Uncategorized

Protecting retirement income from inflation The fall in inflation from multi decade highs is good news for the Australian economy. Many retirees are struggling to manage their cost of living because of the cumulative impact inflation has had on their financial position. Looking forward, retirees need a portfolio that is protected from inflation risks so that they don’t experience another cost of living crisis when inflation has another upturn. Maintaining the long-term real value of investments The key to a successful investment strategy is the ability to generate returns over the long term. Managing inflation is an important piece of the strategy. Long-term investments need to be able to generate a real rate of return that provides growth in the investment value. The investments do not need to capture short-term inflation changes, but they need to offset the impact of inflation over time. Assets that are expected to do this are generally referred to as ‘growth’ assets. To demonstrate this, we can look at the historical performance of assets over the long run1. Looking at Australian investment returns between 1900 – 2023, equities provided a return higher than inflation in 81 years which was 73% of the time. The one-year success rate for bonds and bills (cash) were lower, constrained by historical limits on bond yields. Both bonds and bills provided a one-year real return only 62% of the time in the same period. The long run probabilities are shown in Figure 1. As the investment horizon extends out, up to 25 years, the probability of equities providing a real return increases. The higher returns on the investment eventually overcome any initial shortfall. Bond and bill investments show little improvement with a longer investment horizon2. At horizons of 20 years, the probability of delivering a positive real return from nominal bonds was only 60%. Historically, all investment horizons of 16 years (and longer) have provided a positive real return for Australian equities. While history does not provide a guarantee, the increase shown in Figure 1 should provide confidence that a long-term investment in equities will provide real capital growth. This analysis can be extended to diversified products such as a 70/30 growth fund (70% equities and 30% bonds) and a 50/50 balanced fund (50% equities and 50% bonds). These both show trend improvements over time, benefiting from the exposure to growth assets, but over longer periods. The 70/30 fund needed 20 years and the 50/50 fund 25 years historically to ensure the positive real return. The portfolio comparison in retirement is important in the generation of income over longer periods. If income is taken as a set percentage of the balance than changes in income will directly link to market movements. Also, there are market linked annuities available in Australia where the capital is consumed but the income, which is paid for life, will be directly linked to the performance of the specified market or underlying investments. This paper provides a historical basis to consider the inflation protection provided by these income streams. Historical investment performance is not a reliable indicator of future performance, but it is worth considering the timeframe for recovery from historical shocks. Figure 1: Historical probability of positive real returns, 1900-2023 Source: Calculations, based on data from Morningstar, S&P, Bloomberg and ABS Inflation risk in retirement Inflation is often called out as a risk in retirement that needs to be managed differently. Longevity and sequencing risks are also noted as being different, and these are not present in the accumulation phase. One of the challenges with managing inflation risk in retirement, is that inflation risk has a different impact on a portfolio in the retirement phase. Management of inflation risk in retirement needs a different approach. It is not just that capital needs to regain its real value, but every income payment needs to keep its value to maintain the target lifestyle of the retiree. We can examine this difference by considering the outcome for someone who started to draw an income at the start of 1973. This was one of the worst years in the historical comparison where the inflation spike meant that any investment linked income would be falling in real terms in the first year. If a retiree’s income was linked to an investment, the real value would have declined for any of the three assets: Bills by 3.5%; Bonds by 26% and Equities by 30.7%. What happens over time is the recovery in the level of income. Income linked to equity performance briefly exceeds the original value in 1980 but dips again before maintaining real gains from 1983. Bills provide higher real income from 1985 while bonds will take until 1992. The 19 year impact on bonds highlights the exposure that nominal bonds have to inflation risks. The pattern for income linked to the different markets from 1973 can be seen in Figure 2. Figure 2: Investment-linked income example Source: Calculations, based on data from Morningstar, S&P, Bloomberg and ABS There is more at stake for retirees. The impact is not just the length of time to recover the real capital value, but the income that is lost over that period. For the nine years that the real equity linked income is under the starting point, a retiree needs to reduce their lifestyle or run their capital down early. The shortfall is shown in Figure 3. It highlights the cumulative shortfall in income, relative to the initial lifestyle of the retiree. The starting point is where inflation risk creates an impact which might be after the start of retirement. The shortfall highlights the extent of the impact from an inflation shock. The worst performance is from bonds, where more than 7 years of income (lifestyle) were lost over a 17-year period before a modest recovery. For equity-linked income, nearly three years of lifestyle were lost over nine years. While there was a strong recovery after, this is an average of a third of total spending that needs to be cut for … Read more

The amount of super you need to support your retirement will depend on what kind of lifestyle you’re hoping to enjoy and how much income you’ll be earning in addition to your super savings. Income from the Age Pension, part-time work and other financial investments will affect the amount of super you need to retire comfortably. The Association of Superannuation Funds of Australia (ASFA) provides yearly total income recommendations based on the type of retirement you’re aiming for. Depending on how much income you expect to receive from other sources, you can then estimate how much super you’ll need to reach the “comfortable” or “modest” benchmarks. The table below gives you an idea of how much retirement income you might need to enjoy a comfortable, or modest retirement, and compares these benchmarks against how much you can receive on the Age Pension.   Comfortable lifestyle Modest lifestyle Maximum rate of Age Pension Single $52,383 $33,386 $29,874.00 Couple $73,875 $48,184 $22,518.60 (each) a year Budgets for various households and living standards for those aged 65-84 (March quarter 2025) Source: ASFA Retirement Standard The amount of super you need will also depend on what you’re earning from full or part-time work, the Age Pension and other investments. To enjoy a comfortable retirement, AFSA suggests that single people will need $595,000 in super savings at age 67, and couples will need $690,000. But your own individual goal will depend on your other income streams and personal situation. In addition to the total amount of super you have, the way you access it once you retire can also impact your retirement wealth. For example, your super earnings might be subject to more tax if you plan to withdraw lump sums, compared to setting up a super income stream like an account-based pension. What’s the difference between a comfortable and modest retirement in Australia? A comfortable retirement means you can look forward to a broad range of leisure and recreational activities, with a good standard of living. ASFA guidelines suggest you’ll be able to purchase things like private health insurance, a reasonable car, good clothes and a range of electronic equipment. You’ll enjoy domestic and occasionally international, holiday travel. According to ASFA, you can expect a modest retirement to be better than living on the government Age Pension. However, you’ll only be able to enjoy a fairly basic lifestyle. See the charts below to get a more detailed understanding of what sort of services and luxuries you might be able to enjoy, based on your retirement savings.       Comfortable lifestyle Modest lifestyle Age Pension Medical Top level private health insurance, doctor/specialist visits, pharmacy needs Basic private health insurance, limited gap payments No private health insurance. Technology Fast reliable internet/telco subscription, computer/android mobile/streaming services Basic mobile, modest internet data allowance Very basic mobile and limited internet connectivity Transport Own a reasonable car, car insurance and maintenance/upkeep Owning a cheaper, older, more basic car Limited budget to own, maintain or repair a car Lifestyle Regular leisure activities including club membership, cinema visits, exhibitions, dance/yoga classes Infrequent leisure activities, occasional trip to the cinema Rare trips to the cinema Home Home repairs, updates and maintenance to kitchen and bathroom appliances over 20 years Limited budget for home repairs, household appliances Struggle to pay for repairs, such as leaky roofs or major plumbing problem Haircuts Regular professional haircuts Budget haircuts Less frequent haircuts, or self haircuts Home cooling and heating Confidence to use air conditioning in the home, afford all utilities Need to keep a close watch on all utility costs and make sacrifices Limited budget for home heating in winter Eating out Occasional restaurant meals, home delivery meals, take away coffee Limited meals out at inexpensive restaurants, infrequent home delivery or take away Only local club special meals or inexpensive take away Clothing Replace worn out clothing and footwear items, modest wardrobe updates Limited budget to replace or update worn items   Very basic clothing and footwear budget   Travel Annual domestic trip to visit family, one overseas trip every seven years Annual domestic trip or a few short breaks   Occasional short break or day trip in your own city Annual budgets for households and living standards for those aged 65-84 (March quarter 2025) Source: ASFA Retirement Standard Do I need a second income stream in retirement? This will come down to your personal circumstances, and what kind of lifestyle you’re hoping to enjoy when you retire. Planning ahead is a great idea if you want to supplement your super with additional streams of income. For example, you could: build up your financial investments top up your super with salary sacrifice or a personal super contribution find part-time employment apply for the Age Pension. What government benefits could I receive? When you retire, you might be eligible for government benefits like the Age Pension or a concession card. This will depend on your age, your residency status, and your financial situation. As of 20 March 2025, the maximum Age Pension is: $1,149 per fortnight for singles ($29,874 a year). $866 each per fortnight for couples ($22,516 a year). If you’re eligible for the Age Pension, you may also be able to access additional government payments, such as: Carer allowance: If you provide daily care to an elderly person or someone with a disability or a serious illness. Rent assistance: To help cover your rent if you’re renting privately. If you’re receiving the Age Pension, the government will automatically send you a Pensioner Concession Card. Even if you’re not eligible for the Pensioner Concession Card, you might still be able to get a Commonwealth Seniors Health Card, subject to being eligible. Either of these cards will allow you to access: cheaper medicines on the Pharmaceutical Benefits Scheme (PBS) bulk billing for doctor’s appointments reduced out of hospital expenses through Medicare. Note that there may be additional concessions from state or territory governments, or from local councils and businesses. How can I set myself up for the retirement I want? Your first step will … Read more

Global Financial markets rallied in July after the US struck trade deals with Japan and the EU, which involved a reduction in the tariff rate in exchange for over $1 trillion in combined investment and purchased commitments, supporting both equities and broader risk sentiment. While gold has been supported year to date (YTD) by safe-haven demand and exchange traded fund (ETF) inflows, momentum softened after the trade deal announcements and prices accordingly consolidated into month end. Gold spot finished July 40 basis points (bps) lower than it started. COMEX futures and London Metal Exchange (LME) benchmarks rallied at the beginning of July after US President Trump flagged the possibility of a 50% tariff on copper imports. However, later in the month, the price action reversed sharply after the administration clarified that the tariff would only apply to semi finished copper and derivative products (not refined metal). Global equities performed well in July, with the Morgan Stanley Capital International (MSCI) World Index closing at a record high and up +1.2% on the month. The S&P500 and Nasdaq also created several fresh highs, boosted by solid earnings releases and easing tariff concerns. The global manufacturing Purchasing Managers’ Index (PMI) increased to 50.3 in June and global services PMI declined slightly to 51.9. US US Federal Reserve (The Fed) kept interest rates unchanged. Fed Chair, Jerome Powell did not give any signal regarding next steps for policy rates, consistent with previous guidance from the committee to watch data “over the summer”. At the beginning of the month, the US Senate passed Trump’s “Big Beautiful Bill” after a 27-hour session. With the Senate tied 50-50, Vice President JD Vance cast the tie breaking vote and took the final count to 51-50. President Trump signed the Bill into law during the White House’s Fourth of July ceremony. The Nasdaq and S&P500 closed at record highs multiple times throughout the month. Nvidia boosted the index and became the first public company to reach US $4tn market cap. On the last trading day of the month, Microsoft briefly surpassed the US $4tn market cap threshold, becoming the second publicly traded company to ever do so. The S&P500 and Nasdaq closed July up +2.2% and +3.7% respectively. Q2 GDP rebounded to +3.0% quarter on quarter seasonally adjusted annual rate (SAAR). The statistic was boosted by net exports, with underlying growth slowing. Core Consumer Price Index (CPI) printed at +0.23% month on month (MOM), slightly softer than consensus expectations of +0.3%. Core Personal Consumption Expenditures (PCE) matched expectations, printing at +0.26% MOM, with the year on year (YOY) reading stronger than expected due to upward revisions of the May and April numbers. The unemployment rate fell unexpectedly to 4.11% in June, with the US economy adding 147k jobs. Industrial production increased +0.3% MOM in June, while manufacturing production increased by +0.1%. Australia The Reserve Bank of Australia (RBA) elected to keep rates on hold during its July meeting in a 6-3 vote. This surprised the market, which had almost fully priced in a 25bp cut. The majority of Board members decided to wait until the Q2 CPI data was published before voting in favour of an additional rate reduction. The ASX200 advanced +2.4% in July and notably surpassed 8,700 for the first time in its history on Friday 18 July. The unemployment rate in June ticked up to 4.3%. The economy added over 2,000 jobs, below consensus estimates of adding 20k jobs. Q2 CPI printed slightly softer than expected, with headline CPI increasing by +0.71% in Q2, below consensus +0.8%. Consequently, yearly headline CPI eased from +2.4% to +2.1%. Trimmed mean CPI increased by +0.59%, below +0.7% expectations. This confirmed market expectations for a 25bp rate cut in August. This policy rate change is nearly fully priced in by fixed income markets. May and June retail sales were released during July. May sales came in at +0.2%, weaker than the +0.5% consensus pencilled in and April’s -0.1% figure was revised to flat. On the other hand, June retail sales were stronger than expected, increasing by +1.2% (vs consensus expectations for a +0.4% rise). Notably, this was the last retail sales print, with the Australia Bureau of Statistics (ABS) moving to a broader household spending indicator. New Zealand The Reserve Bank of New Zealand (RBNZ) opted to leave interest rates unchanged at 3.25% when it met in July, with the expectation that annual CPI would likely increase towards the top of the Monetary Policy Committee’s 1-3% target band over mid 2025. Later in the month, Q2 CPI printed softer than expected, increasing by +0.5%, vs consensus expectations of +0.6%. The headline miss was largely due to lower than expected home ownership costs and health. Europe US President Trump proposed a 30% tariff on all goods from the European Union if a separate trade deal could not be negotiated before August 1. Later in the month, an agreement was reached which imposed a 15% tariff on European exports to the US. The European Central Bank (ECB) kept interest rates unchanged in July as expected. The Eurozone unemployment rate inched up to 6.3% in May, from 6.2% in April. The STOXX600 gained +0.9% during July. The market moved mostly sideways during the month as investors awaited further clarity on the tariff situation. Eurozone Harmonised Index of Consumer Prices (HICP) rose to 2.0% in June, slightly higher than the 1.9% May print. Euro area industrial production rebounded strongly in May, up +1.7% MOM, vs -2.2% MOM decline in April. China China’s economy expanded by +5.2% YOY in Q2, slightly ahead of consensus expectations but exceeding Beijing’s full year target of 5%. On July 28, China announced that it would be implementing nationwide childcare subsidies to support the birth rate. The program will see families provided with 3,600 yuan per year for each child up until the age of three. The subsidies will have retroactive coverage, applying in full to children born on or after 1 January 2025 and in part to children … Read more

If you’re looking for ways to potentially increase your retirement savings while reducing tax, carry forward concessional contributions could be a good option. Carry forward concessional contributions If you’ve had time out of work raising kids or for other lifestyle reasons, or you haven’t had the money to boost your super until now, you could take advantage of carry forward concessional contributions (also known as catch up contributions). If you’re eligible, the Australian government allows you to catch up on your super contributions by adding in more than the annual limit, so you can enjoy life at retirement without worrying about money. What are carry forward concessional contributions? Carry forward concessional contributions, also known as catch up contributions, fall under concessional (before-tax) contributions. Concessional contributions include: employer contributions (such as super guarantee and salary sacrifice). personal contributions that you claim as a tax deduction. There is an annual cap for concessional contributions which is currently $30,000. If eligible, you can contribute more than $30,000 this financial year by using any unused concessional contributions caps from the previous five financial years. Benefits of carry forward super contributions Making additional before-tax contributions can be a tax-effective way to boost your retirement savings. Super contributions are taxed at 15% (up to an additional 15% tax may apply to higher income earners) which is often a lot lower than most peoples’ marginal tax rate (rate of tax you pay on your personal income) which can be up to a maximum of 47% including the Medicare levy. Any earnings you receive on your contributions once they are in your super account are also only taxed at up to 15%. Case study examples Here’s a few examples of how carry forward concessional contributions could benefit you. Example 1: Tax savings John, a 50 year old with a total super balance under $500,000. He receives a bonus at work and decides to use the bonus to make additional concessional contributions to super including unused amounts from the previous five financial years. This not only helps him save more for retirement but also reduces his taxable income and tax liability for the year. Example 2: Boosting retirement savings after a career break Mark took a career break in his early 30s to care for his children. When he returned to work, he wanted to catch up on his super contributions. His total super balance was $400,000. The carry-forward rule allowed him to use the unused cap from up to five previous financial years when he wasn’t working. He did this by making regular salary sacrifice contributions through his employer which helped him rebuild his super balance more quickly as well as providing additional personal income tax savings. Example 3: Accelerating retirement savings close to retirement Lisa, who is in her late 50s, is planning to retire in a few years. She realises her super balance is not as high as she’d like it to be at $300,000. Carry forward concessional contributions enable her to decrease her tax and increase her super savings in the final years before retirement, giving her a better lifestyle in retirement. She does this by making salary sacrifice contributions through her employer. Eligibility rules for carry forward concessional contributions To make a carry forward concessional contribution, there are specific conditions you need to meet: You need to be under the age of 75 – your contribution must be received by your super fund on or before 28 days following the end of the month you turn 75. Your total super balance needs to be less than $500,000 on 30 June of the previous financial year. You can only carry forward unused concessional contributions from 1 July 2020. Unused concessional cap amounts can only be carried forward for five financial years until they expire. Eligibility criteria for super contributions, including carry forward concessional contributions, can change over time. It’s essential to check with the Australian Taxation Office or consult a financial adviser for the most up to date information. Calculating your carry forward concessional contribution amount Check your previous 30 June total super balance with the ATO. This is available via the MyGov website. You want to ensure your total super balance is under $500,000 as at the previous 30 June. Once you login to your account, you can also use MyGov to work out the amount of unused concessional contributions cap that is available. Important things to consider for carry forward concessional contributions Keep in mind that carry forward concessional contributions are part of the concessional contributions cap, which includes employer contributions (such as super guarantee and salary sacrifice contributions) and personal contributions that you claim as a tax deduction. When determining the amount of unused concessional contributions cap that is available for the current financial year, consider any future concessional contributions you intend to make. It’s also important to remember that you can’t access your super until you meet a condition of release, such as reaching age 65 or age 60 and either retiring or ceasing work. To use up carried forward concessional cap amounts, you may want to make salary sacrifice or personal deductible contributions to super. How do super bring forward rules differ to carry forward concessional contributions? Super bring forward rules Super bring forward rules relate to after-tax contributions, allowing you to contribute more into super in a shorter period. Under these rules, you can bring forward up to two years’ worth of non-concessional (after-tax) contributions. The annual non concessional contributions cap is $120,000 for the 2025-26 financial year. However, using the bring forward rule, you could contribute up to $360,000 if eligible. If your total super balance is less than the general transfer balance cap of $2.0 million, you may be eligible to make non-concessional (after-tax) contributions. Depending on your total super balance you may be able to use the bring forward rule. Carry forward concessional contributions Carry forward concessional contributions are for before-tax contributions, enabling you to make up for past years where you may not have utilised all your concessional contribution caps. Generally, concessional contributions reduce your personal taxable income and tax payable. Ready to make a carry forward … Read more

Australian housing values rose another 0.6% in June, marking a fifth straight month of growth since conditions flattened out through the end of last year. Demonstrating the broad based nature of the upswing, monthly gains were recorded across almost every broad region of Australia, with Hobart the only region to see a month on month fall. The first rate cut in February was a clear turning point for housing value trends. An additional cut in May, and growing certainty of more cuts later in the year have fuelled housing sentiment, helping to push values higher. Although value rises have been broad based, the quarterly pace of growth, at 1.4% remains mild compared to mid-2023 when the national index was rising at the quarterly rate of 3.3%. Current growth levels could be described as tepid compared with the extreme 8.1% quarterly rate of growth recorded through the height of the pandemic. Across the individual capitals, quarterly growth was led by Darwin, with dwelling values jumping 4.9%, enough to take dwelling values to a new record high, finally surpassing the mining boom peak recorded just over 11 years ago in May 2014. Outside of Darwin, the quarterly trend across the capitals was led by Perth and Brisbane, the same markets which have led the five-year growth trend, with values up 81% and 75% respectively since June 2020. Although the quarterly pace of growth still favours regional Australia, at 1.6%, compared with the combined capitals at 1.4%, it is looking increasingly likely that the quarterly growth trend will once again favour capital city markets over the coming months. In fact, the last two months have seen the combined capitals record a slightly higher rate of capital gain than regional markets. The housing rebound is occurring against a backdrop of relatively low home sales, with turnover through the first half of the year tracking at an annualised pace of 4.9%, slightly below the decade average of 5.1% Although demonstrated demand is tracking slightly below average, advertised supply is scarce, creating a more balanced market for buyers and sellers. Advertised stock levels were tracking -5.8% below the same time a year ago and -16.7% below the previous five-year average. Low inventory levels are supporting an improvement in selling conditions, which can be seen in auction clearance rates, which rose to slightly above the decade average in the last two weeks of June, holding around the mid-60% range. Turning the focus to rental conditions, rental growth has continued to ease across most of Australia, with the national rental index rising 1.3% through the June quarter, the lowest Q2 change since 2020. The slowdown in rental growth is more visible in the annual trends, where national rental growth has eased from a peak of 9.7% in November 2021 and tracked at more than 8% between July 2021 and May 2024. The national rental index was up 3.4% through the financial year, the lowest annual increase since February 2021. Slower rental growth comes despite vacancy rates consistently holding around the mid-1% range, well below the pre pandemic five-year average of 3.3%. Rental affordability is a key factor keeping a lid on rental growth. Assuming the median rent and median household income, rental households are now dedicating around one third of their pre-tax income to paying rent. As the period of COVID ‘catch up’ migration comes to an end, and recent temporary migrants head back overseas, net overseas migration has reduced close to pre pandemic levels. Because most recent overseas arrivals rent, slower rates of net overseas migration are also contributing to the slowdown in rental demand. Now let’s take a look at housing conditions across each of the capital cities Sydney dwelling values rose 1.1% through the June quarter, adding just over $13,000 to the median value. The quarterly gain is up from a 0.8% rise in Q1 and a -1.4% decline through the final quarter of 2024. Through the first half of the year, Sydney home values have increased by 1.9%, mostly fuelled by houses (+2.5%) rather than units (+0.4%). In some good news for renters, rental growth has eased, with the annual change in Sydney rents reducing to 1.9%, down from an annual change in 2023/24 of 7.4% and 11.1% through 2022/23. The easing in rental appreciation comes despite vacancy rates easing to 1.8% in June, well below the decade average of 2.9% Melbourne dwelling values rose 0.5% in June, taking the quarterly change to 1.1%, up from 0.7% in Q1 after three quarters of decline. Through the first half of the year, Melbourne dwelling values have increased by 1.8%, adding just over $14,000 to the median dwelling values. Despite the recent gains, Melbourne values are still 3.9% below the record high set in March 2022. While growth in housing values has accelerated, the trend in rental markets is losing steam, with annual rental growth of just 1.2% recorded across Melbourne, the lowest annual rate of growth July 2021. Housing values across Brisbane rose by 0.7% in June, to be 2.0% higher over the quarter, adding approximately $18,000 to the median value of a dwelling over the past three months. The market is up 7.0% over the financial year, led by a 10.9% jump in unit values while house values rose by a smaller 6.3%. The stronger result comes back to worsening affordability constraints deflecting demand towards the unit sector, along with very low supply levels across Brisbane’s unit market where listings are tracking 33% below the previous five-year average. Annual rental growth has slowed across Brisbane, with dwelling rents up 3.8% in 2024/25 and holding below 4% annual growth since November last year. Adelaide dwelling values rose by 0.5% in June to be 1.1% higher over the June quarter. The monthly and quarterly result were a slight underperformance compared with the national growth rate of 0.6% and 1.4%, respectively. Although growth conditions have accelerated from the March quarter, when values were up 0.5%, the annual rate of growth, at 8.0% was well down on … Read more

2025 financial year in review A strong year for share returns Global shares delivered very strong returns in the past financial year. Optimism on the promise of ‘Artificial Intelligence’ (AI) as well as progress towards lower global inflation and interest rates have been the key positive drivers for rising global share prices. These strong share gains come despite the tragic Russian-Ukraine War as well as the Hamas-Israel and the Israel-Iran conflicts which are all brutal and seemingly never ending. Global shares (hedged) recorded a 13.3% return for the year in local currency terms. The clear outperformer has been Wall Street. US shares as represented by the S&P 500 delivered a 15.2% return for the financial year (Chart 1). The returns from Australian shares at 13.7% (ASX 300) were very strong but trailed in Wall Street’s wake. There was one compensation in that the weakness in the Australian dollar over the past year allowed global shares (unhedged) to deliver an exceptionally strong 18.4% return. Chart 1: Share returns for 2024-2025 Source: LSEG DataStream. However, this was not an easy climb to historic highs for both the American and Australian share markets in the last year. The sharp share price falls recorded from March to April 2025 came in response to US President Donald Trump’s aggressive agenda on imposing tariffs. From his first day in the Oval Office on 20 January 2025 threatening Canada and Mexico to the impositions of a 145% tariff on China, 20% for Europe and 10% for Australia in April, President Trump has been menacing America’s trading partners as well as gambling with the US economy. Given that tariffs are a tax that increases consumer prices, the risk of a sharp rise in US inflation and corresponding increase in US interest rates sent Wall Street into a tailspin. Fortunately, sanity briefly returned with President Trump announcing a 90 day pause to allow tariff negotiations. However, if the tirades against America’s trading partners resume on President Trump’s “Truth Social” after the 9 July deadline, then investors will have to strap their seatbelts on for another rollercoaster ride. Even with these political headwinds, enthusiasm for technology has been the key positive driver of Wall Street’s strong returns. Tesla led the charge with a 60% price gain followed by Meta/Facebook (46%) and then the largest AI chipmaker Nvidia with 28%. These extraordinary gains allowed the US technology focused NASDAQ 100 Index to post a 15.7% annual return. Notably in an Australian context, only Commonwealth Bank shares with a 45% price gain for the year could deliver a similar result to the American technology companies. There were also notable disappointments with large price falls for resource shares such as BHP (-14% decline) and Fortescue (-29%), as well as CSL (-19%). Table 1: Asset class returns in Australian dollars – periods to 30 June 2025 Asset class Returns 1 year 3 yrs (pa) 5 yrs (pa) 10 yrs (pa) Cash 4.4% 3.9% 2.3% 2.0% Australian bonds 6.8% 3.9% -0.1% 2.3% Global bonds (hedged) 5.4% 2.3% -0.6% 2.0% Global high yield bonds (hedged) 8.3% 7.8% 4.1% 4.5% Global listed infrastructure (hedged) 14.7% 5.1% 7.0% 6.7% Global property securities (hedged) 8.4% 2.2% 4.4% 3.0% Australian shares 13.7% 13.3% 11.8% 8.8% Global shares (unhedged) 18.4% 19.2% 14.8% 11.8% Global shares (hedged) 13.3% 15.8% 12.6% 9.7% Emerging markets (unhedged) 17.5% 11.5% 7.9% 6.5% Past performance is not a reliable indicator of future performance. Sources: FactSet, MLC Asset Management Services Limited. Benchmark data: Bloomberg AusBond Bank Bill Index (cash), Bloomberg AusBond Composite 0+ Yr Index (Aust bonds), Bloomberg Global Aggregate Bond Index Hedged to $A (global bonds), Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged) (global high yield bonds) FTSE Global Core Infrastructure 50/50 Index Hedged to $A, FTSE EPRA/NAREIT Developed Index (net) hedged to $A (global property securities), S&P/ASX300 Total Return Index (Aust shares), MSCI All Country World Indices hedged to $A and unhedged (net) (global shares), and MSCI Emerging Markets Index (net) unhedged to $A (emerging markets). European shares made a solid 8.4% return for the year with the benefit of the European Central Bank cutting interest rates by 1.75% to 2%. Asian share markets delivered a mixed performance across countries. Japan’s share market made a muted 2.3% return for the year given the Japanese central bank has been assertively raising interest rates to combat inflation. Taiwan was similarly subdued at a 3% return given geopolitical concerns. Yet Chinese share prices made a robust recovery with a 34% annual gain (MSCI China in local currency). Lower interest rates and assurances from China’s government of more support for economic activity have countered concerns over China’s weak property market. This strength in Chinese shares was a key contributor to the strong 12.9% return for emerging markets in local currency terms. Australian bonds provided a strong 6.8% annual return with the support of lower inflation and the Reserve Bank of Australia (RBA) cutting the cash interest rates by 0.5% to 3.85% in 2025. Global bonds (hedged) delivered a reasonable 5.4% return. Bond markets have experienced turbulence in the past year given the shifting sands on economic activity, inflation and political risks. Global high yield bonds (hedged) made a very strong 8.3% annual return as investors considered that the elevated yields available are attractive for income despite very narrow credit spreads. The ‘cost of living’ is still challenging for consumers Global inflation has gradually fallen in the past year (Chart 2). Milder price rises for consumer goods such as clothing and electrical equipment have kept inflation in check. Notably inflation in both Australia and the US has fallen from above 3% in mid-2024 towards the low 2% inflation levels in mid-2025. China as the ‘factory to the world’ in producing consumer goods has been a source of this lower global inflation as well as experiencing its own minimal inflation given modest economic growth. Chart 2: Global consumer inflation Source: Australian Bureau of Statistics, National Bureau of Statistics of China and US Bureau of Labor Statistics. Consumers around the world … Read more

Wills aren’t just for later in life and you should really have one when you start earning. And as money and family matters can be complex, it makes sense to get help. Who needs a Will anyway? A Will is something you might think you only need once you’re a millionaire or close to retirement. But it’s important to get your Will and your whole estate plan organised as soon as you start earning money of your own. Why? Because when you’re on the payroll, your super savings will soon start adding up. And without sorting out an estate plan, you can’t be sure your assets will be passed on to the right people when you die, including your super savings. Perhaps you’re on your fourth or fifth or even your 20th job by now and still don’t have an estate plan. It probably isn’t keeping you up at night but there could be other triggers and life stages that make your estate plan far more important: Buying a home – having a Will makes it crystal clear what will happen to a home you own when you die. You may want to make sure loved ones can continue to live there or have this part of your wealth passed on to the right people. Having kids – your Will isn’t just about money, it’s also about people. If you have children, a Will can help to make sure they’re looked after and cared for by the people you have chosen if the worst were to happen. Getting married or moving in together – sharing your life with a partner often means sharing wealth too. Whether you’re married to your significant other or not, it’s important to make sure they’re looked after if you die, along with anyone else you want your wealth to go to. Separation and divorce – when relationships end, money matters can get tricky. And no matter how simple and amicable things are, an estate plan is an important way to make sure wealth and assets are passed to the people you choose, particularly if there are new partners and/or children involved. Your parents die – when your parents die with a proper estate plan, transferring their wealth is going to be easier to manage. If they don’t have one, you and any siblings can get caught up in a long and expensive process of sorting everything out. It’s a big reminder of why a good estate plan is so important to the ones you love. Making a Will A Will is a very important legal document. It covers what you want to happen to your assets – like cash in the bank, shares, investments or properties you own and any personal items. In your Will you’ll need to include who you want to be your executor. This is the person, or it can be an organisation, who will carry out the instructions in your Will. This person is making a big commitment of their time as well as taking responsibility for distributing assets, communicating with everyone and carrying out your wishes according to your Will. They’re also going to be the one dealing with any issues that come up if there are disputes about your Will. What happens if you don’t have a Will? When someone dies without a Will, it’s called intestacy. What happens then will depend on the intestacy laws of the relevant state or territory. These laws will determine how assets are divided and who they go to. To get this sorted will usually involve a fair bit of work with lawyers who’ll often be working based on an hourly rate. There’s potential for these legal costs to add up over time and it can sometimes take years to resolve things, particularly for complex estates and family situations. The dangers of going DIY There are plenty of DIY Wills available – from hard copy kits to online forms but they’re not for everyone. If your situation is really simple – no partner, no kids, limited wealth and assets, then a good online service might be enough for you to come up with your own estate planning documents. But for a lot of family situations and estates, online and DIY Wills just aren’t going to cut it. A dynamic form, no matter how well it’s put together, can’t help you understand the tax implications of how your money is shared out, for example. A DIY solution can also get tricky when it comes to executing your Will. You’ll probably get detailed instructions for how to do this, but if they’re not followed to the letter, your Will might not be legally binding. This may leave your loved ones in the same situation as if you didn’t have a Will at all. Your Will is just part of the plan Your Will isn’t the only part of your estate plan you need to get organised. Your super isn’t always passed to your loved ones through your will so you’ll need to make a separate arrangement for this. It’s called a beneficiary nomination and you can find out all about it by exploring what happens to your super when you die. If you have life insurance in your super account you’ll also need to make arrangements for nominating beneficiaries with your provider. Another part of your estate plan to think about organising is your enduring power of attorney. This is where you choose someone to act on your behalf and make certain choices if, for example, you’re unable to do this for yourself. If you have an accident or fall ill, your attorney can look after your financial affairs and get things done for you. You can also arrange a separate medical power of attorney to make choices on your behalf about your medical and lifestyle needs if you are unable to make these decisions for yourself. This document goes by different names depending on which State or Territory you’re in. It’s clear that … Read more

One of the keys drivers of happiness in retirement is the peace of mind that comes from financial security. However, US tariff announcements since the start of April have added uncertainty to financial markets, adding an extra layer of complexity for many retirees. Policy positions have fluctuated as tariffs are paused, reversed or adjusted, leaving markets prone to volatility with sharp drops and rebounds. So, what can this market volatility mean for retirees and their retirement income? How does market volatility affect retirees? Market volatility refers to the ups and downs in financial markets due to the size and frequency of changes in investment prices. Many retirees rely on their superannuation for income in retirement, which can fluctuate with financial markets. A fall in the value of your super or savings could mean you outlive your savings or your money runs out sooner than planned. Drops in the market can have a bigger impact in retirement because: Later in life you have less time to recover from poor share market performance or take advantage of lower share prices. Negative returns coupled with withdrawals for pension payments make it harder to recover the value of your investments. The timing of share market falls also matters due to sequencing risk. A more stable option for retirement income  If market volatility is causing worry, there is another income option designed for predictability and peace of mind. Guaranteed lifetime income products can offer the stability of guaranteed regular income for life, that continues regardless of market conditions. Whether the market is up or down, your income from these products remains unaffected, providing confidence that you can meet your financial needs in the future. For retirees, this reliability is invaluable, providing peace of mind that a portion of your regular income won’t be affected. Combining the best of both worlds Having a mix of income sources can allow you to experience both financial stability and growth opportunities. Combining a guaranteed income option like a Fixed or CPI-linked lifetime annuity with an account-based pension (from your super fund) provides flexibility when dealing with unpredictable market conditions. Guaranteed lifetime income for stability: Fixed or CPI-linked lifetime annuities can act as your financial safety net, ensuring that essential expenses like groceries, utilities and healthcare are always covered, even during volatile times. Market exposure for long-term growth: Allocating part of your retirement income to market based options like account-based pensions allows you to reap the benefits of long-term growth once market volatility normalises. Market-linked lifetime annuities can also allow you to enjoy the growth potential of market exposure whilst providing guaranteed regular income. By blending these options, you can maintain a strong financial foundation while also leaving room for future growth. Making the right choice for your retirement  US tariff uncertainty and market volatility highlight the importance of building a well diversified income strategy that fits your unique retirement needs. The right mix of options can help you weather periods of economic uncertainty while still enjoying the benefits of market growth. Talk to a financial adviser today to discuss your individual objectives, financial situation and needs.   Source: Challenger

We’re all familiar with the concept of super. It’s that portion of our salary that employers are required to contribute to a super fund on our behalf, with the goal of providing us with financial security in retirement. But what not everyone is aware of is that relying solely on your employer’s contributions might not be enough to ensure a comfortable retirement. That’s where salary sacrificing into super comes into play. Here, we’ll explore the ins and outs of salary sacrificing into your super and help you determine if it’s worth considering as part of your financial strategy. What is salary sacrificing into super? Salary sacrificing into super involves redirecting a portion of your pre-tax salary into your super fund. Instead of receiving this portion as part of your take home pay, it goes straight into your super account. Here’s how it works: Agreement – You and your employer agree to salary sacrifice a specific amount or percentage of your pre-tax salary into your super fund. This amount is in addition to the compulsory employer contributions. Pre-tax – The sacrificed amount is deducted from your gross (pre-tax) salary, reducing your taxable income. This means you pay less income tax on your take home pay. Super contributions – The sacrificed amount is added to your superannuation contributions, helping you build a more substantial retirement nest egg. Benefits of salary sacrificing into super Now that we’ve covered the basics of salary sacrificing into super, let’s explore the benefits of this strategy: Tax savings – One of the primary advantages of salary sacrificing into super is the potential for significant tax savings. The sacrificed amount is taxed at the concessional super tax rate of 15%, which is typically lower than the tax rate you pay on your income. This means you get to keep more of your money while still saving for retirement. You may pay additional 15% tax on all or part of your salary sacrifice if your income and concessional super contributions total more than $250,000. In this case, the effective tax on your contributions may be up to 30%, which is still less than the highest tax rate of 45%. Faster retirement savings growth – By contributing more to your super fund through salary sacrificing, you’re accelerating the growth of your retirement savings. Your money is invested over an extended period, potentially leading to more substantial gains through compound investment returns. Compound investment returns refer to earning money not just on the original investment but also on the accumulated growth gained over the period since the investment was made. Lower taxable income – Since the sacrificed amount is deducted from your pre-tax salary, your taxable income is reduced. This can have several additional benefits, such as qualifying you for certain concessions, reducing the Medicare Levy and helping you stay in a lower tax bracket (salary sacrifice super contributions are not subject to the Medicare Levy or the Medicare Levy Surcharge. This can lead to significant tax savings, especially for higher income earners.) Automatic savings – Salary sacrificing is an automated process. The money is taken out of your pay before you even see it, which can help you build disciplined savings habits. Long-term financial security – Salary sacrificing into super is a smart way to attain long-term financial security during your retirement years. It provides peace of mind, knowing that you’re taking proactive steps to build a comfortable retirement nest egg. Things to consider before salary sacrificing into super While salary sacrificing into super offers numerous advantages, it’s essential to consider some factors before taking the plunge: Contribution caps – Salary sacrifice contributions count towards your concessional contribution cap. The annual limit for concessional contributions, including your salary sacrifice contributions, into super without incurring additional tax in Australia is $30,000 for 2025-26. The cap limits change over time so it’s important to be aware of the current contribution cap limit. Those who have a superannuation balance of less than $500,000 on 30 June 2025 may have a concessional cap of up to $167,500 in 2025/26. This includes the current annual $30,000 cap, $25,000 for 2020/21, $27,500 for 2021/22 to 2023/24 and $30,000 in 2024/25. This is based on the five-year carry forward rule. Your financial goals – Consider your overall financial goals when deciding how much to salary sacrifice into super. You should strike a balance between your short-term and long-term financial needs. If you have pressing financial commitments, it might not be wise to sacrifice too much of your current income. What kind of lifestyle do you envision for your retirement? The more comfortable you want it to be, the more you may need to save. Reduced take home pay – Salary sacrificing means you’ll have less money in your take-home pay. This can be challenging if you’re on a tight budget or have immediate financial needs, such as your mortgage. Investment risk – Your salary sacrifice contributions are invested, and like any investment, they come with inherent risks. Depending on market performance, your super balance can fluctuate. Access to funds – Remember that once your money is in your super fund, you generally can’t access it until retirement or you meet certain conditions. Ensure you have enough liquid assets outside of super, such as cash or shares, to cover emergencies or short-term financial needs. Super is designed for retirement savings, so accessing your money before you reach preservation age can be challenging. Since 1 July 2024, the preservation age is 60. Seeking advice – It’s a good idea to consult with a financial adviser or accountant before implementing a salary sacrifice strategy. They can help you assess your unique financial situation and provide personalised recommendations. Is it worth salary sacrificing into super? Now that we’ve examined the pros and cons of salary sacrificing into super, the question remains: is it worth it for you? The answer depends on your individual financial circumstances and goals. Do you have outstanding debts or immediate financial needs that should take priority … Read more

How worried should I be about running out of money when I stop working? It’s not unusual to be worried about running out of money when you stop working. A recent survey of Perpetual members found that 37 per cent of respondents approaching retirement were continuing to work because they did not have enough retirement savings. A similar percentage disagreed with the statement that “I have sufficient savings, in combination with any age pensions entitlement, to fund a comfortable retirement”. While it’s important to acknowledge these fears, it’s worth noting the survey revealed a higher prevalence of these concerns were among members still in the workforce. After full retirement, 86 per cent of respondents either slightly agreed, agreed or strongly agreed that they possessed adequate savings, combined with the age pension, to sustain a comfortable retirement. Minimum account-based pension payment rates As we approach retirement, we should prepare ourselves for the transition from accumulating savings to accessing them, such as starting an account-based pension. During this phase, we should carefully consider the amount and frequency of payments that we would like to receive. With the exception of a transition to retirement income stream, there are no maximum payment amounts. But there are minimum payment requirements that are based on our age. It’s crucial to note that these payments will continue until the balance is exhausted. Hence, the need to carefully consider the payment rate. Age range Percentage of account balance Under 65 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9% 90-94 11% 95+ 14% How long will my savings last? The table below provides an estimate of the years your retirement savings may last based on a fixed starting balance, consistent investment returns, and varying annual payment rates. Take, for instance, a starting balance of $250,000 with a 4 per cent return. An annual payment of $10,000 may keep you covered for a century, while a yearly payout of $40,000 may drain your savings in just seven years. Starting balance Investment returns Annual payment Years savings may last $250,000 4% $10,000 100 $250,000 4% $20,000 17 $250,000 4% $30,000 10 $250,000 4% $40,000 7 Source: Perpetual. Assumes annual payment is spread evenly over the year and the investment return is applied to the average account balance for the year. Minimum pension payment rates are ignored. The next table provides estimates on how long retirement savings may last, assuming a constant starting balance, annual payment and different rates of investment returns. As a general rule, the higher your investment returns, the longer your savings will last. But higher investment returns also come with higher risk. It’s crucial to find a balance between risk and return that aligns with your individual circumstances and goals. Starting balance Annual payment Investment returns Years savings may last $250,000 $20,000 2% 14 $250,000 $20,000 4% 17 $250,000 $20,000 6% 22 $250,000 $20,000 8% 42 Source: Perpetual. Assumes annual payment is spread evenly over the year and the investment return is applied to the average account balance for the year. Minimum pension payment rates are ignored. It’s important to note these tables are just estimates. They do not account for certain challenges that retirees may face, including sequencing risk and inflation risk. Sequencing risk can be particularly concerning. A big negative return in the early years of retirement can greatly impact your account balance and future returns. Inflation risk is also a factor, as the purchasing power of a fixed payment rate can decline over time. How the Age Pension helps to manage risks to retirement income Access to the federal government’s Age Pension helps manage these risks. While you may not be eligible for the Age Pension when you first retire, eligibility may arise later on. The Age Pension can help to manage sequencing risk, as payments are not tied to investment market returns, and they may increase if the value of your assets fall. Inflation risk is also addressed, since the pension is indexed to the consumer price index, and longevity risk can be mitigated through ongoing payments for the rest of your life. For further information please speak to your financial adviser. However, as a more general starting point, you can use the Money Smart calculator to estimate: Your super balance at retirement How fees affect your final super balance Source: Perpetual