1. Protect your biggest asset; Income Protection
What would you say is your biggest asset? Your home? Car? Maybe. But what about your income? Say for example your annual salary is $70,000 plus superannuation guarantee. By the time you reach age 65, your cumulative income will reach $4,667,000 (assuming a salary increase of 3.5% p.a.). So why not protect it? Income protection will pay you a regular income in the event you are unable to work due to illness or injury. Benefits are capitalised by insuring to the maximum available cover of 75% of your gross earnings (your total fixed remuneration package, including fringe benefits and any other earned income excluding investment income). A various number of waiting periods are available ranging from 14 days to 2 years. Benefits are then paid for periods ranging from 2 years to age 70. Premiums for Income Protection are tax deductible to the individual and the benefits payable are taxed as assessable income.
2. Know your Superannuation
Many of our clients have noted that they are unaware of their superannuation; it’s not much more than a line on each pay slip. They aren’t sure how many accounts they own or what is in their most active account and seem to have the general perception of “Why should I have to worry about super when I can’t access it for another 30-40 years?” To keep it simple, your superannuation is the largest savings account you will ever own; it’s your future. To maximise these savings, you should consider the following:
- Super consolidation – rolling your funds into one manageable account. This is to ensure your funds aren’t being gobbled up by pesky administration fees.
- Salary sacrifice considerations – Salary sacrificing falls into the Concessional Contributions category, along with Superannuation Guarantee contributions from your employer. You do have to be careful you don’t exceed the caps. Be sure to talk to an adviser about your options regarding salary sacrificing.
- Risk profile – as a young investor, you may be comfortable taking on a little more risk with your investments via superannuation. Generally speaking, industry funds default to a balanced portfolio. The average return on these accounts is generally CPI (Consumer Price Index) plus 5%.
3. Create Wills and Power of Attorney (POA)
Estate planning is necessary for all adults. We have found clients tend to underestimate the size of their estate. Normally when a new industry super fund is opened, there is a certain amount of default cover attached to the fund. If you have a number of industry super funds, your cumulative death benefits may enter into the hundreds of thousands of dollars, but will it go to whom you wish? There is an interesting case, McIntosh vs McIntosh, where a simple estate plan could have made a huge difference in the distribution of benefits. McIntosh, a young male passed away following an accident. He had a number of super funds each with death benefits attached. His mother, was in an interdependent relationship with her son, and justly applied to receive the benefits. However, McIntosh’s father, whom he had no relationship with, appealed the decision and was awarded half of the death benefits. In the eyes of the court, the father had every right, but was this the outcome McIntosh would have wanted? Seek advice from a professional and avoid the ‘do it yourself’ option. We can’t stress enough the importance of having a valid and up to date will in place.