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Everyone buying into the housing market hopes that their purchase will appreciate over time, while sellers want to pick the top of the market. Clearly the growth rates in the Australian housing market, particularly in Sydney and Melbourne, peaked some time ago – March last year. But prices have mostly been still rising, albeit at a slower pace. National average property prices now look likely to peak around mid-year and then enter a cyclical downswing. There’s a number of reasons for that. Poor affordability is pricing more home buyers out of the market. Fixed rate mortgages are rising, up 75 per cent from their lows of last year, and they’re still increasing. The Reserve Bank of Australia (RBA) is likely to push variable rate mortgages higher, and we expect them to rise around one per cent by the end of the year. Also, higher inflation makes it harder to save for a deposit. Sydney and Melbourne sellers are trying to take advantage of higher prices and solid construction after two years of zero immigration meaning there’s more supply on the market, dragging on prices. And finally, the reopening of the economy means people can once again start to spend more on services, which could reduce housing demand. Homeowners have done well over the past 12 months, with Brisbane and Adelaide leading the way. Houses have outperformed units and the regions have done better than capital cities and continue to do so as home buyers focus more on quality-of-life considerations.     March % change 12 months to March % change Sydney -0.2 17.7 Melbourne -0.1 9.8 Brisbane 2.0 29.3 Adelaide 1.9 26.3 Perth 1.0 7.0 Hobart 0.3 22.3 Darwin 0.8 10.6 Canberra 1.0 21.6 Capital city average 0.3 16.3 Capital city houses average 0.5 18.6 Capital city units average 0.0 9.4 Regional average 1.7 24.5 National average 0.7 18.2   Average capital city prices are now more than 20 per cent above the previous record high in September 2017 and are up 25 per cent from their lows in September 2020. But there has been a wide divergence between capitals. Sydney dwelling prices fell for the second month in a row in March this year, and Melbourne prices were also down. But Brisbane and Adelaide price gains remain strong. Both are playing catch up, having lagged the larger capitals – particularly Sydney – in the early part of the rebound. Property demand in Brisbane is benefitting from strong interstate migration, and both cities are seeing less of an affordability constraint. Perth, the worst performing capital over the past 12 months in a large part due to lockdowns, is also picking up as the state border reopens. Overall, the slowing in monthly price growth is seeing annual price growth roll over too. After a period of well above 10-year average growth, simple mean reversion suggests a further slowdown ahead. It isn’t surprising that the housing market is cooling, though this cycle is happening earlier relative to the timing of RBA rate hikes. That’s because of the bigger role ultra-low fixed rate mortgage lending played this time around in driving the boom. Normally fixed rate lending is around 15 per cent of new home lending but over the last 18 months it was around 40 to 50 per cent as borrowers took advantage of sub 2 per cent fixed mortgage rates. However, fixed rates have been rising since the June quarter last year which has taken the edge off new home buyer demand well ahead of any move by the RBA. After 22 per cent growth in national average home prices last year, average home price growth this year is expected to be around 1 per cent and we expect a 5-10 per cent decline in average prices in 2023. Top to bottom the fall in prices into 2024 is likely to be around 10-15 per cent, which would take average prices back to the levels of around April last year. This is likely to mask a continuing wide divergence though. Sydney and Melbourne already look to have peaked but laggard cities like Brisbane and Adelaide, and possibly Perth and Darwin which are less constrained by poor affordability, are likely to be relatively stronger in 2022 with gains likely to persist into the second half of the year. The main downside risks to our forecasts could come from another big coronavirus setback to the economy, a serious deterioration in the Russian invasion of Ukraine affecting confidence, or alternatively faster mortgage rate hikes. This is a significant risk given the jobs market has tightened more than expected, and inflation looks to be rising much faster than forecast with the consumer price index likely to be up by at least 5 per cent over the year to the June quarter. The main risk on the upside is a rapid surge in immigration, although this is likely to show up initially in higher rents and then higher prices with a lag. While the national average property downswing unfolding looks like just another cyclical downswing, it’s worth noting that the 25-year bull market in capital city property prices is likely to come under pressure in the years ahead. The 30-year declining trend in mortgage rates which has enabled new buyers to progressively borrow more and more, and hence pay more and more for property, is now likely over. Also, the work from home phenomenon and associated shift to regions may continue to take some pressure off capital city prices.   Source: AMP

With war in Eastern Europe, inflation surging and Covid lockdowns inhibiting industrial production in parts of China, investment markets faced a rising tide of volatility over the past quarter. Yet while this may feel like the worst of times, it may really be that the 14 or so years since the GFC are the outlier and the new market environment is more normal than it looks. What’s influencing the outlook? Ukraine and China The cruelty of Russia’s ‘special military operation’ has shaken the world but history tells us war does not always derail investment markets. Strikingly, global shares fell over 30% when the world locked down for Covid (February 2020 to March 2020). But they’ve risen slightly since the fighting started in Ukraine. There are more specific forces at play that will influence markets. There are widespread attempts to shun Russian energy sources, which constrains supply and means oil and gas prices are rising. Higher energy prices are a major economic blow because they suck cash from consumers’ pockets. Meanwhile, the loss of Ukraine’s harvests will add to food costs. Somewhat lost in the fog of war is another Chinese Covid crisis – as we write there are over 20 million people locked down in Shanghai as Chinese policymakers stick to a futile zero-Covid policy. That has implications for Chinese industrial production, keeps the pressure on global supply chains and curtails Chinese consumer confidence and spending. Inflation and interest rates For investors today, inflation and interest rates are the terrible twins: inseparable and inexorably influencing investment assets. Hopes that supply chain pressures would ease as the world recovered from Covid have been dashed by the Ukraine crisis and China’s decision to slam the doors on large chunks of its population. That means inflation is now at rates unthinkable a year ago – 7.9% in the US, 6.2% in the UK, 7.5% in the Euro area. And around the world rates have started to rise in response. There are more rises to come, with the US response stretching to a potential seven rates hikes. Who’s going to drop the ball? This confluence of events throws up another risk – major policy error by governments or central banks. A recent IMF bulletin sums it up: “There are already clear signs that the war and resulting jump in costs for essential commodities will make it harder for policymakers in some countries to strike the delicate balance between containing inflation and supporting the economic recovery from the pandemic.” What’s normal anyway? According to Andrew Garrett, Investment Director at Perpetual Private, markets are now dealing with geopolitical risks and inflation pressures they haven’t experienced for over a decade. Yet while Perpetual Private does expect higher volatility and lower overall returns, that doesn’t mean well-diversified portfolios can’t deliver solid results for investors. Instead, a more nuanced market environment places a premium on specific investment skills. “The long-running, low-rate environment that’s just ended inflated investment markets and made growth assets, especially ‘promising young tech stocks,’ more attractive,” says Andrew. “To use a Buffetism, it lifted all boats.” By contrast, a rising-rate environment is one where active investors with a nose for quality can do well. We’re likely to see better results from value stocks (ie profitable companies with predictable earning whose full potential is not built into their ticker price). And from value managers – like Perpetual – who specialise in the deep research needed to unearth those opportunities. Recent results in Australia may be a sign of things to come in this growth/value shift. Value shares were up 11.7%. Growth shares lost 4%. (As measured by the MSCI Australia Value and MSCI Australia Growth indices for the March quarter). Source: Perpetual  

How much you need to save for a comfortable retirement is a question many of us ask. While we all hope for a simple answer, how much money you need in retirement differs for everyone. Additionally, a comfortable retirement is based on a whole range of factors including: When you retire How long you’ll spend in retirement Whether you’ll sell assets to fund your lifestyle How your assets are invested. There are a number of guides that are useful to consider when working out how much you need to save for your retirement. A modest or comfortable retirement The ASFA Retirement Standard is published each quarter by the Association of Superannuation Funds of Australia (ASFA). It provides approximate figures for the level of income required for a modest or comfortable lifestyle, assuming you own your own home. The current ASFA comfortable lifestyle standard is $45,962 per annum for a single person and $64,771 per annum for a couple, while the modest lifestyle standard is $29,139 for a single and $41,929 for a couple respectively. A modest retirement lifestyle assumes you are able to afford basic activities. A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broader range of leisure and recreational activities and to have a good standard of living. You should be able to afford to buy household goods, private health insurance, a reasonable car, good clothes, electronic equipment and to travel overseas and in Australia. Determining what you need as a lump sum It’s also useful to understand how much money you need to live a modest or comfortable retirement as a lump sum. ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension. A different approach is to look at your pre-retirement income and consider how much of it you will need in retirement. Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement. Another method to calculate a lump sum Another method is to take your current annual expenses and multiply this amount by the number of years that represent the difference between the age you retire and average life expectancy to calculate the lump sum you may require in retirement. In Australia, average life expectancy is 83.5 years. If you take the $32,500 figure and assume you retire at age 65, this would equate to a lump sum target of $601,250. This is a guide only. Keep in mind the investment returns you generate and your actual expenses in retirement will impact the amount you need to fund your retirement. No matter how much you assume you need, the more time you have to plan, the greater your chances of achieving your retirement income goal. There are many steps you can take to help you achieve your retirement savings goal. First, understand your current financial position including your income and expenses, what you own and what you owe. You may consider strengthening your financial position by repaying debt, building up your savings and investments or making additional contributions to super. Start considering how best to use your financial resources to support your income needs in retirement. Make sure you monitor your plan on an ongoing basis. The idea is to make the most of the retirement planning opportunities available to you. And remember you don’t have to go it alone. Seeking financial advice can help you achieve the retirement you hope to achieve. Source: BT

Introduction Inflationary forces continued to intensify in key regions, which suggested interest rates could be raised more quickly and more aggressively than previously anticipated. Government bond yields continued to rise sharply, resulting in negative returns from fixed income markets. The likelihood of rising borrowing costs also appeared to spook equity markets, which performed poorly over the month. Central banks are essentially being forced to tighten policy settings to combat rampant inflation, but risk an economic slowdown or recession if borrowing costs are raised too substantially. Corporate earnings growth could slow in this environment. Further Covid lockdowns in China also hampered sentiment towards risk assets, and could add to inflationary pressures. Various shutdowns and the likelihood of supply-chain interruptions seem likely to push prices higher. The threat of energy and food shortages owing to the ongoing conflict in Ukraine caused further unease among investors. Australia: Trimmed mean inflation – the Reserve Bank of Australia’s preferred underlying measure of price increases – rose 1.4% in the March quarter; almost double the official forecast from as recently as February. On an annual basis, inflation has quickened to 3.7%; up from 2.5% in the December quarter and well above the Reserve Bank of Australia’s 2% to 3% target range. New Zealand: The Reserve Bank of New Zealand raised official cash rates by a further 0.50 percentage points, to 1.50%. The move seemed understandable given the extent of inflationary pressures, but does risk dampening house prices and, in turn, consumer sentiment. That said, the overall economic outlook brightened somewhat due to the imminent reopening of the country for tourists. From May, overseas visitors will be able to visit New Zealand for the first time in more than two years – good news for the country’s tourism-related businesses. This development should be a welcome boost for the economy, which appears to have lost momentum recently. US: Following the increase in interest rates in March, all eyes were on the next Federal Reserve Board meeting in early May to see whether borrowing costs will be raised again and, if so, by how much. Consensus forecasts suggest US interest rates will be raised by 0.50 percentage points as policymakers continue to grapple with spiralling inflation. CPI has soared to an annual rate of 8.5%. There was a surprise drop in GDP in Q1. Growth was -1.4% in the period, compared to expectations for a 1.0% increase. More encouragingly, unemployment in the US fell to 3.6% in March, only a whisker above the pre-pandemic level of 3.5%. Wage growth has picked up too, partly due to labour shortages in some sectors. Nationally, average hourly earnings are up 5.6% over the past year; double the average rate over the past 15 years. Europe: Until recently the European Central Bank was not expected to amend monetary policy settings this year. Persistently high inflation, however, and the prospect of intensifying pricing pressures owing to the war in Ukraine has prompted investors to revise these forecasts. With Eurozone inflation running at an annual rate of 7.5%, observers are now anticipating as many as four interest rate hikes in the remainder of 2022. The first could occur in May, following the European Central Bank’s next meeting. The conflict in Ukraine is affecting economic prospects for the broader region. Rising fuel costs and risks of energy shortages have dampened consumer confidence in both France and Germany, for example. The inflation situation in the UK is being exacerbated by rising taxes. In real terms, wages could fall by as much as 4% this year; one of the worst outcomes since World War II. This prospect is dampening consumer confidence and clouding the outlook for discretionary spending. Asia With virus cases increasing sharply, tough new Covid restrictions were implemented in several cities. This could have implications for global growth, given the associated impact on supply chains. Economic activity levels in China in the March quarter were quite resilient and supported a better-than-expected growth outcome. The latest wave of infections has clouded the outlook for GDP growth, however, and prompted authorities to suggest stimulus will be ramped up to help support activity levels and investor sentiment. Separately, data confirmed that energy demand has fallen sharply in China. Oil consumption is down the most since the initial Covid shock two years ago, owing to the latest shutdowns. In Japan, the yen deteriorated to its lowest level against the US dollar for around 20 years. Australian dollar The Australian dollar struggled in April, declining in value by 5.4% against the US dollar. By month end, the ‘Aussie’ bought just over 70 US cents. Commodity prices edged higher, providing some support, but concerns over the global growth outlook hampered the currency. As well as weakening against the US dollar, the Australian dollar lost ground against a trade-weighted basket of other international currencies. Australian equities Australian equities were quite volatile during April and lost ground in the month as a whole. The S&P/ASX 200 Accumulation Index closed 0.9% lower. Investors contemplated the potential implications of a longer conflict in Ukraine, China’s zero Covid policy and associated lockdowns, as well as the release of higher-than-expected local inflation data. March’s recovery in the IT sector unwound in April, with the sector falling 10.4%. Stocks in the Materials sector (-4.3%) struggled as the impact of Shanghai’s city-wide lockdown and new restrictions in Beijing cast doubt on Chinese demand for metals including iron ore – a key input in the manufacture of steel. Utilities (+9.3%) continued to benefit from elevated energy prices. Similar to their large cap counterparts, the Information Technology sector was the biggest detractor from the S&P/ASX Small Ordinaries Index. Listed property Like broader equity markets, global property securities struggled in April. The FTSE EPRA/NAREIT Developed Index declined by 0.1% in Australian dollar terms, although this outcome was assisted by currency moves. In local currency terms, the Index declined by more than 5%. The best performing regions included Switzerland (+2.0%), Hong Kong (+1.0%), Singapore (+0.9%) and Australia (+0.6%). Laggards included Sweden (-15.8%), Germany … Read more

The RBA has hiked the cash rate by 0.25% taking it to 0.35% and signalling more rate hikes ahead. We expect the cash rate to rise to 1.5% by year-end and to 2% by mid next year. However, the RBA will only raise rates as far as necessary to cool inflation and high household debt has likely made rate hikes more potent. Rate hikes are unlikely to de-rail the economic recovery at this stage as monetary policy is still very easy, but they will add to the slowdown in home prices, where we see dwelling prices falling 10 to 15% into early 2024. Introduction For the first time since November 2010, the RBA has raised its official cash rate – from 0.1% taking it to 0.35%. This was above market expectations for a 0.15% hike and a bit closer to our expectation for a 0.4% move suggesting that the RBA appears to have partly accepted the argument that it had to do something decisive in order to signal its resolve to get inflation back down. The RBA also announced it will start quantitative tightening, by allowing its portfolio of bonds to run down as they mature, which along with the ending of cheap funding for banks under the Term Funding Facility will see a significant decline in its balance sheet next year. Its commentary was hawkish, indicating it will “do what is necessary” to return inflation to target and that this will require further interest rate increases. Banks are likely to pass the RBA’s rate hike on in full to their variable rate customers and deposit rates will also start to rise. Fixed mortgage rates have already moved up in line with rising bond yields in anticipation of higher cash rates – doubling from record lows around 2% a year ago. The RBA has now joined central banks in the US, Canada, the UK, NZ, Korea, Norway and Sweden in raising rates – some of whom have started to hike more aggressively with 0.5% moves. Why the rate hike? The start of rate hikes has come well ahead of the RBA’s guidance up until early this year that a rate hike was unlikely until 2024. Only a few months ago the RBA conceded a rate hike was “plausible” this year, but it was prepared to be “patient” and then last month it was implying it would wait for March quarter inflation (which we saw last week) and wages data (due later this month). What’s changed is that the jobs market, with just 4% unemployment and inflation at 5.1% year on year or 3.7% year on year in underlying terms, have been far stronger than the RBA expected, removing the luxury of patience and waiting for more wages data. Consistent with this, it announced a downwards revision to its unemployment rate forecasts (to 3.5% by early next year from 3.75%) and big upwards revisions to its inflation forecasts (to 6% for year end from 3.25%) and appears to have become more upbeat on wages growth noting “larger wage increases are now occurring in many…firms”. While inflation of 5.1% is still below the 8.5% in the US and the circa 7% rates in Europe, the UK, Canada and NZ, it’s been following the other countries higher and, in the near term, we are likely to see a further rise in underlying inflation with Coles, for example, warning of further significant supermarket inflation. Won’t hiking rates just add to the cost of living? It’s true that the rate hike will add to “cost pressures” facing households with a mortgage. But tightening monetary policy by raising the cost of borrowing (or money) in order to slow demand growth relative to supply in the economy is one of the few levers policy makers have in the short term to reduce inflation. Much of the surge in inflation owes to pandemic distortions to global supply and goods demand, made worse by the war in Ukraine and the recent floods, which may reverse to some degree at some point. And the RBA can’t do much about supply constraints. But it had no choice but to act to increase the cost of money from near zero. First, having a near zero cash rate when unemployment is 4% and inflation is over 5% makes no sense. Second, the experience from the late 1970s tells us the longer high inflation persists the more inflation expectations will rise making it even harder to get inflation down again without a recession. Thirdly, the global backdrop now of bigger government, a long period of ultra-easy monetary policy and big budget deficits, the reversal in globalisation and the demographic decline in workers relative to consumers, all point to a transition from the falling and low inflation world of the last 30-40 years to structurally higher inflation. Finally, waiting till after the election would have left the RBA vulnerable to criticism that it was influenced politically, which could call into question its independence and further dent its credibility. Does this mean that the RBA got it wrong? After the long period of below target inflation and low wages growth last decade the RBA was right to move in 2020 to focussing on actual, as opposed to forecast, inflation and to adopt more dovish forward guidance. But the messy removal of its bond yield target last November, the surge in inflation and now the far earlier rate hike than its recent guidance indicated, have likely dented its credibility. A key lesson is that its interest rate guidance is based on forecasts which can be wrong, so it’s wise for the RBA not to emphasise it too much as some may have read more confidence into it than was warranted. How far will interest rates rise in Australia? In order to bear down on inflation expectations, we expect another increase in the cash rate in June (probably of 0.25% but it could be up to 0.4%), a rise in the cash rate to 1.5% by year … Read more

The lead up to 30 June can be a good time to maximise tax benefits that may be available to you inside super. Certain contributions, which we cover below, may have the ability to reduce your taxable income, or see you pay less on investment earnings. Contributions that could create tax benefits: Tax-deductible super contributions You may be able to claim a tax deduction on after-tax super contributions you’ve made, or make, before 30 June this year. To claim a tax deduction on these contributions, you’ll need to tell your super fund by filling out a ‘notice of intent’ form. You’ll generally need to lodge this notice and have the lodgement acknowledged by your fund, before you file a tax return for the year you made the contributions. Putting money into super and claiming it as a tax deduction may be of particular benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this is often higher). Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super, so you can claim it as a tax deduction. This could reduce or at least offset the capital gains tax that’s owing. Government co-contributions If you’re a low to middle-income earner and have made (or decide to make before 1 July 2022) an after-tax contribution to your super account, which you don’t claim a tax deduction for, you might be eligible for a government co contribution of up to $500. If your total income is equal to or less than $41,112 in the 2021/22 financial year and you make after-tax contributions of $1,000 to your super fund, you’ll receive the maximum co-contribution of $500. If your total income is between $41,112 and $56,112 in the 2021/22 financial year, your maximum entitlement will reduce progressively as your income rises. If your income is equal to or greater than the higher income threshold $56,112 in the 2021/22 financial year, you won’t receive any co-contribution. Also, you’ll generally need to have at least 10% of your assessable income coming from employment/business sources to qualify. Spouse contributions If you’re earning more than your partner and would like to top up their retirement savings, or vice versa, you may want to think about making spouse contributions. If eligible, you can generally make a contribution to your spouse’s super and claim an 18% tax offset on up to $3,000 through your tax return. To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less. If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for the offset, but can still make contributions on their behalf. Salary sacrifice contributions Salary sacrifice is where you choose to have some of your before-tax income paid into your super by your employer on top of what they might pay you under the superannuation guarantee. Salary sacrifice contributions (like tax-deductible contributions) are a type of concessional contribution and these are usually taxed at 15% (or 30% if your total income exceeds $250,000), which for most, means you’ll generally pay less tax on your super contributions than you do on your income. If you’re in a financial position to set up a salary sacrifice arrangement, you may want to do this before the start of the new financial year, so talk to your employer or payroll division to have the arrangement documented. Important things to consider Contributions need to be received by your super fund on time (ie, before 30 June) if you’re planning on claiming a tax deduction or obtaining other government concessions on certain contributions when you do your tax return. There are limits on how much you can contribute. If you exceed super contribution caps, additional tax and penalties may apply. Read more about super contribution types, limits and benefits. Currently, if you’re aged 67 to 75 and wanting to make voluntary contributions, a work test applies unless you meet an exemption. Changes to the work test are coming more on this below. The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age and meet a condition of release, such as retirement.   Source: AMP

The government has announced a number of changes to the super system could create opportunities for Australians of all ages. Here’s a rundown of what you need to know. More people will be eligible for contributions from their employer, under the Superannuation Guarantee (SG), as the minimum income threshold of $450 per month will be removed. Work test requirements for those aged 67 to 75 will be softened and only apply to people who want to claim a tax deduction on voluntary super contributions they may be making. More people will be able to make up to three years’ worth of non-concessional super contributions in the same financial year, with the cut-off age increasing from 67 to 75. More people will be eligible to make tax-free downsizer contributions to their super from the proceeds of the sale of their home, with the eligibility age reducing from 65 to 60. First home buyers, who meet certain criteria, will be able to withdraw an additional $20,000 in voluntary contributions from their super, to put toward a deposit on their first home. How you could benefit from the changes Compulsory (SG) contributions from your employer Under the government’s Superannuation Guarantee (or SG for short), you currently need to earn at least $450 per month to be eligible for compulsory super contributions from your employer. However, from 1 July 2022 that minimum income threshold will be removed. This means that even where an eligible employee earns less than $450 in a calendar month, there is now an obligation on the employer to make contributions. The work test  Currently, people aged 67 to 74 can only make voluntary contributions to their super if they’ve worked at least 40 hours over 30 consecutive days in the financial year, unless they meet an exemption. From 1 July 2022, the work test will no longer apply to contributions you make under a salary sacrifice arrangement with your employer, or personal contributions that you don’t claim a tax deduction for. The work test however will still need to be met if you wish to claim a tax deduction on personal contributions. Under the new rules, the work test can be met in any period in the financial year of the contribution. This is different to the current rules, where the work test must be met prior to contributing. Non-concessional super contributions Currently, those under the age of 67 at the start of the financial year can make up to three years of non-concessional super contributions under bring-forward rules. From 1 July 2022, the cut-off age will increase to 75. The bring-forward rules allow you to make up to three years of non-concessional contributions in a single year if you’re eligible. This means you could put in up to three times the annual cap of $110,000, meaning you could top up your super by $330,000 within the same financial year. How much you can make as a non-concessional contribution will depend on your total super balance as at 30 June of the previous financial year. Downsizer contributions The age Australians can make tax-free contributions to their super from the proceeds of the sale of their home, which needs to be their main residence, will be reduced from 65 to 60. (Note, there is no upper age limit for downsizer contributions and no requirement to meet the work test.) The maximum downsizer contribution amount of $300,000 per eligible person and other eligibility requirements remain unchanged. For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super. The First Home Super Save Scheme (FHSSS) The First Home Super Saver Scheme (FHSSS) aims to provide a tax-effective way for eligible first home buyers to save for part of a deposit on a home. Under the scheme, you can withdraw voluntary contributions (plus associated earnings/less tax) from your super fund, with the current maximum withdrawal broadly $30,000 for each eligible individual. From 1 July 2022, this withdrawal cap will increase to broadly $50,000 for each eligible individual.   Source: AMP

The pandemic has changed many aspects of our daily lives, and romance is no exception. While lengthy separations have led some relationships to end, other couples are choosing to move in together more quickly than they might have expected. If you’re planning on living together, you might be wondering whether to merge your finances. Combining money is a big step for any couple, and not something that has to be tackled all at once. There are several ways to share money as a couple, and you might like to take it in stages. Before you merge your finances It’s important to be honest, open and transparent about your financial situation and expectations upfront. Money can become a source of tension in relationships, often due to mismatched values, poor financial habits or financial infidelity. Before merging your finances, set aside a time to talk about your current financial situation, including any debts or bad spending habits. Discuss your shared goals and vision for the future. Put a financial plan in place to help you get there. And work out which approach to sharing money will work best for both of you, so that you can set up your accounts to manage household expenses. Also keep in mind that once you’ve been living together in a relationship for a period of time, you’re considered to have a spouse for legal and financial purposes. This can have implications for your tax returns, government rebates and benefits, and, in the event of a split, can affect how your assets are divided up. Ways to share money If you’re planning on moving in together, you’ll need to work out how you’d like to pay for your household expenses. There are a few different approaches to combining money, and each has its pros and cons. Here are some ideas to help you get started: Proportional method In this approach, each member of the couple contributes to household expenses in line with what they earn. For example, if one partner earns $100,000 a year, which is 66 per cent of the household income, and the other earns $50,000, which is 33 per cent of the household income they would each contribute accordingly. That means, if the monthly bills come to $3000, then the higher earning partner pays $2000 (66 per cent), while the other partner pays $1000 (33 per cent). Pros: In this scenario, both partners spend the same percentage of their income towards bills, expenses and entertainment, while keeping what’s left over for themselves individually. That means you can both enjoy a better lifestyle than you could if you kept your money separate. It also relieves the stress of trying to keep up with a higher earning partner, or ‘budget down’ to the level of the lower earning partner. Cons: One possible drawback to this method is that the higher earning partner could start to feel resentful about contributing more, or you could get into disagreements about whether an expense should be joint, or personal. Equal shares In this system, expenses are split down the middle, regardless of who earns what. You keep the rest of your income to spend how you like. That means you’re also responsible for paying down debts you’ve racked up on your own – your finances are essentially separate. Pros: This is a great option for people who value their independence, especially in the early stages of a relationship. Neither partner feels like they are contributing too much,or being subsidised. Cons: If there’s a big disparity in incomes, this can limit your lifestyle to that of the lower earning partner. It’s also not a realistic way to manage many of life’s major events, for example, if you want to buy a home you’ll need all of your borrowing power. Or, if one partner needs to take time off work to have children, you’ll need to reassess the arrangement. Going all in Another option is to combine all of your finances. Couples who use this method only have joint bank accounts and credit cards, shared loans and so on. Each partner’s income is deposited into a joint account, and all of your household and personal expenses are paid from a joint account. Pros: Both partners have complete transparency over the household finances. It’s also simple to manage, as you don’t need to worry about splitting bills. Having an overview of your whole financial situation can also help with financial planning and money management. Cons: This approach can cause friction if your values and spending behaviour aren’t aligned. One partner can become resentful of the other’s spending, or, disagree with individual purchases they want to make. As you can see, there’s no right or wrong way for couples to share their money. The most important thing is to keep talking regularly about your finances, and review and alter your approach over time, as your needs change. Source: FPA Money and Life

After another year of double digit growth, many first-time buyers have been left shaking their heads in disbelief. Even those looking to upgrade the family home are having to stretch their budgets further than ever. For many would-be buyers, the speed of house price growth is far outpacing their ability to save. It’s also outstripping wage growth by a significant margin. Wages vs house prices CoreLogic crunched the numbers and found that while wages have risen by 81.7 per cent in the past 20 years, the value of housing has increased by 193.1 per cent. The size of the gap depends on your location, but the trend is widespread. The difference was most pronounced in Tasmania, where prices have risen by 294 per cent in the last 20 years, compared with a 79.6 per cent rise in wages. The challenge for first homebuyers First homebuyers are facing the perfect storm of low-interest rates, low wage growth and rapidly rising prices. With interest rates at an all-time low, keeping your deposit in a savings account at the bank isn’t going to be much help. So, what can you do to increase your chances of getting into the property market? Should you give up and invest your savings instead, in the hopes of a good return? How to save a deposit First of all, it’s important to realise that while this problem is bigger than you, there are things you can do to help yourself get into the market. Don’t give up. There are options to help you get into your own home. If your ideal home is out of reach, consider expanding your criteria for where and what you’re willing to buy. Once you’re in the market, you can work on upgrading. Consider whether you can buy together with someone else, a sibling, partner or parent perhaps. And don’t forget to factor in government support, like the first homebuyer grant and stamp duty concessions. Once you know how much you’ll need for a deposit, create a realistic budget to help you manage your money. Save hard. Make manageable, consistent contributions to your savings from every pay cheque. Add your tax return and any bonuses that come along. Pretty soon, you’ll have a decent chunk of money put aside. Put your money to work for you You’ve managed to save $20,000 or more – good on you! With that much cash to work with, it’s time to put your savings to work for you. Here are a few options that could help increase your funds. First Home Super Saver Scheme (FHSSS) This scheme allows you to save a deposit through your superannuation fund. You can make up to $15,000 in voluntary super contributions each year, which can be withdrawn in future to purchase your first home. At the moment you can only contribute a total of $30,000, but that’s set to rise to $50,000 next July. This is not a straightforward scheme, so take your time to research it thoroughly. The potential tax savings are the main advantage. Your voluntary concessional contributions will be taxed at 15 per cent inside super, instead of your normal marginal tax rate. Once you decide to withdraw your funds, you’re subject to a withdrawal tax. According to the ATO, that’s calculated at your marginal tax rate, plus a Medicare levy of 2 per cent, minus a tax rebate of 30 per cent. Additionally, you’ll earn a return on the funds you’ve invested, but only at the shortfall interest charge rate, which is the 90-day bank bill rate plus three per cent. Still, that’s a lot better than most savings accounts right now. Keep in mind that there are strict rules around withdrawing your funds, and it can take up to 25 days for your money to be released. You may have to pay a 20 per cent tax if you sign a contract to buy or build before receiving your funds. Exchange traded funds (ETF) Given the difficulty of saving for a housing deposit in a low-interest, low-wage growth environment, is it time for more aggressive tactics? It’s often not recommended to invest your deposit savings in the share market, due to the volatility. In a negative growth year, the funds you invest could actually decrease in value, leaving you with less money for your deposit than when you started. However, if you have a longish investment timeline (5+ years), and don’t mind the risk, you might consider purchasing shares in a managed fund like an ETF. ETFs are baskets of shares that track an index, commodity, region or theme. You can choose how much risk you want to take on by investing in a high-growth (most risk), growth, balanced or conservative fund. The potential upside to share investing is the returns. The ASX S&P 200 has returned 5.87 per cent over the last five years, and 5.38 per cent in the last 10-years, which are both better than a savings account. High-interest savings account You can still find some high-interest savings accounts that are paying over and above the standard everyday account. The benefit obviously, is that your underlying balance isn’t at risk. Use a comparison site, or even better, call your bank and ask what they can offer you. Just be careful to check for fees and other conditions, which can eat into your balance. Term deposit In the past, this was a popular choice to help boost your savings. Term deposits pay you an agreed return, depending on how long you choose to invest your funds. You can invest for several months, or several years. However, with interest rates so low, the return on a 12-month term deposit is currently below one per cent. Look around, as you may be able to find something with a higher rate of return than your everyday savings account. For anyone looking to buy or upgrade their home, it will take hard work and determination to get there. Don’t be afraid to expand your criteria and … Read more

According to the ABS, some half a million people intend to retire within 5 years. While many Australians will remain working until they can access their superannuation savings and/or the Age Pension, some 32% of people choose to retire beforehand due to health reasons, retrenchment, or a lack of suitable employment opportunities. No one can predict the future. Unforeseen circumstances can strike at any time, so it’s best start your retirement plans early while you are young, healthy and earning an income. A well-structured retirement plan can guide you towards your dream retirement while giving you a sense of security and confidence about the years ahead. An effective retirement plan will outline how you can make the most of your money and investments today, so that you can afford the retirement lifestyle you imagine in the future. As retirement planning specialists, we can show you how to make your retirement goals a reality.  Even if you feel you have left it a little too late, it’s never too late to get started. For further information about how we can tailor an effective retirement plan for you, don’t hesitate to contact us today.