The reality is that the Age Pension asset test assessment is quite generous for wealthy Australians. Some readers may not be aware but the family home is now automatically considered in Aged Care Assessments for post 1 July 2014 entrants where it is not occupied by a protected person.
The current Australian property boom has sparked some discussion about so called asset rich retirees and their Age Pension entitlements.
If a retiree couple has a $1m family home and that is all they have in terms of their assets, it would be unfair to penalise them in their Age Pension entitlements. On the other hand if a wealthy retiree couple has a $2m family home and $1m in investments/superannuation, some would say they do not deserve to receive a part Age Pension and the additional tax payer funded benefits that come with that.
If we put the politics aside, it would not be hard to fairly resolve this issue for the majority but it would involve penalising some wealthier retirees. One option could be to conduct an initial assessment (excluding the family home) and if the retiree has investment/superannuation assets above a specified threshold, a portion of the family home could then considered as a second round of the assessment if it is also above a nominated threshold (say $1m).
With the constant reminders of the costs of funding an ageing Australian population, it is a conversation that needs to be had as the current arrangements are not sustainable for future generations.
My guess is that we will see some significant changes to the Age Pension Assessment criteria in the next decade but it will not be a popular decision.
We are often asked “how much will it cost to get financial planning advice”. That is a good question to ask but not the best question to ask.
There are three sets of fees that consumers should be asking questions about when first seeking financial planning advice:
• How much will it cost for the initial advice,
• How much will it cost to implement the recommendations, and
• How much will it cost for ongoing advice and service (estimated total investment costs and financial advice costs on a per annum basis).
Once you have this information, and have a clear understanding of the services being offered to you, you will be in a position to decide if it makes sense to proceed. It is too late to find out the implementation and ongoing costs after you have paid for the initial advice.
Watch out for one of the common traps. If you are offered free or low cost initial advice from a bank or a large institution, you will almost certainly find a very large implementation fee will apply and all of the in-house investments proposed will be high profit margin for the organisation concerned.
Hot Tip: For most investors, financial advice can be reasonably simple and straight forward so don’t let anyone convince you that you need a complicated strategy with complicated investments unless that is what you truly want.
The European Central Bank’s Quantitative Easing announcement in January, the Australian Reserve Bank’s recent decision to cut interest rates to a record low of 2.25%, and a recovering US economy has sparked a drop in the Australian dollar and a rally in share markets.
While the rally in share markets has been good for portfolio balances, the experts are unsure if it is sustainable in the long term as there are still many global risks. The Australian Reserve Bank’s recent decision to cut interest rates demonstrates our economy is fragile and growth is now expected to be weaker for longer.
As the Australian company reporting season gets underway, analysts will be closely monitoring company profit announcements and associated commentary. Those announcements, during this month, could trigger investment volatility and set the direction of our share market over the next 6 months.
The Australian dollar is expected to remain weak and could fall further against the US dollar as the US Federal Reserve prepares to eventually raise interest rates.
There is plenty going on in the investment world at the moment so investors should remain vigilant and make smart choices during the remainder of 2015.
Clearly the Reserve Bank is concerned about the Australian economy so this story has further to play out. A record low interest rate of 2.25% will be the lead story on the news tonight as the Reserve Bank now expects the Australian economy to be weaker for longer.
With any interest rate cut, there are winners and losers. Retirees with high levels of cash savings will be losers. Those looking to borrow money and take risks could be winners down the track if things go well in the longer term. Low interest rates are also good news for business.
When you also think about the savings from lower fuel prices, consumers really are being handed some extra money to put in their pockets or spend elsewhere.
The banks are likely to respond fairly quickly to adjust their borrowing rates so consumers should be vigilant in checking they are getting the best deal.