Creating Wealth in your Later Years
There are so many questions to answer as you near the end of your earning years and are looking to maximise your wealth to fund your retirement.
Will you be retiring when you planned to, or will you have to soldier on to keep earning? And when you do retire, will you be able to do the things you’d always planned? Will you have enough put away? How much is enough?
You’re getting to the ‘pointy end‘ of wealth creation and because your time is limited, you can’t rely on the magic of compounding returns. That means the investment decisions you make are very, very important.
Complete our online form to book in a complementary consultation (valued at $595) to discuss your goals and current financial situation so the Ethica team can get your wealth creation strategy underway and working for you.
What’s The Right Level Of Risk?
For those who are in a reasonable financial position, well on track to achieving their goals for retirement, this is a time of consolidation and careful investment including blue chip stocks, salary sacrifice superannuation, and perhaps even a self managed super fund.
However, if your retirement fund isn’t looking as healthy as you’d like, then the time from 55 to retirement is a question of balancing risk with reward – a higher level of risk will often produce the higher returns that you need, yet you don’t have significant amounts of time to make up any losses which may come as a result of taking those risks. It’s a balancing act – one that is very difficult to do without the advice of an experienced financial advisor.
Here are a few of the strategies we can use to help you maximise your wealth in preparation for retirement…
Investment Loans - Borrowing to Invest
Borrowing to invest is a long established strategy that can enable you to take advantage of certain tax savings while investing more than you would have otherwise been able to.
If the returns you receive from the investment exceed the cost of borrowing, you can grow your wealth more quickly. Usually, the interest you pay on the investment loan is fully tax-deductible.
Dollar cost averaging
We’d all love to buy shares when the market is low and sell them when it’s high. But unless you happen to own a reliable crystal ball, you’ll need another approach. Dollar cost averaging is about spending a set amount of money purchasing shares in multiple ‘buys’ over a period of time, rather than buying them all at once.
This way, you don’t get stuck buying all of them at a high price. You overcome any short-term volatility by ‘averaging out’ the cost of the share over multiple purchases. You get some of the benefits of investing at low prices, while limiting the cost of purchasing at peak prices.
Diversification is a vital part of any sound investment strategy. It means investing in a variety of different types of investments so that you spread your risk across totally different types of investments and different classes of assets, rather than putting ‘all your eggs in one basket’. In general, there are four basic types of asset:
By diversifying your investment and spreading it across multiple different types of assets you can ‘smooth out the bumps’ – if one asset performs badly, another will perform better, giving you more consistent earnings from year to year, rather than wild swings up and down. It’s important to diversify your investment across different classes of assets as well as diversifying within those asset classes.
Using the appropriate tax and investment structure
Making sure that you have the most appropriate tax and investment structures can have a big effect on your bottom line. This is particularly the case for business owners, but can apply to investors too.
Structures are the vehicles that are available to carry out business – for example, your business could operate as a sole trader, a company, a partnership, a family trust or another type of trust. There are advantages & disadvantages to all structures such as these.
At Ethica, we will work in collaboration with you, your solicitor and/or accountant so that we can provide the best possible advice for your existing structures or help you create the most appropriate investment structures to meet your goals.
This particularly applies to health insurance. There are a few things to consider here. The government applies an additional Medicare Surcharge to individuals earning more than $84,000 or couples earning more than $168,000 if they do not have a minimum level of private health insurance. Those with private health insurance can claim a 30% health insurance tax offset (though most health insurers pass this saving on in the form of lower premiums rather than you having to claim it at tax time).
Given these factors, it’s worth taking the time to review your health insurance with the Ethica team to ensure that you are maximising your entitlements. There are also other entitlements and benefits such as seniors’ cards and healthcare support that you may qualify for as you get older.
When creating wealth for yourself it is always good to remember those who are less fortunate. Corporate and individual philanthropy has become more popular in recent decades and many charities have tax deductible status allowing any donations you make to be tax deductible.
If you are selling an asset, which may have large taxable capital gains, you might consider a charitable gift whereby the government effectively funds half of your donation through the tax deduction available.
If doing your bit to help others is important to you, it is now possible to set up your own charity or foundation to carry out good works and leave a lasting legacy.
Where should you be investing?
If you’d like to find out how our team can help you create wealth in preparation for your retirement, call Ethica today on (07) 5443 5577. You can also find out more wealth creation strategies based on your age group by completing this online form to schedule a zero-cost obligation-free appointment (valued at $440).
How Ethica Can Help YouBetter Financial Planning is in Our DNA
This is particularly important for those who haven’t yet paid off their mortgage, have other forms of debt and/or dependent family members. Being over 55, insurance can help you protect your last ‘earning years’ to see out your savings and investment plans.
Although you may be nearing the end of your working years, it’s not too late to look at your wealth building options to fund your aspirations. However, without the luxury of years of compounding, your investment decisions are very important.
The Federal Government has made some changes to the aged pension in recent years, with further changes currently on the drawing board. The team at Ethica keeps up to date with the latest requirements for receiving a part or full aged pension, so we can answer your questions.