Smart Investing
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The Chinese calendar says this is the year of the dragon. Less auspicious perhaps but for Australian investors this is shaping up as the year of fixed income.
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By taking a few simple steps, super fund members can both boost their retirement savings and legally minimise tax on their super – for themselves and their beneficiaries.
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Self-managed super funds seem set to remain by far the preferred superannuation choice among higher-balance members – particularly those in retirement.
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This is a question that many investors are, not surprisingly, asking themselves. But what might surprise some investors is that the answer is not as elusive as it may at first seem.
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Changes to the ASX operating rules to allow fixed income Exchange Traded Funds (ETFs) to trade on the Australian market will open a new means for investors to efficiently, conveniently and inexpensively diversify their investment portfolios.
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News & Commentary
Till death do us part 08 Mar 10
The reality that many super fund members obtain at least some death and permanent disability insurance through their funds doesn’t mean, of course, that their level of cover is adequate.
Surely, a fundamental question for such fund members to ask themselves is whether the level of cover automatically provided by their super funds – if that is the case – is enough for the circumstances of their families.
Employers’ default super funds – for employees who do not choose their own super fund – must provide at least a minimum level of death cover. But the minimum level of cover required by law for default funds is hardly sufficient for the needs of most people.
Super funds tend to promote their highly competitive premiums, negotiated with insurers at discounted bulk rates, as well as their flexibility in topping up the death cover provided. Insurance is an area of increasing competition between super funds.
And obviously, a proportion of members obtain death and permanent disability insurance outside super.
This all leads to the release last week of research by National Centre for Social and Economic Modelling (NATSEM) into the inadequacy of death, permanent disability and income-protection insurance in Australia.
The research was undertaken for the Investment and Financial Services Association (IFSA) as part of a public awareness campaign by the life insurance industry. (The association’s life insurance members provided funding for the research project.)
NATSEM examines four scenarios involving a “typical Australian family”. In each scenario, the main breadwinner works full-time for $75,000 a year and the spouse works part-time for $35,000. The couple has two children under five years, a $236,900 home mortgage, and other debt totalling $17,000.
The main breadwinner (the higher-earning spouse) has death cover of $91,000 plus total and permanent disability cover of $71,000. Neither spouse has income-protection insurance. And their combined super savings are $101,000.
The four scenarios are: the higher-earning spouse dies prematurely; the higher-earning spouse has a heart attack and is either temporarily or permanently unable to work; the lower-earn spouse dies; the lower-earning spouse has a heart attack and is either temporarily or permanently unable to work.
The family’s weekly income is slashed to between 55% ad 62% o its previous level – depending upon the scenario.
The bottom-line is to check whether the level of your insurance is adequate for your circumstances. And Smart Investing emphasises the desirability of shopping around for quality cover at competitive premiums.
* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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