ASPIRATIONS AUTUMN EDITION 2014

WELCOME TO THE AUTUMN EDITION OF

ASPI RATI ONS
Closing the
insurance gap
Will your insurance stretch to cover the needs in your life?
Most Australians fall way shortas youll read here.
The Wright Family Trust t/as Pivotal Planning
ABN 60 262 285 244
YOUR PARTNER IN FINANCIAL PLANNING

Over 95% of Australian families dont have enough
insurance, meaning we are underinsured by a
collective $1.37 trillion.
1

But just take a moment to think about what would
happen if you were out of action. How would your
family pay the bills, put food on the table and keep
up with the mortgage?
It doesnt bear thinking about. Accidents and
illnesses can have a devastating effect on your
finances, as well as your health.
Insurance can protect you and your family from the
financial effects of illness, injury and death. And
most importantly, it can help you sleep at night.
HOW MUCH DO YOU NEED?
It could be less than you think.
A 30-year-old man earning an average annual
salary of $65,910 would pay around $2 a day to
insure his income.
2
Thats about half the cost of a
cup of coffee.
Its likely youll have some insurance cover within
super, but is it enough? Its worth checking your
super plan to see how much insurance you have.
An experienced financial planner can help you
work out how much extra cover you need to fully
protect yourself and your family.
Trauma insurance pays a lump sum if youre
diagnosed with a medical condition such as a
heart attack, cancer or stroke.
Total and permanent disability insurance pays
a lump sum if you cant go back to work for good.
Life insurance pays a lump sum if you were
to die.
Income protectionalso known as salary
continuance insurancepays up to 75% of
your regular monthly income if you cant
work due to sickness or injury.
SUPER OR NOT?
You can either increase your cover inside super or
take out a separate plan outside super.
Insurance in super can help with cash flow and
save on tax. But insurance outside super can help
you access disability benefits more easily. You can
mix and match for the best of both worlds.
Anthony Wright
Authorised Representative
and Credit Representative
of AMP Financial Planning Pty
Limited AFSL No. 232706










1 Rice Warner Actuaries, quoted in The Lifewise/NATSEM Underinsurance ReportUnderstanding the social and economic cost of insurance, Feb 2010.
http://www.merideon.com.au/downloads/Lifewise-NATSEM%20Report%20Full.pdf
2 Premium calculated using AMP Elevate Online Desktop, Income Insurance Plan, stepped premium, male office worker, non-smoker, age 30 years,
benefit period to age 65, 30-day waiting period. Premiums are not guaranteed and may vary in the future.


ASPIRATIONS AUTUMN EDITION 2014



Making a
smooth transition

With a Transition to Retirement strategy you can continue working and access your super.

Retirement used to represent a sharp break with the pastone day you were
working full time, the next you were sitting at home with the rest of your life
ahead of you. These days, the transition doesnt have to be quite so abrupt.
Many Australians are keeping themselves active and engaged by continuing for
longer in the workforce on a part-time or contractual basis. In fact, more than
two-in-five Australians who work full time and intend to retire are looking to
reduce their hours first.
1

The good news is that in the few years prior to retirement you can start to draw
an income from your retirement nest egg while you continue working and
contributing towards your super.
ACCESS YOUR SUPER THE SMART TAX WAY
If youve reached your super preservation age (currently 55 but rising to 60), you
can take some of your existing super as an income stream to help make your
transition to retirement a smooth one.
This is called a Transition to Retirement (TtR) strategy. And it can be very
tax effective.
You can continue to work and contribute towards your super using tax-
effective salary sacrifice contributions.
You can top up your income with a tax-effective income stream from your
retirement account (between 4% and up to 10% of the account balance can be
drawn each year).
And theres even a way to refresh your TtR strategy every year for potentially
even more tax benefits.
There are two main ways you can use a TtR strategy.
1. LESS WORK, POTENTIALLY THE SAME AFTER-TAX INCOME
The first option is a TtR strategy that may allow you to cut down your working
hours while maintaining the same level of after-tax income.
Lets say youre over 55, you earn $75,000 a year before tax and you have
$250,000 in your super. You want to cut back your working hours, which will
reduce your before tax salary from $75,000 to $53,500.
As shown in the table below, by using a TtR strategy, you can maintain your
after-tax income, despite reducing your work hours.

Before TtR
strategy
After TtR
strategy
Salary $75,000 $53,500
TtR allocated pension $17,519
Gross assessable income $75,000 $71,019
Income tax ($17,047) ($13,066)
Take home pay $57,953 $57,953
But it does come at a priceyour super balance may dwindle over time as you
draw down your pension payments.
2. SAME HOURS, MORE SUPER
The other option is a TtR strategy that may allow you to maintain your work
hours, but increase your salary sacrifice contributions to super, and supplement
your income with a TtR pension so that there is no reduction in your after-
tax income.
So lets say youre over 60, earning $60,000 a year before tax and you have
$200,000 in your super, and you choose to use the full amount to start a pension.
As shown in the table below, together with your pension income, you can salary
sacrifice $24,380 a year and still receive the same amount of after-tax income in
your pocket.

No Transition
to Retirement
Transition to
Retirement
Gross salary $60,000 $60,000
Less salary sacrifice $0 ($24,650)
Pension income $0 $20,000
Less tax paid on salary (and pension) ($12,000) ($7,350)
Net income $48,000 $48,000
Tax paid on super contribution $0 $3,697
After tax contribution to super $0 $20,953
Total tax paid $12,000 $11,047
Whats more, at the end of the year, youve boosted your super by $953. If you do
this for ten years, thats potentially an extra $9,530 for your retirement, simply by
managing your money in a different way.
FINDING THE RIGHT BALANCE
A TtR strategy can be an effective way to boost your super savings, but it also has
superannuation, taxation and social security implications.
We can help you strike the right balance and work out how to make your
transition to retirement.
To find out more about TtR strategies or whether a TtR strategy may be suitable
for you, call AMP on 131 267 or contact your AMP financial planner.

1 http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/61A0264E827F5
9C4CA25768E002C8F72/$File/62380_jul%202008%20to%20jun%202009.pdf
What you need to know
Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379
(AMP Life). The advice does not take into account your personal objectives, financial situation or needs.
Therefore, before acting on this advice, you should consider the appropriateness of this advice having
regard to those matters and consider the Product Disclosure Statement before making a decision about the
product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or
vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other
benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your
investments. You can ask us for more details.
The examples provided are illustrative only and are not an estimate of the income you will receive or fees
and costs you will incur. The examples are based on the following assumptions:
$35,000 pa concessional cap for individuals aged 60 and over, and after allowing Superannuation
Guarantee contributions of 9.25%, the concessional cap is not exceeded.
Tax rates for 1 July 2013 have been applied.
Individual earns less than $300,000 pa.




Access your
finances on the move


AMPs digital tools can help you take control of your money and own your tomorrow.



Technology is changing the way we live.
Whether its buying our groceries or finding
out whats happening in the world, we expect
instant access. And its no different when it
comes to our money.
At AMP were helping you access your finances
on the move, wherever and whenever you like.
GO DIGITAL WITH AMPS NEW MOBILE APPON
IPHONE, ANDROID AND SOON ON TABLET
AMP. Own Tomorrow is the first app in
Australia where you can access your banking,
insurance, investments and your superall
from one place.
Weve got mobile banking covered, with
everything youd expect to access your AMP
Bank account on the go, including transferring
money, viewing your account balance,
rediATM maps and more.


You can even set up alerts to tell you when
your AMP Bank account balance is low and
when money is paid in or taken out.
And were putting super, insurance and
investments where they belongright in the
centre of your financial world so its quick,
easy and mobile.
You can check your super balance,
beneficiaries and investments, as well as your
insurance inside and outside super.
You can also:
set up alerts that tell you when payments hit
your super account, and
get help to start consolidating your
super accounts.




MY PORTFOLIOYOUR SECURE ONLINE GATEWAY
To access AMPs new mobile app, youll
need to activate your online account at My
Portfolioyour secure online gateway to your
AMP accounts.
With its fresh look and easy-to-use navigation,
My Portfolio is a great way to access up-to-
date information about your super, insurance
and investment portfolio, and take control of
your super future.












PUTTING SUPER FRONT AND CENTRE
Its easy to put your superannuation on
the back burner. After all, retirement
could be a fair way away. And youve
got so many more pressing financial
concernspaying the bills, covering the
mortgage and putting food on the table.
But if you simply set and forget your
super, you may not be putting yourself in
the best position come retirement time.
Do you have the best investment
strategy for your individual needs?
Will you have enough to enjoy a
comfortable retirement?
Will your money go to the people you
want to benefit if anything happens
to you?
It makes sense to take a closer interest
in your super. After all, its your money.
And its your future that will be shaped
by how much you have saved when you
stop working.










Whats in store
for 2014?
In this issue we ask Dr. Shane Oliver his thoughts on interest rates, the death of car manufacturing in
Australia and the opportunities for investment markets this year. Read on for some insightful answers.



WHY ARE INTEREST RATES SO LOW AND DO YOU EXPECT TO SEE RATES
INCREASE THIS YEAR?
The interest rates we now have are necessary to support the economy
as the mining boom slows and the Reserve Bank seeks to boost growth
in areas such as housing, retail, construction and tourism.
Low interest rates are not so much a sign of weakness, more a sign of
changed attitudes. Australians have a lot more debt than 20 years ago.
And, since the GFC, they have become more cautious about spending.
So, given higher consumer debt and greater caution, you need lower
interest rates than might previously have applied to get the economy
going again.
The official cash rate will probably stay at 2.5% for another six months
or so as were seeing tentative signs of improvement in the economy.
By September or October were probably going to see stronger growth
leading to rate increases to 2.75% and then 3% by the end of the year.
WHY ARE AUSTRALIAN HOUSE PRICES SO HIGH IN GLOBAL TERMS? ARE WE
IN DANGER OF CREATING A PROPERTY BUBBLE?
Were building about 7,000 fewer dwellings every year than we need.
Combined with the absence of an economic crisis, this lack of supply
means house prices have stayed relatively highunlike many other
Youve got to get spectacular capital growth to make it stack up, which
seems unlikely. So I dont think were going to see a crash but I dont see
fantastic returns from residential property investment either.
WHAT IMPLICATIONS DOES THE DEATH OF THE CAR MANUFACTURING
SECTOR HAVE FOR THE WIDER AUSTRALIAN ECONOMY?
Its obviously bad news, particularly for those directly affected, but also
because it comes at a time when the economy is struggling to pick up
and the mining boom is slowing down.
But we need to keep it in perspective. Manufacturing has been in long-
term decline since the 1960s. The manufacturing share of employment
50 years ago was about 25% and today its down at around 8%.
So its just a just a continuation of what weve seen over many years. I
think it does make sense to let these industries go, although like many
Australians, I would like to know we still make cars. But unlike me not
enough Australians buy them so we only have ourselves to blame.
Other countries can make cars more efficiently than we can so we
should move on to making other things. Over the next few years the
bulk of new jobs will come from other areas like construction, services,
health, education, finance and tourism.
WHERE ARE THE BEST OPPORTUNITIES IN INVESTMENT MARKETS THIS YEAR?
International shares are likely to continue to provide good returns as
the global economy continues to recover, especially if the Australian
dollar maintains its downward trend, as I suspect it probably will.
Australian shares should also enjoy a good year, underpinned by
stronger profit growthwhich were already starting to see with some
good company results.
At the other end of the scale, the returns on fixed interest and cash are
quite low and these asset classes are going to remain constrained.
And then in between youve got commercial property and
infrastructure probably doing OK, but more in the 810% range.
developed countries, where the housing market collapsed during the GFC.
Our house price to income ratio is well above the global average. One
day that may fall back to the global norm but in the absence of a big
supply surge or a major economic crisis, its hard to see that happening
via a collapse in house prices.
There is always a risk of a property bubble developing and, in fact, we
have had local bubbles in parts of Australia over the last decade.
But even though house prices are quite expensive, I dont see a bubble
at present.
Im not sure this is the best time to buy an investment property as the
rental yields are so low. If you allow for costs, the net rental yield for a
house is about 1% and for a unit 2.5%, which is quite low. Term deposits
deliver 3.5% and shares are yielding around 5.5% with franking credits.
What you need to know

This document was prepared by AMP Capital Investors Limited (ABN 59 001 777 591, AFSL
No 232497). This document, unless otherwise specified, is current at Tuesday, 25 February
2014 and will not be updated or otherwise revised to reflect information that subsequently
becomes available, or circumstances existing or changes occurring after that date. While
every care has been taken in the preparation of this document, AMP Capital Investors Limited
makes no representation or warranty as to the accuracy or completeness of any statement in
it including, without limitation, any forecasts. Past performance is not a reliable indicator of
future performance.

This document has been prepared for the purpose of providing general information, without
taking account of any particular investors objectives, financial situation or needs. An investor
should, before making any investment decisions, consider the appropriateness of the
information in this document, and seek professional advice, having regard to the investors
objectives, financial situation and needs. This document is solely for the use of the party to
whom it is provided.




ASPIRATIONS AUTUMN EDITION 2014




Australias growing
population. Get ready


There are 5.2 million boomers in Australia born from 1946 to 1964. This compares with six million
generation Xers born between 1965 and 1983. Generation Y, born across the 18 years to 2002, is
expected to peak at about 7.4 million next decade.
1

With Australias population expected to swell by mid-century and the first
wave of baby boomers reaching retirement, building up the nest egg has
become more important than ever.
2

Late boomers, generation X and Y have contributed to their superannuation
fund for most of their working lives and are expected to be largely self-
funded in retirement from the mid-2020s onwards. However, there is a large
gap for the baby boomers retiring now between the superannuation they
have and the amount they need for retirement. Either generation X and Y will
be forced to support them in the form of more taxes, or Australia will need to
import more taxpayers to spread the load.
3

GENERATIONAL FINANCIAL STRATEGIES
Each generation has its own financial challenges and strategies vary
depending on the stage of life people face.

Pathways to a Big Australia
Population 2013
Population 2051 (2013 release)
ABS projections





132k 207k
Darwin




4.3m
3.8m



Brisbane






375k
667k
ACT

7.7m 7.7m

4.7m

1.9m


Perth


1.8m
1.3m

Adelaide

4.2m




Melbourne



217k
265k
Hobart
4.7m




Sydney

Source: Super success achieved in stages, 28 July, 2013, The Sydney Morning Herald,
viewed 15 November 2013 <http://www.smh.com.au/money/saving/super-success-
achieved-in-stages-20130727-2qrl9.html>

Propping up the worker base
Net growth in working-age (1564) population
000s
300
Low As is

The Retirement Tsunami
Net growth in population aged 65+
000s
160

140
MARKET CONDITIONS
Whether the retirement age should be lifted to 70, along with compulsory
superannuation being increased from 9.25% to 12%, are among the policies
being explored
4
to cope with a big Australia. The Australian Bureau of
Statistics recently projected the population would surge to 38 million by 2051.
5

THE FUTURE FOR BIG AUSTRALIA
A chart that featured in a November 30 article in The Australian by
demographer Bernard Salt shows two possible pathways beyond 2012. One
250


200


150


100


50


0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

120

100

80

60

40

20

0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
assumption puts net overseas migration at 140,000 a year and the other at
240,000 a year. The second chart shows the net addition to the retirement
population averaged about 40,000 a year between 1950 and 2010. From
2010, more than 100,000 people annually joined the retirement ranks, with
the number tipped to rise to 140,000 a year.
Salt argued net overseas migration of 242,000 people a year in the next 40
years could provide the skills and tax required to support the transition of
baby boomers into retirement. Government spending across housing, health,
infrastructure and pensions will have to increase further to accommodate
greater boomer numbers.
Whatever stage you are at in your life, there is never a better time for you to
plan your future. Speak to your adviser to see how they can help.
Source: ABS; KPMG. Moment to find our bearings on the road to bigger things, 30 November, 2013, The Australian, viewed
15 November 2013 http://www.theaustralian.com.au/business/opinion/moment-to-find-our-bearings-on-the-road-to-bigger-things/
story-e6frg9jx-1226771686987#.


1 We are at a population tipping point, 6 December, 2013, The Australian Financial
Review, viewed 15 November, 2013 <http://www.afr.com/p/opinion/we_are_at_
population_tipping_point_UgHzGKQHcuJs2ihM9QR9kI>.
2 ibid
3 ibid
4 Commonwealth GovernmentDepartment of Treasury.
5 http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3222.0main+features52012%20
%28base%29%20to%202101.

Age 2535 With a higher disposable income and less family
expenses, this is a good time to accumulate assets.
Aged 3545 Paying down the mortgage and increasing home equity is
the focus.
Age 4555 Now is the time to shift focus to extra contributions to
the retirement nest egg. Debt elimination remains a
priority.
Age 5565 Preservation of investment capital becomes more of
a priority in addition to accumulation of capital. The
last years of work should be devoted to topping up
superannuation contributions.







Home equity could help
fund aged care
A persons home is their castle and any equity in it is the owners to use as they wish.

But the large amount of untapped wealth that is tied up in homes around
the country has not gone unnoticed by the Government and others.
Two high profile reports as referred to below have raised the possibility that
one way to help fund the rising costs associated with an ageing population,
is to bring the family home into the equation when it comes to aged care.
NEW FUNDING MODELS
Both the Productivity Commission in its An Ageing Australia: Preparing
for the Future research paper
1
and The Grattan Institute in its Balancing
budgets; tough choices we need report
2
, have raised the possibility of using
the equity in ones home to help meet the costs.
A government equity release scheme where individuals contribute half
the annual real increase in their home values towards aged care was the
Productivity Commissions suggestion. The Grattan Institute suggested
wealthy retirees draw down some of the value of their owner-occupied
dwellings before accessing the age pension.
People who failed the asset test due to the value of their dwelling would be
allowed to receive the aged pension, but they would accumulate a debt to
the government, to be paid when the home was transferred or sold.
Both schemes are not too dissimilar to existing reverse mortgage
arrangements, where a home owner can access the equity in their home for
any number of reasons, repaying the amount when they leave or the home
is sold.
Under current arrangements, a person moving into an aged care facility
requiring an accommodation bond does not have to sell their home to raise
the necessary entry costs. The home is also exempt from the age pension
assets testtwo years from the date a person moves into care.
3

Indeed, a home will remain exempt beyond the two year period if: a partner
or dependent child lives in the house; a carer who is eligible for an Australian
Government income support payment has been living there for at least two
years or a close relative who is eligible for an Australian Government income
support payment has been living there for at least five years.
THE FAMILY HOME AND THE AGE PENSION
There are times when a person does need to sell their home to fund the
sometimes large accommodation bond and this amount is also exempt from
the age pension assets test. Any other proceeds from the sale of a home may
impact how much age pension a person can receive.
While it has been possible to pay a higher bond to ensure any age pension
is still paid, significant changes to aged care funding, which take effect from
1 July 2014, means this strategy may not be possible.
RENTING OUT THE FAMILY HOME
An accommodation bond can also be paid in regular instalments which may
be funded through the principal residence being rented out. In this case the
value of the home remains exempt from the age pension assets test, and
the rental income is exempt from the age pension income test, while the
periodic payments are being made. The rental income is not counted towards
the calculation of income-tested daily care fees at an aged care facility.
The family home often plays a large role in financial planning because at
most times it is your largest asset. For the moment at least, it remains
sacred. If you are considering strategies that involve you or your loved ones
contemplating aged care accommodation, dont hesitate to seek advice from
your financial adviser.


1 http://www.pc.gov.au/research/commission/ageing-australia.
2 http://grattan.edu.au/publications/reports/post/balancing-budgets-tough-choices-
we-need/.
3 https://www.moneysmart.gov.au/life-events-and-you/over-55s/aged-care.





ASPIRATIONS AUTUMN EDITION 2014
Contact us






2
1
2
8
5


0
4
/
1
3