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The Myths of Financial Planning
In this day of financial information overload, it's often difficult to discern fact from fiction. For this reason, in each issue of Your Financial Future, we expose another Financial Planning myth to help guide you through the maze of information out there in the marketplace.
Myth: The Government will look after me in retirement
Australia's expanding ageing population is fast constraining the Government's ability to provide retirement pensions. Compulsory superannuation and other savings incentives signal that people will be expected to provide for and manage their own retirement assets in the future.
We can no longer look to the Government for support in our retirement years. The quality of life we aspire to throughout retirement may well depend on the financial planning decisions we make today.
Just consider how you will manage on the Age Pension, which at present provides around $12,700 a year for a single person and $21,200 a year for a couple.
In addition, with life expectancies increasing, most of us are likely to spend much longer in retirement than people did in the past.
According to a Productivity Commission report, there will be a larger proportion of people aged over 65 in Australia in 40 years time, but the number of people in the workforce should remain the same. This means that there's going to be a much heavier draw down on services, particularly health services, but the same number of people of working age in the workforce paying the taxes to fund these services.
Given this scenario, it would be unwise to rely on future taxpayers to fund your retirement. Instead, it would be prudent to start developing some strategies to take care of your own retirement needs. The earlier you start saving the better, and one of the best ways to save is through super.
Superannuation: One of the last tax advantaged vehicles
Saving through superannuation has many advantages:
- You can add to your investment on a regular basis.
- Access to your investment is restricted, so you can't be tempted to spend it before you retire.
- You may receive Government incentives for making personal contributions.
- Your superannuation can move with you when you move around the workforce.
But super also offers attractive tax advantages when compared to other forms of savings, including:
- Super fund earnings are taxed at a maximum of 15% with the actual tax paid often being less because of tax deductions and tax offsets, making the tax rate much lower than most people's marginal rate.
- Capital gains on superannuation investments are effectively taxed at 10%.
- There's a lower tax rate on lump sum payments after you turn 55. In most cases, you would be able to receive almost $130,000 tax-free.
- Tax concessions on pensions which could see you receive about $27,000 tax free from an allocated pension.
Because of these tax advantages, you may be able to accumulate more through super than through other investment alternatives.
In addition to these tax concessions, there are ways in which you can defer or reduce the amount of tax payable on super and it's advisable to talk to a Financial Planner to ensure that you are maximising the opportunities available to you. To speak to one of your planners without cost or obligation, call 1800 800 002.
Financial Planner profile: meet Mylee Huynh
"Financial planning is such a complex area. It's hard for people to understand how it works," says Chifley financial planner Mylee Huynh. "I find helping people through this complex maze really rewarding."
Mylee, who has a commerce degree, worked as a paraplanner for almost seven years before qualifying as a certified financial planner at the beginning of last year.
She says: "Building up trust and relationships is basically what financial planning is all about."
She also loves it when a good plan comes together. "My job is all about finding out about someone's needs and then talking to them about different strategies and putting a plan together. In the process, I also educate them about financial issues."
Her number one tip to clients is not to believe everything they hear or read. "Not everything will apply to you. Get advice. You don't have to invest in the same tax efficient investment as your neighbour. It might not be suitable for you."
Mylee says she particularly enjoys the commission-free structure in which Chifley operates. "It makes sense. We should not be swayed into recommending a certain product because it pays us higher commissions."
On how she approaches her work, she says: "I never do anything half-heartedly and I always try to do the best thing for my clients. I also like to make sure that I am well prepared before I meet clients."
And when she's not drawing up financial plans or dealing with clients, Mylee can be found playing competitive basketball or fishing.
About your fund managers
FuturePlus and the fund's Trustees rely on a multi-manager investment approach to manage your money. Research has shown that this approach, which uses the specialist skills of several carefully selected investment managers, will produce a better result, more consistently and with lower volatility, than a single manager over any reasonable period.
Different managers have different styles of investment and some styles perform better at different times of the investment cycle. That's why we take great care in how we combine managers and their styles to ensure that your share portfolio is not biased in any style direction.
In recent editions, we've profiled managers like ABN AMRO and Perennial Investment Partners. In this issue, we introduce you to Alliance Capital Management, an international investment manager which had global assets of around US$516 billion under management at the end of June 2005.
Alliance Capital manages international equities for FuturePlus Super via its 'Global Research Growth ('GRG') Strategy'. Its investment philosophy is based on its belief that research is the ultimate source of superior investment returns. It uses a growth-oriented, bottom-up stock selection approach to deliver meaningful returns over time. Alliance's research team looks to identify trends in global markets, selecting companies with superior earnings and growth prospects (relative to the market's expectations for those companies) with strong management, at attractive valuations.
The GRG Strategy makes use of six sector heads who are responsible for identifying trends in the global markets and selecting the fastest growing stocks in the area of their specialty. These sectors are then combined to create the overall portfolio.
Alliance Capital's style complements other managers in the fund's portfolio such as The Boston Company and State Street Global Advisors. The Boston Company uses a bottom up stock selection approach. It is a value orientated investment manager which relies on fundamental research, buying shares it believes are currently undervalued. In contrast, State Street Global Advisors is a passive share manager, which means that instead of stock picking, it builds a portfolio that mirrors a particular stockmarket index - but at a much cheaper price than we could do this as indivuals.
Free Seminars
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars we are running at a venue close to you. To find out more, click here, or contact Member Services on 1800 067 059.
Investment and market commentary
Do you know what happened in investment markets during the past financial year? To find out what the big story was in 2004/05, please click here.
Chifley Financial Services Limited
Ground Floor
28 Margaret Street
Sydney, NSW 2000
Member Services
T: 1800 067 059
F: (02) 9273 0033
Financial Planning
T: 1800 800 002
This document was prepared for the exclusive use of members of FuturePlus Super by Chifley Financial Services Limited (ABN 75 053 704 06) as the Approved Trustee of FuturePlus Super and an Australian Financial Services Licensee (AFSL 231148).
Please note that the information contained herein is of a general nature only. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. Before making an investment decision, you should seek the assistance of a professional adviser.
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