Protecting your retirement

Presenter:dd month 2011

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Disclaimer/AFSL details etc

This information is current at May 2012 and is subject to change. As this information (including any statements on taxation which are based on current laws, rulings and

interpretation) is of a general nature and has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information,

consider its appropriateness to your circumstances.

From earning to spending

• The first of Australia’s 5 million baby boomers turned 65 in 20111

• If you haven’t already, you’ll soon be shifting from earning phase to spending phase:

– travelling– dining out– socialising

1. Australian Bureau of Statistics (ABS), 3101.0 - Australian Demographic Statistics, Sep 2011

From earning to spending

• What if your spending phase got disrupted by sickness or injury?

• You may be covered for the financial implications...

• ... but what if it’s not you that gets sick?

When ‘non-dependent’ becomes dependent

• What are your children’s financial commitments:

– Lifestyle expenses, internet and mobile phone bills

– HECS debt, personal loans and credit card debts

– Mortgage (average new mortgage now over $3901)

– Children of their own

1. 'Mortgage Index July 2013', Australian Finance Group (AFG), July 2013

When ‘non-dependent’ becomes dependent

• Gen X parents are growing increasingly dependent on their parents for support:

– It’s more common that both parents are working

– Child care costs are prohibitive for many young families

– Sharp increase in single parent families (from 14% in 1986-88 to 22% in 2004-061)

1. Australian Bureau of Statistics (ABS), Australian Social Trends 2007

• If your children needed financial support due to sickness or injury, what would it mean for your retirement plan?

• What if you had to become a primary carer to your grandchildren (and cease work to do it)?

• Do your children have a back-up plan to protect themselves... and you?

When ‘non-dependent’ becomes dependent

Do your children have a back-up plan (other than you)?

• According to a 2010 report on underinsurance:

– One in five families will be impacted by the death of a parent, a serious accident or illness that renders a parent unable to work1

– 95% of families do not have adequate levels of insurance1

1. The Lifewise/NATSEM Underinsurance Report, February 2010

So much for a comfortable retirement...

• Average super balances at age 65 in 20101: – $198,000 for men – $112,000 for women

• Estimated a ‘comfortable’ retirement will cost around $41,169p.a. for a single, and $56,317p.a. for a couple2

• Estimated cost of raising two children to age 21 is $800,0003

• Where will this money come from?

• Fortnightly Age Pension rate is currently only $733.70 for a single or $553.10 per person for couples4

• Australian Bureau of Statistics, 2010• ASFA Retirement Standard, March Quarter 2013• http://www.abc.net.au/news/2013-05-23/kids-eat-into-family-budget-like-never-before/4708076• Centrelink, Age Pension payment rates as at 5 July 2013 (excludes Pension Supplement)

So much for a comfortable retirement...

• Here’s a retired couple – Joe (aged 63) and Gail (aged 58)

• Between them they have $510,000 in super and $20,000 in liquid savings

• Spending $45,000 p.a., they can expect their living needs to be met for 27.7 years (5% pa investment returns and includes any Age Pension they may qualify for along the way)

• What happens if they have to provide $400 per week financial support to one of their children who is no longer in a position to work because of ill health?

This example is for illustrative purposes only.

So much for a comfortable retirement...

Years their cashflow needs can be met

So much for a comfortable retirement...

• How can they bridge the gap?

OnePath calculations, based on the following assumptions:1. Retiree couple - male age 63 has $300,000 in super and female age 58 has $210,000 in super.2. Family home is owned.3. Non-income tested super pension amount - male $16,000 pa and female $8,000 pa.4. No capital gains tax (CGT) applies on sale or redemption of liquid savings.5. CPI is assumed to be 3% pa for cash flow needs and Centrelink rates and thresholds indexation purposes. 6. Investment returns are assumed at 5% pa.

Future-proof your lifestyle

• To truly protect yourself, you need to make sure your children are adequately insured as well

Protection for yourself

Protection for your children

Start the conversationIf you’ve never had the conversation, talk

to your children about a tailored protection plan.

Find out what cover (if any) they have inside super, and encourage them to investigate the types and amounts of

cover they need.

You may find they are grossly underinsured – especially if they have debts and/or dependants.

Types of cover available to protect your child and your retirement!

• Life cover for death and terminal illness• Helps families eliminate debts and stay in the family

home• Provides an ongoing income for the family• Pays medical bills and funeral costs

• Income replacement cover for sickness or injury• Helps families keep up with mortgage repayments and

day-to-day living expenses

Types of cover available to protect your child and your retirement!

• Total and Permanent Disablement (TPD) cover for permanent incapacity

• Helps eliminate debts and cover long-term care costs• Pays for modifications to the family home

• Trauma cover for serious illness• Pays out-of-pocket medical costs• Helps spouse take time off work to provide care• Allows people to make lifestyle changes – like reducing

work hours, or taking an extended holiday

What are the odds?

• Probability of claim by age 65 – female, aged 32

• 21.4% chance of a Trauma or TPD claim• 47% chance of a disability lasting 3+ months

Source: IRESS Life Risk Report, 2011

Advice about protection needs

• It’s important people seek their own advice that takes into account their income, debt levels, family status etc

• A financial adviser can help with strategies to make life insurance more cost-effective, including insurance inside super

• Your children may also be able to link their cover to yours (if you have some) to receive family discounts on all premiums

Thank you

Questions?