What is financial advice? What is financial planning? We are asked this quite a lot and the scope of our services are quite broad but in one sentence financial advice is: “Advice to deal with modern life”.
Modern life has three overlays for us; personal change, legislative change and economic change. How these three entwine is where advice is important when planning for your objectives.
Let’s look at a timeline over the last 10 years. A couple aged 50 want to pay off their home loan and retire in 10 years, sounds simple but over this period of time there have been the following changes:
- The Global Financial Crisis (GFC), this affected the investment returns but also potentially when the couple can retire.
- Post GFC recovery, did the couple take advantage of the recovery or were they gun shy after the downturn?
- Interest rate cycle – interest rates have moved greatly over the last 10 years, how was the couple’s plan to repay their home loan affected?
- Super contribution limits have changed many times, initially the couple could salary sacrifice up to $100,000 per annum each, now the limit is $35,000, there have also been different penalty regimes for excess contributions – did the couple successfully navigate these changes and stay on track for retirement?
- Tax rates have changed giving generally higher surplus income – does this affect the retirement date or quality of living instead?
- A form of borrowing was determined to be allowable in super – is this an opportunity for the couple to gear up their super? Is this appropriate for them?
- Transition to Retirement (TTR) legislation introduced – Some TTR strategies offered significant tax advantages, did the couple take advantage of this to increase their super contributions?
- Tax free pension for retirees over age 60 – does this change the retirement income goals?
- Changes to the income and assets tests for the age pension – does this mean less retirement income for the couple?
We generally see diverse reasons for change in people’s personal lives, these are some which may have affected our couple:
- Adult child moving back home – maybe due to injury or divorce. How will this impact the couple’s plans?
- Divorce – it does happen and a complete reset of goals and strategies would be required.
- Illness – Did the couple adequately protect their goals? If not, what happens to their retirement?
- Unexpected funds – inheritances and other sources (lotto) can have significant impacts on goals. Did the couple make the most of these funds?
Financial Advice shows the drip down effect of these three areas to you specifically and the positive and negative implications of change on your goals. There is constant change in our lives and it is your financial advisers job to stay abreast of these changes and change their advice accordingly.