you
     earn and invest the difference. If you don’t have a budget or don’t track
     your expenses, now is a great time to start. Never underestimate the
     importance of a budget in helping you take control of your finances and
     build your wealth.

                                                                                   Note: This chart shows the annual returns of the AMP Balanced Growth
1. The right balance                                                               Fund in Flexible Lifetime – Super over a 10 year period ending 30 April 2008.
                                                                                   This investment option has a suggested timeframe of 5-7 years and on
All investing involves some risk. The potential for higher returns generally       average is likely to experience a negative annual return once every five years.
means an increased chance of negative returns. You need to strike a
comfortable balance between the level of risk you are prepared to accept
and your desired level of return.
                                                                                 As you can see, this fund produced positive annual returns 70% of the time
                                                                                 and overall the positive returns were greater than the negative returns.



4        WAYS TO WEALTH – ANY AGE, ANY STAGE                                                                           WAYS TO WEALTH – ANY AGE, ANY STAGE           5
5 wealth essentials

2. A good mix                                                                    5. Contribute regularly
Spreading your money across a variety of investments can help lower              Rather than waiting to have a lump sum to invest, you might reap real
investment risks as the values of different types of assets can rise and fall    benefits by investing smaller, regular amounts over a longer timeframe.
at different times. Diversification generally reduces the likelihood of any      Because markets move up and down, you will sometimes buy at higher
single investment or asset type negatively affecting the value of your           prices and sometimes at lower prices. So the price you’ll pay over time will
overall portfolio.                                                               be averaged out. You can also benefit from compound interest as each
                                                                                 contribution has the opportunity to start generating earnings immediately.
3. Real returns                                                                  The following graph shows how this works.
Tax applies to different investments in different ways. Some investments, like
super, are taxed at lower ‘concessional’ rates and enjoy other tax advantages.
Tax considerations include capital gains tax, income tax, as well as offsets
and deductions.
You should consider the impact of tax when investing. While before-tax
returns might make one investment look better than another, it’s usually the
after-tax results that can make the difference to your actual wealth.

4. Super size your investment
Investing over a longer period and reinvesting returns can help you ‘super
size’ your investment through compound returns. Your money starts working
harder for you by earning returns on your initial investment as well as on
earlier returns you have reinvested.




6        WAYS TO WEALTH – ANY AGE, ANY STAGE                                                                         WAYS TO WEALTH – ANY AGE, ANY STAGE        7
20s
Whether you’re studying, working or travelling,
living at home or with friends, saving to buy your
own place or you have a mortgage, now is a great time
to get smart with money.
                                                                                 Action
                                                                                 Make a budget and use it. Use the ‘Budget planner’
                                                                                 > Click ‘Calculators’ at www.amp.com.au



                                                                                 Quicktips
                                                                               – Spend less than you earn.
                                                                               – Save or invest regularly, even if only a small amount.
                                                                               – Avoid bad debt / fast track personal loan repayments.




                                                                               Spotlight: saving vs investing
The choices you make and habits you form in your twenties may impact how
much financial freedom you have through the years and even decades ahead.      Saving is generally about setting aside money for use in the shorter
                                                                               term, such as less than a year. Because the money is usually put in a cash
                                                                               management account or term deposit there is usually little risk involved, but
1. Manage your cashflow and debt                                               there is also limited growth potential.
‘Why wait? Buy now, pay later.’                                                Investing is generally about putting away money for the medium to longer
Sounds enticing but remember, credit will cost you. Most people don’t even     term and usually involves a measured degree of risk with the aim of growing
think about it but fees and interest payments can add up to thousands          your wealth. It usually involves putting in place a plan (investment strategy)
of dollars.                                                                    to achieve your financial goals.
It might sound a little basic, but you can put yourself way ahead, simply by
budgeting and managing debt well.
                                                                                 See for yourself
                                                                               – Check out the risk / return comparison graph > See page 5.
     See for yourself                                                          – Use the ‘what investor style am I’ calculator. Click ‘calculators’ at
     Discover the difference between good and bad debt                           www.amp.com.au
     > See page 10.




8       WAYS TO WEALTH – 20s                                                                                                        WAYS TO WEALTH – 20s        9
20s
2. Bust bad debt, go for good                                                      Increase your mortgage payments or invest elsewhere?
Bad debt includes debt that carries expenses like interest payments that you       Since you pay your home loan from after-tax dollars, money you put
can’t get a tax deduction on and tends to be used for consumer items like          in is effectively giving you a return at the same rate as your home loan rate.
credit card purchases, a car or a holiday which usually reduce in value. It also   If you invest elsewhere, your earnings will likely be subject to tax so,
includes your home mortgage.                                                       depending on your personal rate, up to almost half of your expected return
                                                                                   could go in tax. You might be better off putting money into your mortgage.
Good debt includes debt that is used to purchase investments, such as shares
and investment property. These investments generally produce income or             But there are benefits of investing you should consider before you’ve paid off
capital growth. Borrowing costs, like interest, may be tax deductible.             your mortgage:

It’s generally good to try and avoid bad debt or fast track repayments.            1. Some investments have the potential to deliver better performance, even
Once you have equity in your home or other investments, consider using                after tax, than your mortgage rate.
it to invest elsewhere > See page 11.                                              2. It can be wise to have your money spread across investments rather than
                                                                                      all tied up in your home.
                                                                                   3. Some investments like shares generally perform best over a longer term
     Quicktips                                                                        so if you wait until you pay off your mortgage before investing, you could
  – If you have several loans, consider bringing them together into                   miss some long term performance benefits.
    the one with the lowest interest rate. Pay loans with the highest,
    non-tax-deductible interest first.
  – Making larger and more frequent payments off your home loan
    could save you many thousands of dollars in interest and years off                Tina’s story
    your loan term.                                                                   After making extra mortgage payments and the increased market value of
                                                                                      her property, Tina has built up some equity in her home.
                                                                                      After meeting with her financial planner, she decided to draw on
                                                                                      some of this equity to invest in a managed fund. As well as helping her
     See for yourself
                                                                                      reduce her tax – since interest on the investment loan was tax-deductible
     The results may amaze you. Use the ‘Debt reduction’,                             – her managed fund investment generated extra income which Tina
     ‘Extra repayments’ and ‘Lump sum repayments’                                     paid into her home loan.
     calculators > Click ‘Calculators’ at www.amp.com.au                              So even though Tina drew on her equity in the property to invest,
                                                                                      she was still able to keep paying off her mortgage and build a managed
                                                                                      fund investment at the same time.

     Think about it
     How much more could you have available to invest
     simply by paying off credit cards on time, fast tracking
     loan repayments, and consolidating accounts and loans?




10       WAYS TO WEALTH – 20s                                                                                                          WAYS TO WEALTH – 20s       11
20s
3. Start a regular investment plan and re-invest earnings                                          Saving for the shorter term?
Your distinct advantage                                                                            Get your money working for you in a cash management account with a
As a younger person, by starting now and reinvesting any interest or earnings                      competitive interest rate. Alternatively, if you have a mortgage you can:
back into your investment, you can maximise the power of what’s called                             – park it in a mortgage offset account; or
compound interest. Time is in your favour.                                                         – pay it into your mortgage and re-draw it later.

What you don’t see, you won’t miss!                                                                See ‘Increase your mortgage payments or invest elsewhere?’ > Go to page 11.
You’ve heard the saying out of sight, out of mind. To avoid the temptation                         How to invest
of spending more than you’d planned, set up a regular direct debt into your                        You can usually invest a one-off lump sum, regular amounts, or both. Regular
savings or investment plan.                                                                        investing in a managed fund or shares can help you build your investment in
                                                                                                   affordable chunks and give the added advantage of smoothing out the cost
                                                                                                   of buying into the investment. Investing a set amount at regular intervals is
  Tahlia & Pete’s story *                                                                          called ‘dollar cost averaging’.
  When Tahlia turned 25, she started investing $250 a month in a managed                           You could invest into an asset directly – for example, buy property or shares
  fund and reinvested investment earnings. She kept it up every week until                         yourself – or through a managed fund.
  she turned 45, when her investment was worth $126,904.
                                                                                                   What is a managed fund?
  Pete also put $250 a month into an investment with the same annual                               It’s a fund run by a professional investment manager where money from
  return as Tahlia, but he didn’t get around to starting until five years later,                   individual investors is pooled together. This larger pool gives individuals
  when he turned 30. He kept up his weekly investments and by his 45th                             access to investments they may not be able to access alone. It can also help
  birthday the overall investment was worth $78,934.                                               individuals diversify their investments and lower their risk because money can
  Although Tahlia only contributed $15,000 more than Pete, by age 45 she                           be spread across different:
  had $47,970 more than Pete.                                                                      – types of assets, such as shares and property; and
  By starting earlier, the power of compound interest put Tahlia $32,970                           – investments within an asset type, such as different shares;
  ahead of Pete.                                                                                   – investment managers.
  * Assumes level contribution amount throughout the term, invested in Australian shares with      The level of diversification will depend on what type of managed fund you
    6.5% annual return. Distributions are reinvested. Initial investment of $1,500, 0.4% fees on
    investments, 3% inflation.                                                                     invest in. With AMP’s range of managed funds, you can invest as little as
                                                                                                   $1,500 upfront and from $100 each month.


     Quicktips                                                                                          Action
  – A financial planner can advise which investments may suit you personally.                           If you’re earning a regular income, start a regular
  – Consider tax implications of different investments. For example,                                    savings or investment.
    Australian shares can offer the benefit through your dividend of the
    company having already paid tax on its income.
  – Using direct debit will help you stick to your investment plan.



12       WAYS TO WEALTH – 20s                                                                                                                            WAYS TO WEALTH – 20s   13
20s
4. Kick-start your super                                                                              5. Make good choices for super – potentially your biggest investment
Get a boost from the government                                                                       It could be your biggest asset ever, worth maybe even more than your home –
Your life is cranking up so the last thing you may be thinking about is your                          so get interested in your super.
retirement. But what if the government could help you grow your super?                                Take control
Sounds too good to be true? It’s not!                                                                 You might be able to choose which fund your super is paid into – millions of
If you earn less that $58,980 in a financial year (indexed annually), you could be                    Australians can – and what sorts of investments your super is invested in.
eligible for a boost from the Government.                                                             Making the right choice now could make a big difference to how much you get
                                                                                                      in super benefits.
The maximum co-contribution or boost from the government is $1,500. If you
earn $28,980 (indexed annually) or less in a financial year, the government                           Keep it together
will put in $1.50 for every $1 you contribute from after-tax money – up to                            Don’t end up like some people who have multiple super accounts, pay
the $1,500 maximum. This means your $1,000 contribution could effectively                             multiple fees and end up losing touch with some of their money. Instead, keep
boost your super by $2,500 – and that’s just in one year.                                             your super together in one fund. Before consolidating your super accounts
                                                                                                      consider all of the consequences, such as any impact on existing insurance
The maximum co-contribution reduces by 5 cents for each dollar you earn
                                                                                                      cover you have within super.
over $28,980, phasing out if your income is $58,980 (indexed annually).
For more details, see the ‘Top up your super with help from the government’
flyer > Click ‘Super Strategies’ at www.amp.com.au                                                        Action
From 1 July 2008, the lower and upper thresholds will increase to $30,342 and $60,342 respectively.       If you think you might have lost some super, use the ‘Super search’ tool
                                                                                                          > Click ‘Super strategies’ at www.amp.com.au




                                                                                                          Think about it
                                                                                                          Are you making the most of your super? While it may not be your main
                                                                                                          focus right now, with time on your side it may make sense to consider:
                                                                                                          – investing in growth assets, such as shares
                                                                                                          – bringing all your accounts together
                                                                                                          – taking advantage of the co-contribution boost from the Government –
                                                                                                            if you’re eligible




14         WAYS TO WEALTH – 20s                                                                                                                           WAYS TO WEALTH – 20s       15
30s & 40s
Whether you’re single or married, with or without kids,
have a mortgage or not, it’s quite common at this stage
                                                                                    Think about it
                                                                                  – Should you be borrowing to invest and grow your wealth?
of life to feel pressure on your finances.                                        – How much more money could you have available to invest by paying off
                                                                                    credit cards on time, fast tracking loan repayments, and consolidating
You – and your partner – may be well-established in your career and might           accounts and loans?
even be doing further study. But over the years you may have accumulated
responsibilities which require money. You might want to renovate your home,
pay for your children’s education, enjoy an amazing holiday or build your
investment portfolio. Or you may simply be wondering how you can better             Action
organise your finances so you have more freedom to choose.                        – If you don’t have a budget or haven’t reviewed yours in a while, use our
                                                                                    ‘Budget planner’ > Click ‘Calculators’ at www.amp.com.au
1. Pay off ‘bad’ debt – fast track credit card and personal loan repayments
These sorts of loans can be a drain on your finances, creating an obstacle      2. Consider consolidating debts and super accounts
to building your wealth. You could achieve significant savings on interest
                                                                                As well as making your finances easier to keep track of and manage, you
payments by paying off credit card balances on time and by avoiding personal
                                                                                may save on fees and charges. Before consolidating your super accounts
debt or fast tracking repayments.
                                                                                > See ‘Keep it together’ on page 15.
Read page 10 to find out why some debt is good and other debt is bad – and
what you can do about it. You might even be able to use good debt to help you
get out of bad debt > See Tina’s story on page 11.
Pay more off your mortgage or invest elsewhere?
A common question at this stage is ‘should I fast track my mortgage
repayments or invest elsewhere?’ > See page 11.




16      WAYS TO WEALTH – 30s & 40s                                                                                            WAYS TO WEALTH – 30s & 40s       17
30s & 40s
3. Invest regularly and re-invest earnings                                        4. Get financial advice on borrowing to invest
Even though you might feel like there are relentless demands on your finances,    To help accelerate your wealth creation, consider borrowing to invest, also
it’s important to put aside something each pay day for any specific targets you   called gearing. Gearing can allow you to access investments now that you
have such as education, a dream holiday or renovations, or in case something      wouldn’t otherwise have the money to access. It can also give you the
unexpected happens.                                                               potential to spread money across different investment types, which can help
                                                                                  to counter risk.
By saving or investing rather than borrowing for these things, you can save
significant money on fees and interest payments – and accumulate even more        With a larger investment you have the potential to magnify your returns, but
for yourself from the earnings on your investments. Consider reinvesting your     gearing can also magnify your losses.
earnings. Generally, the sooner you start, the better, because of the power of
                                                                                  Because what you earn from your investments is assessable income, you may
compound returns.
                                                                                  be able to claim interest on your investment loans as a tax deduction.
                                                                                  Some people use equity in their home such as through a line of credit.
     Quicktips                                                                    Others take out a special investment loan – often called margin lending.
  – For valuable ideas on saving and investing > See page 9.                      You might borrow to access a lump sum to invest. Alternatively, you could
  – Make or review your budget. A bit of re-working and you should be able        borrow a lump sum as well as regular amounts to add to your investment –
    to find more to save or invest.                                               known as instalment gearing.
                                                                                  In the case of margin loans, lenders allow a maximum gearing level known as
                                                                                  the debt to assets ratio (or loan value ratio – LVR). If markets fall and the value
                                                                                  of your investment drops, a margin lender may make a ‘margin call’, requiring
     See for yourself
                                                                                  you to put up more money at short notice. You might have to offer more
     Use the ‘Budget planner’ and ‘Start saving early’ calculators                security or even sell some of your investment holding at the current prices as a
     > Click ‘Calculators’ at www.amp.com.au                                      result to bring your gearing back down to the appropriate level.


                                                                                       Quicktip
                                                                                       Gearing is best suited to growth assets such as shares
                                                                                       and property because they generally have greater
                                                                                       potential to grow in value over the long term.




18      WAYS TO WEALTH – 30s & 40s                                                                                               WAYS TO WEALTH – 30s & 40s     19
30s & 40s
Avoiding margin calls                                                                            5. Take out adequate insurance
To reduce the chance of a margin call you could:
                                                                                                 In your 30s and 40s you might feel a little invincible and be so caught up with
– borrow less funds than the maximum allowed so you have a bigger margin
                                                                                                 life that you don’t want to think about death, sickness or injury. But how
    before a call is made (markets would have to drop more significantly before
                                                                                                 would you and your loved ones cope financially if something were to happen?
    triggering a margin call); and
                                                                                                 Planning for the unexpected now could save a lot of potential financial pain
– re-invest your earnings to reduce your gearing level.
                                                                                                 and pressure. It may be especially important if you have dependants or debts.
– consider a margin lending account that puts in place a capital repayment
    plan to reduce your gearing level over time, rather than requiring you to                    What’s what?
    make a lump sum payment.                                                                     Policies vary so it’s important to check the fine print but generally:
                                                                                                 Income protection (or temporary salary continuance) insurance provides up
                                                                                                 to 75% of your regular income if you have an illness or injury that prevents
   Terry’s story *                                                                               you from working.
   35-year-old Terry is on a salary of $100,000. He starts a managed fund with                   Disability (or total and permanent disablement) cover provides a lump sum
   an initial investment of $20,000, $7,000 of his own money and $13,000 of                      which can be used to help cover living expenses and rehabilitation costs if you
   borrowed funds. Every month he puts in an additional $1,300, $500 of his                      are totally and permanently disabled.
   own money plus $800 of borrowed money. After doing this for 10 years,
   Terry repays his loan and ends up with $175,900. If he had just invested his                  Trauma cover provides you with a lump sum payment if you suffer one of
   own money over the same time but not used gearing, his investment would                       a number of specified conditions. Trauma cover is not available through
   be worth $150,445.                                                                            your super.
   Gearing has put Terry $25,455 ahead, even after loan costs and capital                        Death cover provides a lump sum to you if you become terminally ill or a lump
   gains tax (CGT) are taken into account.                                                       sum or pension to your family if you die.
   * Assumes Terry pays interest from his own funds; net proceeds after CGT using CGT discount
     method and repayment of loan with average interest rate of 10%; investment in Australian
     share market with 6.5% annual return, 41.5% marginal tax rate; 0.4% fees on investments;
     distributions reinvested, 3% inflation.                                                          Quicktip
                                                                                                      A beneficiary is generally the person who will receive your insurance
                                                                                                      benefit if a claim is made, and is particularly relevant for death cover.
                                                                                                      It is important to update your nominated beneficiaries regularly – at
     Think about it                                                                                   least every 3 years.
     A financial planner can help prepare you for the capital
     and cash flow risks of strategies involving gearing.




20        WAYS TO WEALTH – 30s & 40s                                                                                                              WAYS TO WEALTH – 30s & 40s      21
30s & 40s
Where from?                                                                      6. Be smart with super
Super fund members may have some sort of death and disability insurance          Retirement might be the last thing on your mind but there are simple things
cover – even income protection – through their super. There’s also often         you can do now that could make a big difference to how much you build in
potential to increase this cover. Taking some types of cover through super:      superannuation assets.
– may be more tax effective, especially for those on higher marginal tax
   rates; and                                                                    Take control
– moves the cost of the premium away from your take-home cash flow.              You might be able to choose which fund your super is paid into – millions of
                                                                                 Australians can – and what sorts of investments your super is invested in.
There is also a wide range of personal insurances available outside of super.    Making the right choice now could boost how much you get in super benefits.
A financial planner can help work out what type of insurance you should have,
for what amount, and the best way for you to pay for it.                         Keep it together
                                                                                 Don’t end up like some people who have multiple super accounts, pay
                                                                                 multiple fees and end up losing touch with some of their money. Instead, keep
                                                                                 your super together in one fund. Before consolidating your super accounts
     Action
                                                                                 consider all of the consequences, such as any impact on existing insurance
  – Make sure you have the right type and amount of insurance.                   cover you have within super. If you think you might have lost some, use the
  – Check who your nominated beneficiaries are and update them if necessary.     ‘Super search’ tool > Click ‘Super strategies’ at www.amp.com.au
                                                                                 Get financial advice on borrowing to invest
                                                                                 By now you have probably built up some equity in your home or an
     See for yourself                                                            investment portfolio. You can consider borrowing against this equity to start
                                                                                 or increase an existing investment with the objective of achieving increased
  – Check out the risk / return comparison graph > see page 5.
  – Use the ‘What investor style am I’ > Click ‘Calculators’ at www.amp.com.au
                                                                                 returns on your investment. While gearing can result in increased returns in
                                                                                 a rising market, it may also lead to a greater loss in a falling market. You need
                                                                                 to strike a comfortable balance between the level of risk you are prepared to
                                                                                 accept and your desired level of return > Read more on pages 19 and 20.
     Action                                                                      Gearing can involve investing a lump sum or making regular contributions into
  – Check if you have any lost super                                             a managed fund. An instalment gearing plan involves investing a set amount
    and consider bringing together                                               each month made up of your personal contribution plus borrowed funds.
    multiple accounts, use the                                                   Since the interest costs associated with borrowings for investment purposes
    ‘Super search’ tool > Click ‘Super                                           are usually tax deductible, gearing can be a tax effective strategy.
    strategies’ at www.amp.com.au




22      WAYS TO WEALTH – 30s & 40s                                                                                              WAYS TO WEALTH – 30s & 40s     23
30s & 40s
                                                                                   Spotlight: the big attraction of super
     Action
                                                                                   When it comes to saving for retirement, super offers significant tax benefits.
 – Check if you have any lost super and consider bringing together multiple        Just take a look at Maria’s story > See page 36. While there are a few
   accounts – use the ‘Super search’ tool > Click ‘Super strategies’ at            exceptions, contributions from before-tax income are taxed at 15% and
   www.amp.com.au                                                                  investment earnings are also taxed at 15% – that’s a lot lower than most
                                                                                   personal tax rates for earnings outside super. And, once you turn 60, you can
                                                                                   access your super tax-free.
                                                                                   For most people, the compulsory 9% their employer pays into super
     Quicktips                                                                     won’t be enough to fund the retirement lifestyle they want. Many people’s
   Have you got your super working for you as hard as it should be?                retirement savings might need to last 20-years-plus. Find out how you can
 – Depending on your income and other criteria, if you contribute a bit            drip-feed into your super now for bigger benefits later
   to super from your after-tax money, the government might put up to              > See Kyle’s story on page 26.
   $1,500 a year into your super.
 – You’ll usually be better off making regular contributions to your super
   over time for 2 reasons:
   1. There are annual limits on super contributions                            The power of sacrifice
       – concessionally taxed contributions include salary sacrifice            If you’re an employee, ask your employer if they’ll let you salary sacrifice
         contributions made by your employer or contributions that you are      additional money into super. What this means is you receive less in take-home
         claiming a personal tax deduction for as a self-employed person; and   pay and have your employer contribute the difference into your super. Because
       – non-concessional contributions include those made from your            the money is taxed at just 15% going into super rather than at your marginal
         after-tax money for which no tax deduction is claimed.
                                                                                rate, you will generally pay less tax on this money and have more money
   2. You may also benefit from the power of compound interest which
       comes from investing over time.
                                                                                working for you. And since you’re effectively reducing your assessable income
                                                                                you’ll pay less income tax.
                                                                                If you’re self-employed, these same rules apply to you as well. By making
                                                                                tax-deductible personal super contributions, you can achieve a similar result!




24      WAYS TO WEALTH – 30s & 40s                                                                                             WAYS TO WEALTH – 30s & 40s      25
30s & 40s
 Kyle’s story                                                                          Quicktips
 Kyle, who earns $70,000 a year (not including the 9% compulsory super)             – You’ll get more benefit from salary sacrificing if you’re on a high marginal
 pays $16,650 in income tax. He is trying to decide if he’s better off putting        tax rate.
 money into super from his take-home pay or using salary sacrificing from           – If you are under 50, you can contribute up to $50,000 a year to your
 his before tax income. He is prepared to have $3,500 less income in                  super that will be concessionally taxed with any further contributions
 the hand.                                                                            being taxed at the top marginal rate. This $50,000 cap applies to the 9%
                                                                                      compulsory contributions, salary sacrificed amounts and any personal
 If Kyle salary sacrifices $5,110 into super (the equivalent of $3,500 after          tax-deductible contributions you may make as a self-employed person.
 income tax) he will end up with exactly the same take-home pay as if he’d          – Because salary sacrifice effectively reduces your income#, it helps some
 contributed $3,500 after-tax to super. Because this contribution will be             people qualify for a government co-contribution “boost” to their super
 taxed at the lower rate of 15%, $4,343 will go into his super using salary           of up to $1,500 a year. Providing you meet eligibility criteria, the
 sacrifice compared with $3,500 using his take-home pay.                              government will put in $1.50 for every $1 you contribute from your
 Kyle ends up with $843 more going into super simply by salary sacrificing            after-tax money, up to a maximum of $1,500 a year. If your total annual
 rather than contributing from his after-tax pay.                                     income exceeds $28,980 (indexed annually) the co-contribution reduces
                                                                                      by 5 cents for each dollar over, phasing out once your income reaches
                                                                                      $58,980 (indexed annually).
                                                                                    – Contributing to super can also be attractive because investment earnings
                                                                                      are taxed at the maximum rate of 15%, and once you reach 60 you can
                                                                                      draw your super tax-free.


                                                                                 # Following a 2008 Federal Budget announcement, from 1 July 2009, the definition of income for the
                                                                                   superannuation co-contribution, and certain other government benefits, will include certain salary
                                                                                   sacrifice contributions to superannuation.
                                                                                 From 1 July 2008, the lower and upper thresholds will increase to $30,342 and $60,342 respectively.




26     WAYS TO WEALTH – 30s & 40s                                                                                                           WAYS TO WEALTH – 30s & 40s            27
30s & 40s
 Spotlight: rethink your mortgage                                               Ross and Tara’s story *
 Some people pay less into their mortgage and feed the difference into          Both in their early forties, Ross and Tara want to build their super as
 their super. Some even move their mortgage to an interest-only loan or         much as possible. Ross has an annual salary of $95,000 and Tara $55,000.
 extend their loan term to minimise repayments and maximise what they           Their 25-year mortgage is $300,000 with interest of 8% pa and annual
 can put into super. After paying off the mortgage using tax-free drawings      repayments of $28,100.
 from super once they turn 60, they can potentially end up further ahead        They have $3,138 pa after tax which they plan to either pay off their
 financially than if they’d only concentrated on their mortgage earlier on.     mortgage or put into super. Instead of putting this amount after-tax into
 If you are considering this strategy, you should be aware:                     super, Ross could decide to salary sacrifice it, resulting in a $5,364 gross
 – you need to be comfortable with having a higher level of debt over           amount into super.
   a longer term;                                                               19 years later:
 – putting money into super is not accessible like it could be if paid into     – if they pay an additional $3,138 a year into their mortgage, the mortgage
   a mortgage;                                                                    is paid off; or
 – there’s also a risk that markets will be down at the time you want to draw   – if Ross’ salary sacrifices the equivalent amount into super, and they make
   on your super to repay your mortgage; and                                      no extra mortgage repayments, there is still $130,070 owing on their
 – investment returns on your super may not exceed the interest rate on           home loan, but Ross has an additional $198,344* in super. Once he
   your mortgage and are subject to 15% tax (less any concessions, such as        turns 60 he can access his super tax-free to pay out the remaining
   CGT discounts and refundable franking credits).                                $130,070 mortgage.
                                                                                Even after repaying his mortgage, Ross ends up with an extra $68,273
                                                                                in his super.
                                                                                * Assumes 3% pa gross income return, 70% franked, 5.5% pa capital growth; no consideration
                                                                                  of fees or charges.




28     WAYS TO WEALTH – 30s & 40s                                                                                                   WAYS TO WEALTH – 30s & 40s               29
30s & 40s
Bring forward contributions                                                       Spouse super
The government limits the amount people can put into super using after-tax        Help grow your spouse’s super – and benefit yourself. If your partner earns
dollars to $150,000 a year. But if you’re under 65, you can bring forward         $10,800 or less a year, you could get a $540 tax offset on the first $3,000 you
2 years’ worth of contribution limits into the year you’re in. This means you     put into their super from your after-tax income representing an 18% return
can make a lump sum contribution of up to $450,000 in one year and nothing        on capital. This gradually reduces as your partner’s income rises, phasing out
in the next two – or $300,000 in year one and $75,000 in each of the following    completely once their yearly income exceeds $13,800.
two years, for example. This can be handy if you want to contribute large
                                                                                  If you’ve worked in the UK
amounts, such as an inheritance or proceeds from the sale of assets like an
                                                                                  Keep tax to a minimum by transferring your UK pension to a qualifying
investment property. Contributions in excess of the limits are taxed at the top
                                                                                  registered overseas pension scheme (often referred to as QROPS) in Australia.
personal (marginal) rate.
                                                                                  As the transfer is usually treated as a non-concessional contribution, you can
                                                                                  only transfer $450,000 (or $150,000 per transfer if you are 65-75 and satisfy
                                                                                  the ‘work test’). The Australian fund cannot accept amounts that exceed
     Quicktips                                                                    this limit. Where the transfer does not exceed the non-concessional caps:
    Super choice                                                                  – if you transfer funds within 6 months of relocating to Australia, you should
  – Choosing a fund?                                                                  pay no Australian tax at all; and
    Compare things like performance over a number of years, fees, investment      – if you transfer funds after 6 months, you may pay Australian tax on a
    options, insurance and other benefits.                                            component of the total funds transferred.
  – Making an investment choice?
    Think about what sort of performance you’re after, how long you have to       You should consider getting tax advice specific to your situation before
    invest and how you feel about investment risk.                                transferring any funds.
  – A financial planner can help you make the right choice for your situation.

                                                                                       Quicktips

     Action                                                                            Only some super schemes in Australia are qualifying
                                                                                       registered overseas pension schemes and AMP’s
     Super quick search                                                                Superannuation Savings Trust is one of them.
     There’s around $10 billion of super
     lying unclaimed in Australia.
     Is some of it yours? Check if you
     have lost any super:                                                         7. Review your Will
     – use the ‘Super search’ tool
         > Click ‘Super strategies’ at                                            Having a valid Will can help make sure your estate is managed and distributed
         www.amp.com.au                                                           how you intended. For more information on Wills > See page 45.
     – or contact the Tax Office’s
         SuperSeeker hotline – you’ll
         need your tax file number
         > Phone 13 28 65.



30      WAYS TO WEALTH – 30s & 40s                                                                                              WAYS TO WEALTH – 30s & 40s    31
50s
You’ve probably got on top of a lot of responsibilities
in life and might be looking to make more lifestyle
choices for yourself. If you have children, they’re
likely to be less dependent and may have left home.
You might want to help fund your children’s further
                                                                                     Asset type
                                                                                     Cash
                                                                                     Fixed interest
                                                                                     Property
                                                                                     Australian shares
                                                                                     International shares
                                                                                     Source: AMP Capital Investors




                                                                                   can afford to be.
                                                                                                                                 Suggested minimum timeframe
                                                                                                                                                    No minimum
                                                                                                                                                    2 to 3 years
                                                                                                                                                    5 to 7 years
                                                                                                                                                    7 to 10+ years
                                                                                                                                                    7 to 10+ years




                                                                                   Your investment objectives will determine your investment timeframe.
                                                                                   Generally, the longer your investment timeframe, the more aggressive you


education or help them purchase a car or their                                          Action
own place.                                                                           – Check where you are now in terms of the suggested minimum investment
                                                                                       timeframe for your selected investment options?
It’s not uncommon for people in their 50s to be secure in their career, planning
overseas travel and looking at growing their investment portfolio. Everyone
                                                                                   2. Get financial advice on borrowing to invest
over 50 should also be actively planning their retirement.
                                                                                   By now you have probably built up some equity in your home or an
1. Review your risk profile                                                        investment portfolio. You can consider borrowing against this equity to start
                                                                                   or increase an existing investment with the objective of achieving increased
When did you last review your financial plan to check your investments are         returns on your investment. While gearing can result in increased returns in
still on track to meet your financial goals? Over time your goals or attitude      a rising market, it may also lead to a greater loss in a falling market. You need
to risk may change, therefore your investment strategy may need to change          to strike a comfortable balance between the level of risk you are prepared to
as well.                                                                           accept and your desired level of return > Read more on pages 19 and 20.
Each investment option has a suggested minimum timeframe for investing.            Gearing can involve investing a lump sum or making regular contributions into
Generally, those investments that aim to provide an income are more                a managed fund. An instalment gearing plan involves investing a set amount
conservatively invested (for example in cash and fixed interest), whereas          each month made up of your personal contribution plus borrowed funds.
those that focus on growth will be invested more aggressively in property
and shares.                                                                        Since the interest costs associated with borrowings for investment purposes
                                                                                   are usually tax deductible, gearing can be a very tax effective strategy.




32      WAYS TO WEALTH – 50s                                                                                                            WAYS TO WEALTH – 50s     33
50s
3. Review insurance arrangements
                                                                                      See for yourself
Hopefully by now you’ve made sure you are protected with enough death,
disability and income protection insurance. This can give you peace of mind        – Find out if you’re on track with your super savings and check out the
that you and your loved ones would be provided for if something unexpected           impact different strategies could have on your retirement. Use the
were to happen to you.                                                               ‘My retirement simulator’ > Click ‘Calculators’ at www.amp.com.au

Even so, stay actively interested in your insurance. As your life situation
changes, review your cover. For example, you might need a policy that covers    4. Pump up your super savings
other conditions or you might find the level of insurance you have no longer    Getting the right financial advice now can make a significant difference in
suits what you need.                                                            building for your retirement.
Make sure you check your listed beneficiaries and consider updating them        Now’s the time to look at boosting your super savings to give you more
every 3 years. Consider using binding nominations to lock in who will receive   freedom to choose. Salary sacrificing could be just the fuel you’re looking for
the benefits.                                                                   > See page 25 for details.
Insurance can be sourced through most super funds and from companies            Combined with other strategies, salary sacrifice can be even more powerful in
outside super. A financial planner can help work out what type of insurance     boosting your super tax effectively.
you should have, for what amount, and where to source it.                       – Consider drawing on other investments to supplement your income so you
                                                                                   can sacrifice even more > See Maria’s story on page 36.
                                                                                – If you’re 55-plus, consider drawing a super pension while still working,
     Quicktips                                                                     allowing you to sacrifice even more > See Brad’s story on page 39.
                                                                                – Consider reducing your mortgage payments to free up more funds to
 – Like everyone else over 50, you should now be actively planning
   your retirement.                                                                salary sacrifice into super which can be accessed tax-free after age 60.
 – Take advantage of lower tax rates on double the standard concessional        – Because salary sacrifice effectively reduces your income, the right blend
   contributions cap, from the year in which you turn 50 until 30 June 2012.       of salary sacrifice and after-tax contributions could entitle you to a
   You can make up to $100,000 of contributions taxed at 15% to your super         government super bonus of up to $1,500 a year#. Eligibility criteria apply
   each year. If you are an employee, this would be through salary sacrifice       and you must also make an after-tax super contribution.
   and employer contributions. If you are self-employed, you can make
                                                                                Release money from non-super assets to contribute to super
   tax-deductible contributions of up to $100,000 each year. After this time,
   the $50,000 a year limit (indexed annually) that applies to other age        Some people sell non-super assets as they approach retirement and roll the
   groups will apply.                                                           money into super. Once they turn 60, they can access tax-free lump sums or a
 – You can access your super even if you’re still working and boost your        tax-free income stream. Super income streams carry added benefits – such as
   super at the same time if you’re 55-plus > See page 38.                      favourable Centrelink income test treatment and no tax on earnings.
 – Consider delaying retirement until age 60 so you can access your             # Following a 2008 Federal Budget announcement, from 1 July 2009, the definition of income for the
   super tax-free.                                                                superannuation co-contribution, and certain other government benefits, will include certain salary
                                                                                  sacrifice contributions to superannuation.




34      WAYS TO WEALTH – 50s                                                                                                                     WAYS TO WEALTH – 50s            35
50s
                                                                                                     Think about it
 Maria’s story*                                                                                   – Are your super savings on track to fund the lifestyle you want in retirement?
 50-year-old Maria inherits $150,000. She has paid out her mortgage, is on                        – Is the insurance cover you’ve got really what you need now?
 a marginal tax rate of 41.5% and wants to boost her retirement savings.                          – Do you have the best balance between super and non-super investments?
 Maria is already receiving $20,000 in employer super contributions. Maria
 compares what the outcome of the following three options would be after
 10 years:
 1. If she puts the money into super as a lump sum after-tax contribution                            Action
    she’d end up with around $340,000 in retirement benefits.                                     – Look at the various options you have to fast track your retirement savings
 2. If she invests the money in a managed fund outside super the result                             and get started with at least one – use the ‘My retirement simulator’
    would be $260,000.                                                                              > Click ‘Calculators’ at www.amp.com.au
                                                                                                  – Check if you have any lost super and consider bringing together multiple
 3. If she increases her salary sacrifice contributions by $30,000, and invests                     accounts. Use the ‘Super search’ tool > Click ‘Super Strategies’
    the inherited money in a managed fund - withdrawing $17,550 a year
                                                                                                     at www.amp.com.au
    from the investment through distributions and from capital gain to
                                                                                                  – Ask your employer if they allow salary sacrificing into super (remember
    replace the extra $30,000 she salary sacrifices into super – this approach
                                                                                                    you have double the annual concessional contributions limit until
    leaves Maria with around $440,000.
                                                                                                    30 June 2012).
 Investing outside super and using this investment to supplement her
 income so she can salary sacrifice into super gives Maria $180,000 more
 in retirement savings than if she’d invested the money outside super –
 and $100,000 more than if she’d put the lump sum into super as an                              5. Get financial advice
 after-tax contribution.
                                                                                                Some of the strategies discussed here are complex and getting the right advice
 If Maria was on the next tax bracket down, she still would have ended up
 ahead by taking this approach – and the benefits would have been even                          could make a significant difference to how much you have in retirement.
 greater if she was on the top marginal rate.
 Note: If Maria were self-employed, she could achieve similar results by                        6. Review your Will
 making personal tax-deductible contributions in place of the salary sacrifice                  Having a valid Will can help make sure your estate is managed and distributed
 contributions used in the above example.                                                       how you intended. For more information on Wills, go to Estate Planning
 * Assumes gross return pa 3% income (70% franked) reinvested after tax, 5.5% growth, Capital   > See page 45.
   Gains Tax payable.




36       WAYS TO WEALTH – 50s                                                                                                                        WAYS TO WEALTH – 50s      37
50s
Accessing your super from age 55
Age 55 and over is an important time. We often call this the age of                Brad’s story *
opportunity as it is the earliest age a person can access their super. There are   Brad is 57 and pays $18,225 in income tax on his $75,000 full time salary.
a number of opportunities to build your wealth, no matter what your personal       Acting on advice from his financial planner, so that he can salary sacrifice to
circumstances. You can take advantage of tax effective strategies to boost         boost his super, he draws a super pension to supplement his income.
your super savings for a better retirement.
                                                                                   The way the pension and salary sacrifice amounts are arranged, Brad’s
Once you reach the age at which you can access your super – 55 to 60               take-home income remains the same as if he just relied on his full time salary.
depending on when you were born – you have the option to start drawing an          Up until he turns 60 (after which he can access his super tax-free), Brad
income stream, even if you’re still working.                                       draws $24,611 from his super pension and salary sacrifices $30,000 to
For some people, this allows them to cut back their work hours without             super. His total taxable income, made up of $45,000 take-home salary and
compromising their income. They can semi-retire and use the income from            $24,611 super pension, is $69,611 on which he pays $12,836 income tax.
                                                                                   After Brad pays 15% contributions tax on the amount he salary sacrifices
their super to supplement their working income. For others, they are able
                                                                                   into super, and draws $24,611 from his pension, Brad ends up with an
to keep working and use the income from their super to supplement their            additional $889 a year in super.
working income so they can make larger salary sacrifices into super.
This can be a very effective way of building for retirement.                       Once he turns 60, when he can draw on his super tax-free, he ends up
                                                                                   with an extra $4,950 a year extra in super. Brad only needs to draw a super
                                                                                   pension of $20,550 a year now because, being 60 or more, he can access
                                                                                   his super tax-free. He only pays $8,775 a year income tax on the $45,000
                                                                                   he takes home in salary.
     Quicktip
                                                                                   If Brad were self-employed, he could achieve similar results by making
  – You can only draw up to a maximum of 10% of your superannuation                personal tax-deductible contributions in place of the salary sacrifice
    pension balance each year while you’re still working.                          contributions used in this example.
  – What you do throughout your working life to build your super, particularly
                                                                                   * Assumes Brad has a starting super balance of $320,000; invests in a balanced investment
    from age 50, can have a significant impact on how effective this strategy        returning 6.39% after fees and taxes. Fees based on average AMP retail fees from
    can be for you.                                                                  Flexible Lifetime – Super.




                                                                                      Action
                                                                                      Consider the whole 50s section
                                                                                      Accessing your super from age 55 is an important strategy. However,
                                                                                      make sure you review the entire 50s section to see the other opportunities
                                                                                      for building your wealth.




38      WAYS TO WEALTH – 50s                                                                                                                     WAYS TO WEALTH – 50s          39
60s
The lifestyles of people in their 60s are becoming
increasingly diverse. More people are travelling,
taking up new sports, learning new skills and working
later in life.
                                                                                 1. Get financial advice on accessing your super while still working
                                                                                 This could really boost your wealth. Some people access their super while still
                                                                                 working, so they can reduce work hours without compromising their income.
                                                                                 But the real power lies in using your super income stream to maximise your
                                                                                 potential to salary sacrifice into super.
                                                                                 Once Brad turned 60, he ended up with almost $5,000 more in super per year
                                                                                 by doing this > See how on page 39. If Brad refreshed his strategy each year
                                                                                 from age 60, the amount of extra super could be even more.


                                                                                      Quicktip
                                                                                      Age 64 – your last chance for after-tax contributions
                                                                                      Take advantage of greater after-tax super contributions flexibility up
                                                                                      until age 65. If you’re under 65, you can bring forward 2 years’ worth
You might have retired, be semi-retired or still be working full-time. Perhaps        of contribution limits into the year you’re in. So you might contribute
you want to help your grandchildren or children financially. You may even be          $450,000 in year one and nothing in the next two – or $300,000 in year
considering downsizing your home to make sure your money lasts for a long             one, and $75,000 in each of the next two years, for example. This can
time, and to support your lifestyle choices.                                          be handy if you have large amounts you want to contribute, such as an
                                                                                      inheritance or proceeds from the sale of assets. Contributions in excess
                                                                                      of the limits are taxed at the top marginal tax rate.
     See for yourself
     Find out if you’re on track with your super savings and check out the
     impact different strategies could have on your retirement. Use the          2. Maximise government benefits
     ‘My retirement simulator’ > Click ‘Calculators’ at www.amp.com.au
                                                                                 Accessing your super while still working can offer several benefits. As well as
                                                                                 providing a regular income, they may receive favourable Centrelink income
                                                                                 test treatment. Also, there is no tax on the super income stream or the
     Quicktip                                                                    earnings in the fund.
     Any lump sum super withdrawal or super income stream you receive once       If you leave all your money accumulating in super, your super assets will
     you turn 60 will now generally be completely tax-free. But while there      be ‘deemed’ by Centrelink to be earning a specific rate of return. But if you
     are increased tax benefits of starting a super income stream, there’s no    start an income stream, a portion will be ignored for Centrelink income
     obligation to start drawing on your super. You can leave your money in      test purposes.
     super as long as you want.




40      WAYS TO WEALTH – 60s                                                                                                         WAYS TO WEALTH – 60s        41
60s
                                                                                 3. Accelerate your super savings
 Roger’s story *                                                                 If you are still working salary sacrificing can be one of the most tax-effective
 65-year-old Roger is single, owns his home, has $150,000 in super and           ways to put money into super – meaning you get more in retirement savings,
 $10,000 in lifestyle assets. He plans to either draw $8,000 as a lump sum       particularly if you’re on a higher personal tax rate > See page 25 to find out more.
 from his super or start a super income stream and draw $8,000. Either
 way, he’ll pay no income tax because he is over 60 – but his age pension
 entitlement will be different.                                                       Quicktip
 By leaving the money in super, Centrelink will deem the first $39,400 of his         You’ll generally need to have worked at least 40 hours in a consecutive
 $150,000 in super to be earning 4% and the balance earning 6%. So, under             30 day period during that financial year to be able to contribute before or
 the Centrelink income test, he’s deemed to be earning $8,212 from his super.         after tax to super between ages 65 and 74.
 As a result, his age pension entitlement for the year is reduced to $12,304.
 By starting a super income stream with the $150,000 instead, Roger
 receives a $8,475 annual deduction against his $8,000 pension drawings,         4. Use non-super assets to contribute to super or provide an income
 making him entitled to an age pension for the year of $14,216.                  Some people sell non-super assets as they approach retirement and roll
 Just by accessing a super income stream, Roger is entitled to $1,912 more       the money into super. This can offer considerable tax advantages as tax on
 in age pension over the year. That could pay for a good get away.               earnings in super is only at a 15% rate (plus additional concessions such as
 * Using rates and thresholds applicable from 20 March to 30 June 2008.          CGT discounts and franking credits) and there is no tax on earnings from
                                                                                 investments that support super income streams. Ultimately, this may result in
                                                                                 you having more in retirement.
                                                                                 Another option is to draw on money invested outside super to supplement
     Quicktip                                                                    your current income so you can salary sacrifice more into super > Read Maria’s
 – If you are retired or about to retire, make sure your assets are structured   story on page 36.
   to make the most of government benefits. The right arrangements could
   boost your age pension entitlement or give you access to some age
   pension you wouldn’t have otherwise had. A financial planner can                   Think about it
   show you how.                                                                   – Are your finances structured as well as they could be to maximise
                                                                                     government entitlements and reduce tax?
                                                                                   – Are you confident your money will last through your retirement years?




42      WAYS TO WEALTH – 60s                                                                                                          WAYS TO WEALTH – 60s      43
60s                                                                             Estate Planning

5. Release other wealth                                                         Among other things, estate planning involves
Consider selling your home, moving to a smaller place and using the left-over   having a strategy so that in the event of your death,
equity to invest elsewhere. A financial planner could show you how to invest    the distribution of your assets is managed as you
for maximum advantage.                                                          intended. This is generally achieved through a Will.
6. Review your Will                                                             Estate planning may also involve identifying and appointing another person to
Having a valid Will can help make sure your estate is managed and distributed   manage your affairs whilst you are still alive if you lose the ability to manage
how you intended. For more information on Wills, go to Estate Planning          your own affairs.
> See page 45.                                                                  The development of a thorough estate plan requires legal advice.
                                                                                Wills
     Action                                                                     A Will sets out how you want your estate to be managed and distributed, after
  – Look at the options you have to fast track your                             your death. It can also include the appointment of a guardian for your children.
    retirement savings and get started with at least one.                       Without a Will, management of your estate can be costly, time consuming and
  – Make sure your Will is up-to-date and consider more
                                                                                must be distributed according to state based legislation, rather than as you
    comprehensive ways to plan your estate.
                                                                                decide. Therefore, it is important to have a valid Will and to review it regularly
                                                                                to make sure it is still in line with your intentions.
                                                                                A solicitor can help you make decisions about what you want done with your
                                                                                estate and then prepare the Will for signature.
                                                                                Enduring power of attorney
                                                                                If you were to become incapable of handling your affairs, control of your
                                                                                assets could revert to a person appointed by a court.
                                                                                It would be more useful if you had an enduring power of attorney set up now
                                                                                so that if you cannot manage your affairs, someone you trust and have chosen
                                                                                to act for you, can make the important decisions affecting you and your affairs.
                                                                                A solicitor can help with setting up a power of attorney, setting the terms and
                                                                                how they will apply.




44      WAYS TO WEALTH – 60s                                                                                                        WAYS TO WEALTH – 60s     45
Your next steps                                                                 Why AMP?

Building and maintaining wealth is an ongoing                                   AMP has been helping Australians and New Zealanders build wealth since
journey. Stay proactive and keep looking for ways                               1849. Today, it helps more than 3 million people and manages $110 billion in
                                                                                assets on both sides of the Tasman Sea.
to make the most of what you have.
                                                                                AMP offers a range of good value, quality products and services to help people
Some of the ideas outlined in this booklet may be simple enough for you to      build wealth – including advice, investments, banking, retirement income,
act on immediately. Some are more complex and you should consider seeking       superannuation and insurance.
advice from a financial planner.                                                Phone 133 888 or visit www.amp.com.au to find out more.
You can get information about financial planning from the Australian
Securities and Investment Commission at www.fido.asic.gov.au, phone
1300 300 630, or the Financial Planning Association at www.fpa.com.au,
phone 1800 626 393.
                                                                                Where to now?
Remember, you can explore things further yourself using the handy calculators   To find out how you could make a difference to your super, contact a financial
> Click ‘Calculators’ at www.amp.com.au                                         planner accredited by AMP Financial Planning > Call 133 888.
In planning your personal ways to wealth you should take a holistic approach,   If you don’t already have a planner you can also use the ‘Find a planner’ tool
looking at your debts and assets, present and future needs, and considering     > Click ‘Financial advice’ at www.amp.com.au
tax implications and how decisions could impact on entitlement to
government benefits.
Remember, wherever you’re at in life – whatever your age, whatever your
income and assets – it’s what you do with what you have that matters.




46      WAYS TO WEALTH – ANY AGE, ANY STAGE                                                                          WAYS TO WEALTH – ANY AGE, ANY STAGE     47
Glossary or FAQ’s?                                                                                  Line of credit
                                                                                                    A flexible loan arrangement that you can draw down to invest up to a specified limit.
                                                                                                    Margin call
                                                                                                    Where the equity you hold in your investment falls below a specified percentage, you
                                                                                                    may be required to increase your level of equity by contributing more cash, selling part of
                                                                                                    your investments (where the proceeds of the sale are used to reduce your loan) or lodging
A list of some of the big words we’ve used in this booklet.                                         further assets as security.
Compound returns                                                                                    Redraw facility
Earnings made on earlier earnings that have been reinvested.                                        The part of your variable rate loan into which you can make extra repayments when you
                                                                                                    can afford to, and later draw on these funds if you need to.
Defensive assets
Assets that tend to have no or low capital growth but are likely to generate an income and          Risk
tend to have a lower level of risk. These include fixed interest and cash.                          The chance that you may get back less than you invested, or that your investment will not
                                                                                                    perform as you expect.
Diversification
In simple terms this means not putting all your eggs in one basket. It involves spreading           Salary sacrifice
your investment over a number and variety of assets to reduce the overall risk in your              Money you sacrifice from your pre-tax salary and contribute into super. This money is taxed
portfolio, so that the movement in value of one asset has less impact on the whole                  at 15% going into super. All super earnings are taxed at 15%.
portfolio. The value of different assets can rise and fall at different times.                      Super contributions
Equity                                                                                              – Concessional super contributions – contributions which are made from pre-tax
This is your financial interest in an asset, eg property. Equity is the difference between the         money that are taxed at the concessional rate of 15% in super. These include salary
price for which you can sell the asset, or the part you own, and any loan owing on the asset.          sacrifice, employer contributions and personal tax deductible contributions made by
Equity increases as the loan amount reduces through regular payments. Market values and                self employed persons. Extra tax is payable if the concessional contributions cap is
improvements to the asset can also affect equity. The more equity you have in an asset, the            exceeded.
more you can potentially borrow against that asset.                                                 –   Non-concessional or undeducted super contributions – contributions made from
Growth assets                                                                                           after-tax money. These are not taxed going into super. Extra tax is payable if the non-
Assets that are likely to generate high levels of capital growth and may also produce some              concessional contributions cap is exceeded.
income. These include shares and property. These tend to have a higher level of risk.               –   Earnings from your super funds are taxed at 15%.
Investment or risk profile                                                                          Tax deduction/tax deductible
Your profile is used to determine the right balance of risk for the potential to achieve your       If you spend money on something to help you earn assessable income, you may be entitled
desired level of return. Which of the 5 profiles best describes your attitude to risk and return?   to claim that cost as a tax deduction. Tax deductions reduce the amount of assessable
–   Conservative: Your main aim is stability of capital and you are prepared to accept lower        income. They do not directly reduce an amount withheld from a payment to you for tax.
    returns to achieve this objective. A low level of volatility can be expected from time to       Tax offset
    time, and overall returns are likely to be relatively low.                                      A tax offset directly reduces the amount of tax you must pay. Generally, tax offsets can
–   Moderately conservative: Your main objective is to maintain relatively stable returns.          only reduce the amount of tax you pay to zero. There are three broad types of tax offsets.
    Capital stability is still a priority, however, you are willing to accept some volatility to    They:
    achieve these returns.                                                                          –   provide tax relief for personal circumstances (for example, tax offsets for senior
–   Balanced: Your main objective is to achieve balanced returns to meet your medium to                 Australians and people living in remote areas)
    long-term financial goals. The aim is to achieve some capital growth. You are willing to        –   give you a credit for an amount of tax that has effectively already been paid (for
    accept a moderate level of volatility to achieve these returns.                                     example, credits for franked dividends and foreign tax)
–   Moderately aggressive: Your main objective is to accumulate assets by targeting                 –   provide an incentive (for example, the tax offset for mature age workers and the
    capital growth over the medium to long-term. You are prepared to accept higher                      private health insurance rebate).
    volatility and moderate risks to achieve these returns.
–   Aggressive: Your main objective is to achieve high long-term growth. Capital stability is not
    a concern as you are prepared to accept high volatility to pursue potentially greater long-
    term returns. Investment choices are diverse but carry with them a higher level of risk.



48        WAYS TO WEALTH – ANY AGE, ANY STAGE                                                                                                  WAYS TO WEALTH – ANY AGE, ANY STAGE           49
Contact your adviser
or financial planner




                       NS3761 06/08

								
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