Retirement Update June 2015

ISSUE 6

JUNE 2015

Retirement Update

rt a t s Kick new yourncial fina ar ye

Achieving an affordable retirement Retirement income Government Technology

Pension

living

costs

budget

spending

RETIREMENT RIGHTS Health RELATIONSHIPS Super Legal COOKING PROPERTY LESSONS LEARNED AND MORE...

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CONTENTS From the Publisher New (financial) year – new start 4 Superannuation Jeff Bresnahan investigates why industry super funds outperform retail

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Retirement affordability The YourLifeChoices survey reveals all about retirement affordability

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Best retirement calculators We’ve rounded up the top five free retirement calculators on the internet

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No nonsense finance Maurice Patane shows you how to use the family home in retirement

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Age discrimination at work Susan Ryan explains what to do if you experience age discrimination at work

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The ages and stages of retirement What you can do between the ages of 50 and 75 years to retire well

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Money explained Craig Hall explains the power of compound interest Lessons Learned Brendan Nelson’s story is a great example of how to lead a fulfilled life

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Your retirement living costs Have they gone up or down?

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Your retirement budget How does your spending compare?

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Kickstart your health These three steps will help you make lasting improvements to your health

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Government update Do these recent government changes mean you will lose money or benefit?

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Eat well for less Five reasons to eat eggs, plus a healthy and delicious Eggs Benedict

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Sexless marriages Do they survive? Jo Lamble answers this vexed question

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YourLifeChoices Retirement Update June 2015

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FROM THE PUBLISHER

New (financial) year – new start

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elcome to the June 2015 YourLifeChoices quarterly Retirement Update.

It’s the end of one financial year – and the beginning of another. The downside is the need to gather the documents needed to file a tax return. But the upside is greater – the chance to start afresh and rethink how you manage your retirement income. Are you as money smart as you need to be? Or are there strategies you might adopt, or habits you need to cultivate to enjoy a more financially comfortable retirement?

So the theme of this Retirement Update issue is affordability in retirement. And who better to assist than the YourLifeChoices community? More than 3500 of our members have shared their top tips to save money in retirement – we summarise the most frequent suggestions in a word cloud on page seven, and encourage you to watch our daily enews for the next four weeks for simple savings tips and how you can make them happen.

Published by: Indigo Arch Pty Ltd Publisher: Kaye Fallick Editor: Debbie McTaggart Assistant Editor: Lesh Karan Designer: Word-of-Mouth Creative Phone: 61 3 9885 4935 Email: admin@yourlifechoices.com.au Web: www.yourlifechoices.com.au All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes.

IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor.

Copyright Indigo Arch Pty Ltd 2015

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Despite the difficulties of living on a restricted income, there are always ways of achieving a more affordable retirement, and in this issue we have asked the experts to help us to help you manage this. So the articles on the most effective super funds, how compounding interest reaps rewards, using your home as a retirement asset and what you can do at different ages may help you to take control of your retirement.

Planning for retirement has become even more difficult, as the goal posts are continually moving – most recently with a change to Age Pension eligibility that will see nearly 250,000 people receive a lower part Age Pension and 90,000 lose it all together. It is very difficult for those in or approaching retirement when the rules are changed, yet the legislation is not ‘grandfathered’ to protect those with little leeway to work and save longer. These changes are due to come into law in 2017, but in a volatile political climate, and with an election due in 2016, nothing is certain.

What is certain is YourLifeChoices’ mission to simplify the complex details of retirement and to help ordinary Australians make the most of what they have to live a productive, dignified and enjoyable later life. Currently, the full single Age Pension, including supplements, is $22,365 – some $1073 less than the amount considered necessary by the Association of Superannuation Funds of Australia (ASFA) to live a ‘modest’ lifestyle. Until all retirees have at least as much as this very basic amount, we will continue to advocate on your behalf.

In the meantime, enjoy our latest Retirement Update issue and feel free to share our information with your friends.

Warmest

YourLifeChoices Retirement Update June 2015

Super Update

Why do industry super funds outperform retail?

Have you ever wondered why some super funds outperform others? Well, wonder no more as SuperRatings’ Jeff Bresnahan explains why industry super has come out on top.

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here has been much conjecture around the differences between Not For Profit Funds (NFP), commonly referred to as Industry Funds, which are run for the profit of members, and Retail Master Trusts (RMT), which are typically provided by banks and financial institutions, and maintain a profit focus.

While most of these debates focus solely on the impact of fees on a member’s retirement outcome, it is also worthwhile to consider how they compare in terms of investment performance. Ultimately, it is the Net Benefit a member receives (calculated as the investment return net of all fees and taxes) that determines the true value for money of a fund.

Through SuperRatings’ research, it is evident that NFPs have typically produced stronger investment returns over the long term (10-year period), based on a Balanced Investment Option (with allocations to growth assets, such as shares and property, of between 60 and 76 per cent).

As illustrated in the table below, the average NFP fund achieved a return of 7.18 per cent per annum over the 10 years to 31 March 2015, compared with the average RMT fund of 5.71 per cent. In contrast, over the short term, RMTs have performed better than NFPs (13.67 per cent and 13.10 per cent over the one year to 31 March 2015, respectively).

1 Year to 10 Years to 31 March 2015 31 March 2015 Average NFP Balanced Investment Option

13.10%

7.18% per annum

Average RMT Balanced Investment Option

13.67%

5.71% per annum

The main factor driving the differential in performances is the different underlying investments that NFPs and RMTs typically use. RMTs have traditionally allocated a larger portion of assets to shares (both Australian and overseas) and listed property, while NFPs generally invest more heavily in

unlisted investments, such as infrastructure, private equity and direct property.

The higher allocation to shares has undeniably assisted the performance of RMTs over the past year, with both Australian and international sharemarkets delivering strong returns of 14.1 per cent and 29.7 per cent, respectively, well ahead of a number of the unlisted markets.

Over the long term, however, returns on Australian and international sharemarkets have been more subdued, given the impact of the Global Financial Crisis (GFC) affecting returns. Returns on unlisted assets were less adversely affected by the GFC and this helped drive the long-term outperformance of NFPs against their RMT counterparts.

In any case, superannuation is a long-term investment – primarily to support members’ retirement needs – where the investment performance cannot be considered in isolation.

MORE Supersavvy.com.au Superratings.com.au Moneysmart.gov.au

YourLifeChoices Retirement Update June 2015

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Retirement affordability

#affordableretirement Our survey on retirement affordability reveals the need to be frugal, maximise super and invaluable tips to a ‘younger self ’.

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n a 15-question survey in May, to which we received more than 3693 responses, we asked you to tell us your thoughts about retirement affordability and living. Thank you to all who responded – and congratulations to Sharee Forward who has won the iPad for her advice on how to get more bang for your retirement buck.

So, what do the responses to the YourLifeChoices 2015 retirement affordability survey tell us?

First, we have learnt that the numbers are nearly evenly divided on whether you believe you have sufficient savings to lead a reasonable retirement lifestyle – with 54 per cent saying yes and 46 per cent saying no. Our membership is almost consistent with the national split of how retirement is funded1, with 33 per cent being funded by a full Age Pension, 38 per cent by a part pension and 25 per cent by self-funding. This, of course, may change with new Age Pension rules being implemented in 2017.

We then dug deeper and asked respondents to share in their own words why they were not better funded in retirement, what they had had to give up, how they make ends meet and what advice they would give to a ‘younger self’ to ensure a secure retirement income.

The answers are fascinating and you can see a snapshot in the infographic on the opposite page. In particular, you told us that insufficient superannuation and a low Age Pension were the main reasons for your struggle to cover bills in retirement, and that low interest, living as a single, and casual or fragmented work were other major contributors. Low interest rates and the high cost of living, particularly utilities, energy bills and health insurance, took a toll on your weekly income, and juggling these needs had come as a major shock to many when they hit retirement.

... save, put more into superannuation, salary sacrifice, own your own home.

As noted by our finance guru Maurice Patane on page 10, the family home has indeed become the fourth pillar of retirement, with more and more Australians using this asset to supplement retirement income. Our survey results showed that 37 percent of respondents are prepared to downsize, 12 per cent are planning to use a reverse mortgage or equity access loan for extra income and nine per cent are considering renting out a room in their home.

For those who have already retired, 57 per cent consider their lifestyle to be more frugal than expected. Yet 60 per cent of our respondents consider themselves to be financially capable of making retirement investment decisions.

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YourLifeChoices Retirement Update June 2015

Ever resourceful, YourLifeChoices’ many members offered their best tips for others, including scheduling vegetarian meals, sticking to a budget, reducing energy bills, fully using seniors discounts and buying food in season. More than 26 per cent of our members have scaled back on travel to make ends meet, with many others cutting food budgets and drastically reducing how often they dine out.

And the single piece of advice most retirees would offer to their younger selves? To save, save, save, to put more into superannuation, to salary sacrifice, reduce debt, and try hard to own your own home.

1 2015 Intergenerational report: Australia in 2055, Department of the Treasury (Australia).

Retirement affordability

what you told us YourLifeChoices Retirement affordability Survey 2015

Will you have sufficient income to lead a reasonable retirement lifestyle?

Yes 54% No 46%

How will you fund your retirement?

FULL PENSION PART PENSION FULLY SELF FUNDED OTHER

If retired, is your lifestyle in retirement more frugal than you expected?

Yes 57% No 43%

33% 38% 25% 4%

How will you use your home as a financial asset in retirement?

BY DOWNSIZING Using A REVERSE MORTGAGE OR EQUITY RELEASE LOAN

TAKING IN PAYING TENANTS/ GUESTS

37% 12% 9%

What is your greatest expense in retirement?

Are you financially capable of making (retirement income) decisions without professional advice?

Yes 60% No 40% YourLifeChoices Retirement Update June 2015

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YourLifeChoices Retirement Update June 2015

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Tech Update

The best retirement calculators

Planning for your retirement isn’t easy. So, to help, we’ve rounded up the top five free retirement calculators on the internet.

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ou need to consider many variables to secure yourself a comfortable retirement. And this is where retirement calculators can come in handy. So, before you get started with any of the ones we have suggested, you might want to track down your last superannuation statement and any other relevant financial details, as some calculators will ask for that information.

1. Centrelink Knowing how changes to both your financial and personal circumstances affect your pension payments is vital to living comfortably. The Centrelink Rate Estimator will calculate these changes for you so that you can plan ahead.

If you’re unsure of whether or not you’ll receive an Age Pension, our video may help you to understand.

2. MLC super calculator Based on your current rate of savings and investment, the MLC Superannuation Calculator will help you calculate how many years your super will last. With its easy-to-understand and customisable graphs, you can determine how different financial decisions will affect your retirement savings.

3. Budgeting Living within your means is crucial to retirement happiness. A good budget planner can help you to maximise your savings while you’re still working and live on a fixed income. We suggest the Australian Securities and Investments Commission’s (ASIC) MoneySmart budget planner, which is both straightforward and effective.

4. Life expectancy calculator Estimating when you are going to die may make you feel uncomfortable. But having a very rough idea of your life expectancy now will help you plan ahead so that the stress of not having enough saved for your retirement doesn’t actually shorten your life.

The My Longevity calculator is quick and easy to use. It asks you about your surroundings, health, attitude, parents and eating habits, and uses the data gathered to determine your life expectancy – just remember that this is only an estimate.

5. Compound interest Putting your money into a compound interest account is a great way to grow your investment over time, as your money will grow exponentially. Even a small starting deposit and monthly contribution can add up to thousands in the long run.

ASIC’s MoneySmart website has a simple compound interest calculator that will only take you a few minutes to use.

Before taking any action towards planning for your retirement, be sure to consult a licensed financial planner. Maurice Patane’s advice can help you find a planner with your best interests at heart.

MORE YourLifeChoices.com.au

YourLifeChoices Retirement Update June 2015

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NO NONSENSE FINANCE

How to use the family home for retirement

Our no-nonsense planner Maurice Patane believes that the family home is an investment, and not just a place in which to live and create memories.

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To achieve these goals, we rely on the three pillars of retirement wealth: the Age Pension, compulsory superannuation and voluntary savings.

However, the family home is also a source of security for retirement and is often the largest investment we make during our lifetime. In fact, it is one of the last remaining assets that is tax free, and the same applies if it is sold within two years of your death. Almost everything we’re taught about the family home is focused on repaying the mortgage – to be debt free, to have greater equity, to build a bigger cushion. We’re taught that’s the ultimate goal.

In many cases we are unable to obtain Centrelink benefits, or maybe we are self-employed and did not contribute to superannuation, or through circumstances we were unable to save. So, I then had a subtle change in my thinking. What if the family home became the fourth pillar? After all, we saved for it. It is an investment. We have equity in it. So, what if we were to start treating the family home as any other investment, the same way we do with superannuation and savings? Investments are meant to be used. They’re not meant to sit on a shelf and collect dust. Therefore, instead of thinking in terms of saving I started to think of using the family home.

he family home provides you with a place of rest, a place for your possessions and a place to interact with and raise your family.

At the same time, your home binds you to your community.

I’m an adviser who talks to humans. I also happen to be human. From my experience, I know humans aspire to more. They want a comfortable lifestyle, they want to travel, buy a new car, and support their children and grandchildren.

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YourLifeChoices Retirement Update June 2015

So how can you be smart about your family home and mortgage so that you have more control and enjoy a more comfortable lifestyle with some luxuries

NO NONSENSE FINANCE

along the way? The finance industry, parents, teachers and even personal finance books suggest you should repay your mortgage as a priority. And I agree. But, is there a smarter way?

During our working life, banks teach us to make loan repayments over a period of time, say 30 years.

And at the end of that time, we have repaid the mortgage. We refer to this as a principal and interest loan, and the value of the home represents the equity it has built up.

As an adviser, I am often asked, “Is it better to pay off the mortgage or invest more in super?” My answer is that it depends. If ‘it depends’ is right for you, then let’s consider it. If you receive a pay slip, then, as others do, you may have moaned about the fact that what you receive is less than what you earn. Why? Tax!

So let’s put the two items together – the loan repayments and the tax we pay.

Another way of making home loan repayments is to make interest-only repayments. This means you will still owe the same amount with which you started.

It also means your loan repayments are less and so you have more money to spend or save. Let’s stick with ‘save’ for now, because you have created a good habit.

As an example, a mortgage of $300,000 will require principal and interest repayments of $2451 per month, assuming a term of 15 years and interest rate of 5.5 per cent. On the other hand, an interestonly loan will require loan repayments of $1375 per month, which means you have an extra $1076 per month.

While home loan repayments are usually made with after-tax

money, super contributions can be made with pre-tax dollars (the money you earn before tax is deducted). This part is a little tricky and sometimes gets me too. So, $1076 extra each month in your pocket is the same as $1763 each month before tax assuming a marginal tax rate of 39 per cent.

However, you can direct $1763 per month to superannuation via a salary sacrifice agreement with your employer or, if you are eligible, by claiming a personal tax deduction. Remember, superannuation is taxed at 15 per cent (generally less than your personal tax rate) and so the amount invested in your super will be $1499 each month.

Simple maths suggests that $1499 each month will provide a higher result than $1375 each month to your home loan.

Investments are not meant to sit on a shelf and collect dust.

You continue this until your retirement. You still owe $300,000 on your mortgage, but your superannuation is worth more – in fact, it’s $438,116, assuming an interest rate of six per cent over 15 years. So you can then repay your mortgage using your tax-free superannuation and have an extra $138,116.

So you have made it to retirement and you have repaid your mortgage. What now?

My preference is to retain the mortgage loan facility.

Note I said loan facility and not loan amount. This gives you the ability to redraw money later – this is when you get to use the family home as an investment. But, it should only be considered after you have exhausted your other savings.

At this stage of life, you may wish to supplement your existing retirement income or go on a family YourLifeChoices Retirement Update June 2015

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NO NONSENSE FINANCE

holiday. You checked with your adviser and they tell you the trip fits in your plans perfectly. When the time comes to use the extra money, there’s no need to feel guilty. Instead, you’re using an investment that helps you get something that you really value – time with your family.

In this case, you can take the money either as a lump sum or draw down a regular amount from your mortgage account, or both. However, the difference is that you don’t make direct loan repayments.

Instead, the interest on the loan amount is added to the amount you use (borrow) – up to a limit, of course.

You don’t need to repay the loan until you die (sorry to be so blunt), sell or vacate the home. Of course, there will be less for your beneficiaries, but imagine the difference between a modest lifestyle and a comfortable lifestyle.

So let’s now understand the impact on your Age Pension.

Let’s say you have determined that an additional $1000 each month will provide you with a more comfortable lifestyle. I prefer that you receive this through a drip-feed facility instead of a lump sum.

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YourLifeChoices Retirement Update June 2015

There are many reasons for this, but let’s consider three of them: • you are less tempted to spend all of the money at once and, importantly, it will ensure you retain good money habits; consider it as an add on to your existing Age Pension • you only pay interest on the amount you have withdrawn; interest on $1000 is far less than interest on, say, $150,000 • there is no impact on your Age Pension: the amount not withdrawn will not be assessed under the assets test, and as the regular monthly cash payments of $1000 are low and being used immediately, they will not be assessed under the income test.

Then all your friends will notice how much happier you are!

MORE Do you have a question for Maurice?

Then send it to us now.

Maurice Patane Access Financial Management AFSL 229760 Ph (03) 9500 9988 E info@accessfm.com.au

Retirement Rights

Age discrimination at work What is the extent of age discrimination in Australian workplaces?

What can you do if you experience this? Susan Ryan has the answer.

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he National prevalence survey of age discrimination in the workplace report recently released by the Australian Human Rights Commission (AHRC) has revealed the prevalence, nature and impact of age discrimination in our workplaces.

This report is the first of its kind in Australia, and the results are disturbing. Over a quarter of Australians aged 50 years and over indicated that they had experienced some form of age discrimination in the workplace in the last two years.

Age discrimination can take a variety of forms. The most common types of age discrimination reported in the study were: • limited employment, promotion or training opportunities (52 per cent of people) • a perception that older employees have outdated skills, are slow to learn new things or will deliver an unsatisfactory job (44 per cent of people) • jokes or derogatory comments from managers or colleagues based on age (42 per cent of people).

At the AHRC, we regularly hear from members of the public who report experiencing age discrimination in the workplace, or in the recruitment process, and describe the negative impacts this has on their health, finances and family life.

The results of this research indicate that 60 per cent of people who experienced age discrimination found that it affected their self-esteem or mental health, or caused them stress. Others also reported that it had a negative impact on their family or career, or made them consider changing their occupation or retraining.

Aside from the disastrous effect it can have on people’s lives, age discrimination is also a huge waste of human capital. Our report found that many people who experience age discrimination in the workplace subsequently give up

looking for work or think about retiring or accessing their superannuation.

With the latest Intergenerational Report projecting that the number of Australians aged 65 and over will more than double by 2055 and that life expectancy will continue to increase, we simply cannot afford to waste the talents of people who are willing and able to work.

So, what can we do?

The key to removing age discrimination from Australian workplaces is for employers to overcome negative stereotypes of older people and realise their value as employees.

The AHRC has also recently launched a ‘Willing to Work: National Inquiry into Employment Discrimination against Older Australians and Australians with Disability’. You can visit our website for more information.

MORE Contact the AHRC for advice or to make a complaint if you feel you have experienced age discrimination at work.

Phone: 1300 656 419 or 02 9284 9888 Email: infoservice@humanrights.gov.au

YourLifeChoices Retirement Update June 2015

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retirement

The ages and stages of retirement Our finance expert Richard Shermon explains the finer points of what you can do between the ages of 50 and 75 years to retire well.

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o you remember buying your first car?

Or maybe putting down that deposit on your first house? Life has many memorable milestones, so as you look forward to your retirement years, what are some of the financial events for which you need to prepare yourself?

Let’s take a look.

Age 50 At this stage of your life, you may want to pay attention to retirement planning. When you’re in your early fifties, you may have paid off a significant chunk of your home loan and your children may be on their way to financial independence. So, this is when you could really be saving more of your surplus income for your retirement.

One of the most tax-efficient ways to save for retirement is superannuation via concessional contributions, which includes employer super guarantee contribution (SGC) and salary-sacrifice payments. For people aged 49 or over on 30 June, the current limit for concessional contributions is $35,000. These contributions are typically only taxed at 15 per cent, rather than your marginal tax rate, making this a very tax-effective form of saving.

Age 55 At this age, you have already reached, or are very close to, your preservation age. This is when you can potentially first access your superannuation, even if you are still working. This strategy is called Transition to Retirement (TTR).

Basically, a transition-toretirement plan involves using part or all of your accumulated superannuation fund to start a pension.

However, this pension – often termed an income stream in the financial industry – must be funded from your existing superannuation money.

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YourLifeChoices Retirement Update June 2015

The income received must also be above a prescribed minimum level (which is currently four per cent of the fund balance per year if you are under the age of 65) and below a maximum level of 10 per cent of the fund balance each year.

… with retirement fast approaching, it may make sense to top up your retirement savings.

Age 60 This is the age to apply for your Seniors Card, so you can obtain discounts from thousands of businesses – and you’ll never again have to pay the full fare for nationwide public transport.

If at preservation age using your superannuation fund to start a pension didn’t make financial sense – such as a high marginal tax rate or a large taxable component in your superannuation fund – then, when you reach 60, it almost always does, as the income you have to draw would now be completely tax free.

Also, with retirement fast approaching, it may make sense to top up your retirement savings over and above the $35,000 of concessional contributions.

These extra contributions are termed ‘nonconcessional’ and can be funded by using other savings or perhaps an inheritance.

The current annual limit for non-concessional contributions is $180,000, or you can bring forward two future years’ limits – i.e. a total of $540,000.

Since this money has already been taxed at some stage in your personal name, it’s received by your superannuation fund tax free.

Also remember that once you reach age 65, you will have to meet the work test in order to make these non-concessional contributions.

retirement

Age 65–70 This is when you reach the Age Pension age, where you might be entitled to receive a government pension and the associated Pensioner Concession Card. The qualifying age is currently 65 years for anyone born before 30 June 1952. This age increases progressively to 67, depending upon your date of birth. However, in a recent announcement, the Federal Government proposed the age may increase to 70 for anyone born after 1 January 1966.

own double album, you’ll still have many memorable milestones ahead for which to prepare and enjoy.

This article provides general information only. It does not take the place of professional financial and taxation advice. See an accredited financial professional for individual-based advice.

Richard is an authorised representative (number 340002) of Dover Financial Advisers (AFSL 307 248; ABN 87 112 139 321)

As you approach Age Pension age, you may wish to consider a number of strategies to potentially increase any entitlement. If you don’t qualify for an Age Pension, don’t forget to apply for the Commonwealth Seniors Health Card. Finally, remember that 70 is the age limit for making any spouse contributions to boost your partner’s superannuation.

Age 75 If you are still working, this is your last chance to top up your superannuation via a personal super contribution or a salary-sacrifice arrangement.

MORE Visit YourLifeChoices to read Richard’s full business profile.

Many readers will fondly remember a time – before CDs and MP3s – when we used to listen to music on vinyl records. Someone once compared life to the classic double album with its iconic gatefold cover. As your life moves well into side three of your

For a guide on how transition-to-retirement income streams (TRIS) are taxed, visit the Australian Taxation Office website.

YourLifeChoices Retirement Update June 2015

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Money Explained

The magic of compound interest C

Our money expert Craig Hall explains compound interest, revealing the long-term effect and benefit of saving early.

alculating interest using the compound method is widely used in the financial services industry for both credit and investment products but for many consumers it is not easily understood.

Basically, with compound interest, interest is calculated on the principle as well as the interest that has already been credited to the account – hence the saying ‘you earn interest on your interest’.

The effects of compound interest can vary according to the frequency of the interest payments and how often interest is calculated. Simple interest, on the other hand, only calculates interest on the principle, which, therefore, keeps the return constant.

Let’s take an in-depth look at how compound interest works. When you invest in a product that uses the compound-interest method, interest is calculated on the balance at the rate offered by the financial institution; this commonly occurs daily.

These interest amounts are then totalled and added to the principle amount at certain frequencies, which could be monthly, quarterly, yearly and/or at maturity, depending on the product. After the interest is added to the principle, this total amount, consisting of the principle and interest, is then used to calculate interest for the next period.

For example, on 1 July, Jack invests $10,000 into an account that pays five per cent per annum, calculates the interest daily and credits interest monthly. Each day in the first month, the principle amount of $10,000 is multiplied by five per cent and divided by 365 (365 being the number of days in the applicable year) to determine the daily interest – in this case approximately $1.37 per day. These daily amounts are then totalled and added to the principle amount at the end of the month resulting in a higher balance of approximately $10,042.47.

… interest is calculated on the increasing balance, generating more and more interest.

In the second month, the updated balance is used to calculate the interest each day until the end of the following month, when the second payment (approximately $42.65) is added to the principle, bringing the balance to $10,085.12.

As time goes on, the interest is calculated on the increasing balance, which, therefore, generates more and more interest. While this example shows the small increase in interest, the benefits are really gained over the long term.

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Money Explained

So let’s look at Jack’s scenario over five, 10 and 15 years, when the results of earning an increased amount of interest are more obvious. Again, assuming that the interest rate remained at five per cent, it is projected that Jack’s balance will be approximately $12,834.00 after five years, $16,470.00 after 10 years and $21,137.00 after 15 years.

This shows that in the first five years, the interest calculated is approximately $2,834; from year six to 10, it increases to $3,636; and in the last five years, it increases again to approximately $4,667.

Projecting this scenario out even further would make Jack’s total balance $27,126 after 20 years, $44,670 after 30 years and $73,584 after 40 years.

As you can see, the effect of compounding over time can be significant, but what if Jack could make regular deposits as well? As you would expect, this would increase the effects of compounding further, as every time Jack deposits money, the interest is calculated on a higher balance, which increases the end result.

However, the timing of the extra deposits can also influence the result. For example, if Jack invests his $10,000 for a term of 20 years at five per cent and contributes an extra $100 per month in the final 10 years (an additional $12,000), he would end up with approximately $42,654.00. But if Jack spread the extra $12,000 in contributions

over the whole 20-year term at $50 per month, his balance after 20 years would be approximately $47,678. However, if he made those extra contributions in the first 10 years of the term at $100 per month, he would have $52,701 at the end of the 20-year term.

This example shows that contributing extra funds at the beginning of the investment term is more beneficial. The same principle applies to repaying loans that are calculated the same way. Generally, the more that you repay at the beginning of the loan, the less interest you’ll be charged and your loan will reduce more quickly.

So when considering cash-based investment products, look not only at the rate offered, but also how the interest is calculated and the frequency at which it is credited. Use savings and investment calculators to project the results, as they can vary between products. In some cases, a product that pays a slightly lower interest rate but credits the interest more frequently can result in a higher balance.

Please note that the information in this article does not constitute or imply financial advice. It is recommended that you seek professional financial advice and/or seek clarification from any relevant government department or financial services provider before making financial decisions.

MORE Savings and investment calculators are available on most financial institution websites, as well as on the Government’s MoneySmart website.

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Lessons Learned

BrendAn Nelson

Australian War Memorial images

Brendan Nelson’s story reveals how he’s squeezed many diverse careers of national significance into just 58 years, all in the service of others.

I

grew up in Launceston, and when I was 12 or 13 my father said to me, “Look son, your mother and I don’t have any money and we don’t know people who have any influence. The only way you’re going to get anywhere in life and live in a better place is if you work as hard as you can at school.”

When I was 14, I had a challenging year and my mother said, “Look, in the end, your life is going to be judged by people and the causes to which you commit.”

Other than my parents, the major influence on me were the Jesuits. I went to the Jesuits for two years and that saved me in all kinds of ways, but most importantly, it’s a value system that I carry with me.

I thought I was going to end up as an accountant or a public servant, which is ironic given what I do now. I really wasn’t at all enthused by economics or elements of accounting, and there was nothing that I was studying that interested me.

I reached the conclusion that the people who felt the most fulfilled in their lives were those who spent them in the service of others, and I actually decided

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YourLifeChoices Retirement Update June 2015

I wanted to join the police force, but when I went to apply, I was told I was too old.

I never imagined I was smart enough, but I applied for Medicine at Flinders University and got in. And I remember going to the National Press Club and sharing a platform with Moira Rainer, the very good, very left-wing human rights lawyer who said that the price we pay for the good people remaining out of politics is that we continue to be governed by people for whom we have a low regard. So I thought I’d have a go at politics.

People feel fulfilled in the service of others.

When I was first preselected for parliament 20 years ago, Hugh McKay the social anthropologist observed, “You and I have something in common that’s a great advantage. We spend a lot of time in other people’s homes, and it’s not until you spend time in someone’s home that you understand people.”

Lessons Learned

This may not be what your audience wants to hear, but it’s extremely important in life if you are able to keep both your mind and your body active. But if I am not in paid employment, I would certainly want to volunteer or do charitable work. I love riding my motorbikes, I love fishing, I love playing my guitar, I like a game of tennis. But if I had to get up every day and think, “What am I going to do today?”, I think my life expectancy would be cut short.

We have to challenge the stereotypes about ageing.

People who are older, in their 40s and 50s, are more likely to give you more reliable employment, less absenteeism, a better balance of wisdom in the workplace with younger employees, and are more likely to be loyal and remain for a longer period of time; I actually think they are more productive and efficient.

I am optimistic about the future of Australia. I am very confident, our country, my children and my grandchildren are going to have a better country than the one I have had the privilege to live in so far.

I have been in hundreds, thousands of people’s homes, day and night, and sometimes in very desperate situations. You don’t realise what you’re learning until you’re learning it, but I learned a lot by visiting others.

My job at the Australian War Memorial (the memorial) is a labour of love, an immense privilege.

It’s got more to do with our future than our past.

The memorial is one of the unifying institutions in the country, and we have to make the history live.

So I think the political capital is at the other end of ANZAC Parade, across the lake – but the soul of the country is here at the memorial.

What’s also important to realise is that if all the economic and scientific problems were solved, all the important questions would still remain unanswered. Our values, our beliefs and the way we relate to one another and our place in the world is where our destiny lies. That is one of the reasons why I believe so strongly in the memorial and the stories of the men and women behind it.

I have got more things I want to do at the memorial, and people do ask me how long will I stay here. I say I don’t know, but I will know it when the time comes to leave.

In terms of retirement, my wife and I went to see a financial planner last year and one of his first questions was, “Dr Nelson, when do you plan to retire?” I replied, “The day I die.” “Really, you want to keep working forever?”, he asked. And I said, “Yeah, my intention is to work as long as I can.”

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Your retirement living costs

MARCH quarter costs

In June, the Association of Super Funds of Australia (ASFA) released the ASFA Retirement Standard.

ASFA has kindly allowed YourLifeChoices to share this information (for the March quarter 2015).

Weekly expenditure

No change

Increased

Decreased

Comfortable couple

Modest couple

Comfortable single female

Modest single female

Building and contents insurance Rates Home improvements Repairs and maintenance Total housing

30.45 35.76 10.15 17.76 94.12

24.11 30.45 0.00 12.69 67.25

25.38 30.45 10.15 15.22 81.19

24.20 30.57 0.00 15.28 70.05

Electricity and gas Total energy

57.63 57.63

55.61 55.61

42.49 42.49

41.87 41.87

Food – groceries and other fresh food Total food

198.71 198.71

160.07 160.07

110.39 110.39

77.27 77.27

Bundle of home phone, broadband, mobile Total communications

32.15 32.15

16.09 16.09

25.26 25.26

9.19 9.19

Household cleaning and other supplies Cosmetic and personal care items Barber or hairdresser Music and CDs Newspapers and magazines Computer, printer, software Household appliances Pest control, alarm service Total household goods and services

25.47 3.04 20.38 2.13 8.16 4.18 11.70 12.51 87.57

15.28 2.92 8.78 0.00 1.90 4.18 2.97 0.00 36.03

18.34 6.83 14.64 0.32 7.97 4.18 9.97 12.51 74.75

10.19 1.96 4.90 0.00 2.38 4.18 2.97 0.00 26.57

Clothing Total clothing and footwear

56.67 56.67

28.33 28.33

37.78 37.78

17.45 17.45

Car transport and running costs Public transport Total transport

132.68 5.14 137.82

88.19 5.14 93.33

132.68 2.57 135.25

88.19 2.57 90.76

Health insurance Chemist Co-payment and out of pocket Total health services

79.92 23.50 41.23 144.65

64.09 3.20 12.43 79.73

40.66 12.96 28.34 81.96

32.05 1.80 7.46 41.31

Membership clubs TV, DVD, digital camera Alcohol consumed in home (or equivalent spent) Lunches and dinners out Cinema, plays, sport and day trips Domestic vacations Overseas vacations Sundry items Total leisure

9.80 1.81 40.91 81.81 13.71 77.38 54.85 30.25 311.52

1.96 0.91 15.34 25.46 19.10 37.23 0.00 11.75 111.76

4.92 1.81 25.57 61.13 6.85 66.62 37.23 23.20 227.32

0.98 0.91 10.23 30.57 5.88 18.61 0.00 7.83 75.01

Gifts and/or alcohol or tobacco

0.00

0.00

0.00

0.00

Total weekly expenditure Total annual expenditure

$1,120.84 $58,444

$648.20 $33,799

$816.40 $42,569

$449.50 $23,438

Expenditure items

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YourLifeChoices Retirement Update June 2015

YOUR RETIREMENT BUDGET

How does your spending compare?

Expenditure items

Weekly

Monthly

Annual

Building and contents insurance Rates Home improvements Repairs and maintenance Total housing Electricity and gas Total energy Food – groceries and other fresh food Total food Bundle of home phone, broadband, mobile Total communications Household cleaning and other supplies Cosmetic and personal care items Barber or hairdresser Music and CDs Newspapers and magazines Computer, printer, software Household appliances Pest control, alarm service Total household goods and services Clothing Total clothing and footwear Car transport and running costs Public transport Total transport Health insurance Chemist Co-payment and out of pocket Total health services Membership clubs TV, DVD, digital camera Alcohol consumed in home (or equivalent spent) Lunches and dinners out Cinema, plays, sport and day trips Domestic vacations Overseas vacations Sundry items Total leisure Gifts and/or alcohol or tobacco Total expenditure YourLifeChoices Retirement Update June 2015

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HEALTH UPDATE

Three steps to kickstart your health Our resident health writer Lesh Karan writes about ‘rocks’ and ‘sand’ to help you kickstart and commit to your health.

H

ave you heard of the ‘jar of life’ analogy?

Where you fill the jar with rocks first (i.e. the important things in life, such as family, health, purpose and relationships), instead of sand (the trivial matters and material possessions) – because, if it’s the other way around, you wouldn’t have room for your rocks? These three steps will help you to recognise your rocks and create a holistic health routine.

Identify It’s essential to differentiate your rocks from your sand. What’s most important to you? Especially now if you’re approaching or are in retirement? Is health one of your rocks? Because if it isn’t, you won’t give it the time of day it deserves. So be honest. It may require you to reshuffle your priorities (i.e. your rocks). This requires self-awareness. Listen to your heart and gut to recognise what’s important to you at this stage of your life, including all aspects of your health – physical, mental and spiritual.

Read further at Huffington Post.

Schedule Once you recognise your top rocks, work out how you are going to fit them in your life. Taking some time each week to schedule the important goals helps you to commit and follow through. For example, you may want to schedule into your diary 22

YourLifeChoices Retirement Update June 2015

the days of the week and times you’ll be doing your yoga, walk, strength training, etc., as well as weekly catch-ups with a good friend or family member who’s funny and uplifting. Don’t forget to schedule downtime for yourself and for creative fun. Soon, you may find it becomes a routine – a new mindset to live in such a way.

More on scheduling your priorities at ExaminedExistence.com.

Say no If you want to succeed at kickstarting your health – and maintaining it – then you’ll need to start saying no. It’s been said that one of the secrets to Steve Jobs’ success was to say no to 1000 things.

So, now that you’ve scheduled your rocks, hopefully it’ll make it easier to say ‘no’ to the sand. Say no to TV if it means missing out on a walk and/or cooking your dinner. Say no to meeting people who are not important to you or who gossip and bring you down. Say no to activities that move you away from you health, rather than drive you towards it.

Some tips on how to say no to people at AlexandraFranzen.com.

This is how, slowly but surely, you’ll form good habits to kickstart your health and keep it on autopilot.

Government update

June 2015 UPDATE

The end of the Seniors Supplement will see CSHC holders lose money, while regular indexation to the asset thresholds may see more people qualify for a part Age Pension.

Income and asset indexation Indexation of disqualifying asset and income limits, which occurs on 1 July, may mean that those who have narrowly missed out on a part Age Pension now qualify. Details of the new rates will be published on YourLifeChoices as soon as they are available.

For full details of indexed limits, visit YourLifeChoices.com.au

Expansion of consumer directed care packages Since August 2014, home care packages have been progressively introduced. From 1 July this year, all home care packages will be delivered as consumer directed care, which will allow the recipient to tailor the package to suit their individual needs.

Packages are coordinated by the home care service provider, which will hold the home care budget on the client’s behalf and agree on the services required with the carer and client.

Find out more at Myagedcare.gov.au

Pension asset thresholds and taper rate changes Changes to the asset thresholds and the pension taper rate, which were announced in the 2015/16 Federal Budget, have been passed as legislation.

The changes will mean that part Age Pensions will reduce for 235,000 people and about 90,000 will lose their part Age Pension altogether. An estimated 170,000 age pensioners will be better off thanks to the raising of the lower asset threshold.

Read more at YourLifeChoices.com.au

Cessation of Seniors Supplement Legislation that passed the Senate on 22 June 2015 will see around 300,000 self-funded retirees who do not qualify for an Age Pension but hold a Commonwealth Seniors Health Card lose the Seniors Supplement.

The quarterly payment, which amounts to $894.40 annually for single pensioners, will cease, with the last payment likely to be made on or after 20 June 2015.

Find out more at HumanServices.gov.au

Annual Carer Supplement The annual Carer Supplement of $600 will be paid on 1 July 2015 to those receiving an eligible payment. You may receive more than one Carer Supplement if you receive the Carer Allowance for more than one person in your care.

Recent changes mean that even if your eligible payment has been reduced to nil because of earnings, you will now receive the $600.

Find out more about the Carer Supplement at YourLifeChoices.com.au

YourLifeChoices Retirement Update June 2015

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EAT WELL FOR LESS

Five reasons to eat eggs Unfortunately eggs get a bad rap for being unhealthy. That couldn’t be further from the truth. Lesh Karan highlights five reasons to enjoy eggs for brekkie.

1. Eggs help you lose weight Two separate studies have shown that eating eggs in the morning (instead of bagels) can help you lose weight. In fact, one study showed the eggs were so satisfying that the women surveyed naturally ate less at later meals.

2. Eggs are a great source of protein Whole eggs are a complete source of protein, containing all the essential amino acids, which we must get from our diet. Another bonus is that protein from eggs is more easily digested than other protein sources.

3. Eggs don’t cause heart disease Sure, eggs do contain cholesterol, but studies have shown that eggs and dietary cholesterol do not adversely affect blood cholesterol levels. In fact, eggs raise HDL (the good) cholesterol.

4. E ggs boost memory Choline, a nutrient found in eggs, has been found to stimulate brain development and function, as well as improve memory.

5. Eggs protect your eyes The two antioxidants present in eggs, leutin and zeaxanthin, have been shown to protect against the eye diseases macular degeneration and cataracts.

Now, let’s eat some eggs!

Healthy Eggs Benedict Serves: One Time: 15 Minutes

Ingredients • 1⁄4 cup natural Greek yoghurt • salt and pepper, to taste • pinch ground cumin • pinch ground coriander • 2 free range eggs • 1 tablespoon white vinegar • 2 thin slices smoked salmon (optional) • 1/2 packed cup spinach leaves • 1–2 slices multi-grain sourdough bread • freshly squeezed lemon juice and olive oil, to dress • fresh parsley, to garnish 24

YourLifeChoices Retirement Update June 2015

Method First, make the healthy ‘hollandaise’. Mix the yogurt, salt, pepper, cumin and coriander. Taste and adjust seasoning to your liking. Set aside.

Next, boil some water in a small saucepan. Add the vinegar and reduce heat to a simmer. Into a cup, crack an egg and gently slide it into the saucepan.

Simmer gently for three minutes or until cooked to your liking.

Remove egg from the water with a slotted spoon and pat dry with a clean tea towel. Repeat process with the second egg.

Meanwhile, toast the bread and dress the spinach leaves with lemon juice and olive oil. Top the toast with the spinach and smoked salmon (if using). Serve the eggs on top of the salmon/spinach then drizzle over the hollandaise and garnish with parsley.

MORE This video shows you how to cook the perfect poached eggs.

To source true free range eggs, visit the consumer advocacy group Choice.

Relationships

Do sexless marriages survive?

Is sex an essential ingredient for a marriage to survive?

Our relationship expert Jo Lamble answers this very question.

M

ost couples go through periods when there is little or no sex – e.g. when they have newborn babies, when there is a health issue or when one person is extremely stressed.

These stages usually pass and sexual intimacy resumes. But sometimes a couple simply stops having sex. There is no discussion had, no informed decision made. They just have less and less sex until one day it stops. Various studies report that 15–20 per cent of Australian couples have little to no sex.

Our sex drive is similar to any other drive. It relies on habit. The more you exercise, the more you want to exercise. The more sex you have, the more you want to have sex. So it’s easy to see why sex can go by the wayside, in the same way as many people can stop exercising.

If having a sexless marriage doesn’t bother either of you, then it’s not really a problem. Sexless marriages can definitely survive. But if you or your partner is quietly wishing that you had more intimacy, then resentment may build up – and resentment can be very destructive in a relationship.

Remember that sex is only one form of intimacy.

To increase intimacy, you need to share your thoughts and feelings with each other, and that includes how you are feeling about the lack of sex.

If one of you wants to resume a sex life, then the responsibility falls on that person to initiate a discussion. Wait for a time when you have enjoyed some relaxed time together and you’re feeling quite close. Tell your partner that you love them and find them incredibly sexy. Reassure them that you don’t want to put any pressure on them, but you wish to explore ways to become physically closer. Be empathic if they express fear or anger. Be patient

if they ask for some time to get used to the idea again. Be open to suggestions about how to get them in the mood – even if their suggestions have nothing to do with the bedroom!

Most couples find that if they put in the effort, the closeness they feel when sex is back on the agenda is worth the work. To rekindle sex, it’s a good idea to reminisce. Take out some old photos. Laugh about old times. Visit old stomping grounds. Talking about sex can get so heavy, but it’s meant to be fun. So, go on dates. Watch romantic movies. Drink champagne. Light a fire. Act like the young people you are inside.

MORE Jo Lamble recommends reading: Detox your Relationship by Jo Lamble Good Loving, Great Sex by Dr Rosie King Where Did My Libido Go? by Dr Rosie King Perfectly Normal: Living and Loving with Low Libido by Sandra Pertot

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