Your health and wealth during the COVID-19 pandemic

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth.

 

Government support for individuals and businesses

The Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below.

 

Support for individuals

The Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include:

  • two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020);
  • access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight;
  • a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, , Parenting Payment, Farm Household Allowance and Special Benefit equal to $550 per fortnight;
  • early release of superannuation funds (see overview below); and
  • a temporarily reducing superannuation minimum drawdown rates (see overview below).

Full details about the Federal Government’s measures to support individuals are available on the Treasury website.

 

Early release of superannuation

Eligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet one of the following five criteria:

  • You are unemployed.
  • You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment, Special Benefit or the Farm Household Allowance.
  • You were made redundant on or after 1 January 2020.
  • Your working hours reduced by at least 20 per cent after 1 January 2020.
  • You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020.

If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your superannuation fund and retirement income. While $20,000 split across two $10,000 withdrawals may not seem like a lot of money now, it could have significant compounding value if it’s left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you’re eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website.

 

Temporarily reducing superannuation minimum drawdown rates

The temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to reduce the need for retirees who have account-based pensions to sell their assets to fund their minimum drawdown requirements. The new minimum drawdown rates are outlined in the table below.

 

Age Standard minimum drawdown rates (%)

 

Reduced rates by 50 per cent for the 2019-20- and 2020-21-income years (%)
Under 65 4 2
65 – 74 5 2.5
75 – 79 6 3
80 – 84 7 3.5
85 – 89 9 4.5
90 – 94 11 5.5
95 or more 14 7

 

Support for businesses

The Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include:

  • increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000;
  • allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021;
  • PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and
  • temporary measures to reduce the potential actions that could cause business insolvency.

Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website.

 

How the banks are approaching home loans

Banks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender. Here’s what the big four banks are offering customers:

  • ANZ: deferral of repayments for up to six months, with a review after three months.
  • CBA: deferral of repayments for up to six months.
  • NAB: deferral of repayments for up to six months, with a review after three months.
  • Westpac: deferral of repayments for three months, with the potential for a further three months after review.

 

What do past market crashes and corrections tell us about the current environment?

While the circumstances of the current crash are unique, it’s normal to have a market crash greater than 20% every decade. Based on the last eight market crashes, the average market decline is 40% from high to low. From the initial decline to recovery, the average crash duration is 41 months, and the market bottom usually occurs around seven months after the initial 20% decline. This means it can take roughly seven months for the market to hit bottom and the following 34 months to recover.

On February 20 this year, the S&P/ASX200 hit an all-time high of 7162 points. By 31 March, the ASX200 was down 36.5%.

 

What should you focus on when it comes to personal finance?

While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. As the author of the best-selling investment book The Intelligent Investor Ben Graham says, “Be the realist who buys from pessimists and sells to optimists”.

Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind.

 

How do you best look after your health during COVID-19?

Maintain good health by eating healthy foods and exercising regularly to make sure your immune system is as strong as possible. You also need to observe the Government’s social distancing rules and only leave home for essential activities such as going to the supermarket, pharmacy, work, or exercising.

 

What should I do next?

During this time, you may face some challenges in your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought-out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth.

 

Before you make any big changes to your financial situation, speak to your Bridges financial adviser to get personalised advice for your unique situation.

Seven money-saving tips to make your finances work for you

It seems we are always trying to find new ways to save money. No doubt you would have heard advice like ‘start a budget’ or ‘don’t overspend on unnecessary items’. But these concepts can be vague and mean different things to different people.

The team at Bridges Lake Macquarie came together to brainstorm their seven top tips guaranteed to bring you success.

Pay yourself first

To avoid the financial over indulgence we can all be guilty of, set aside money before you have the temptation to spend it. Make it a habit to regularly set aside a portion of your income and before you know it, a tidy sum will have accumulated that can be directed into strategic investment options.

Invest for growth

Over the longer term, investments like shares tend to give a better overall return than cash investments, but they are generally more volatile and can test your personal fortitude for risk. Choose investments that have a risk exposure that you are comfortable with.

Too good to be true

If it sounds too good to be true, it probably is. Steer clear of tax-driven investments with unrealistically high stated returns as they may be more dangerous than they seem. It is not worth risking your hard-earned money to take shortcuts.

Invest tax effectively

Money invested in Australian shares or managed Australian share funds could earn you imputation or franking credits. Depending on your marginal tax rate, these may reduce your income tax paid on any dividends or can potentially come straight back to you as tax refunds. Making investments here may be better suited to you as it offers a bonus at tax time.

Make the most of your super

Super is the most tax-effective form of retirement savings for most people. Check with your employer about the possibility of undertaking a salary sacrifice strategy – make additional super contributions directly from your pre-tax salary. Therefore, your super will increase and, because of the concessional rate of tax that applies to super, you will pay less in tax.

Spread your risk

Don’t pool all your (investment) eggs in one basket. Spread the areas in which you are spending your money; mix it up with some shares and property, fixed interest and cash. This diversified approach offers some protection in case one investment begins to decline in value.

Just ask!

Bridges has been providing financial advice since 1985, so we know what we are talking about. Often it pays to hear the advice of industry professionals, and an objective third party who you can be sure has your best interests at heart. Contact the team at Bridges Lake Macquarie today for an obligation free initial consultation and find out how we can help you develop a financial strategy specifically for you.

These are just a few tips to get you started. For further financial advice, please don’t hesitate to contact us!

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.

Estate planning – not just for the wealthy

The word ‘estate’ can conjure up thoughts of vast property portfolios, a ton of money, flashy cars and lots of jewellery. But the reality is that if you have any assets, you have an estate.

And as the owner of the estate, you really should take time to ensure your affairs are in order. Particularly if you have loved ones that depend on you and you want to make sure they’re properly cared for in the event you become incapacitated or pass away.

Estate planning is particularly important if you:

  • Are a parent
  • Have family members with special needs
  • Have recently bought or sold major assets
  • Have a family trust, self-managed super fund or business.

Estate planning ensures that the assets you have worked hard to build is protected. It reduces the stress on your loved ones or beneficiaries at what is generally a very difficult time. It will ensure that when you die or become incapacitated, your wealth is transferred to them smoothly, tax effectively and according to your wishes.

More than just a Will

If you already have a Will, then you’re off to a good start. However, many people make the mistake of believing that their Will covers all their assets. This isn’t the case.

Jointly held assets, trust assets and Superannuation are not covered by your Will and must be considered as part of a full estate plan.

An estate plan includes:

  • Having a valid and up-to-date Will
  • Nominating your beneficiaries for your super and your risk insurance policies
  • Naming guardians for your young children
  • Possibly setting up testamentary trusts to reduce tax liabilities for your beneficiaries
  • Appointing someone you trust as power of attorney to look after your financial and personal affairs if you become incapacitated.

Don’t wait

The best time to get your estate affairs in order is now. Your financial adviser can help you set up an estate plan, ensuring you have a valid Will and appropriate risk insurance cover. They can also help you determine the most financially and tax-effective way to distribute your assets after you die.  This is all done in conjunction with your solicitor.

Contact Bridges Lake Macquarie today to give you peace of mind knowing that your wealth is protected.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.