Words / Marc Worner for Landscape Contractor Magazine
As landscapers we our plan our daily schedule, we plan our projects weeks in advance, we plan our holidays to coincide with quiet times months in advance… and yet how many of us plan our financial security into retirement while planning to build our wealth along the way?
When was the last time you visited a financial planner?
In the past, accountants typically gave advice on investments, superannuation and tax issues, while lawyers were concerned with estate planning and family trusts. Then there were insurance agents giving advice about insurance products and real estate agents recommending strategies incorporating negative gearing and direct property investments rather than property trusts. There was no all-encompassing approach to an individual’s wealth creation.
This fragmented approach often left clients with no clear plan as to how their overall financial goals and aspirations were to be met and whether, given their circumstances, those goals were even realistic and/or achievable.
Enter the financial planner – a university trained professional skilled in all these areas who is capable of delivering an overarching plan throughout our life and at times recommending the specialist skills of other professionals depending on the complexity of these plans.
We can broadly define our life into segments: growing up, getting our first car and becoming independent when we leave home is the start. We then begin to accumulate assets and perhaps find a life partner and have children – this stage lasts for many years whilst we advance our chosen career and our young family matures. Hopefully our wealth increases because we upgrade our home and achieve promotions as an employee, or build up our business if we are self-employed, and sometimes our wealth increases through inheritance or lotto. All the while our superannuation accounts may be growing but not at a pace that sets us up for some financial security in retirement without having to rely on the pension. Then our children eventually leave home and we begin to think about cutting back our working hours and ‘smelling the roses’. Visits to the doctor become more frequent and we begin to realise we are merely mortals. Retirement suddenly looms. Lastly, by the time we reach our seventies we are considering downsizing the family home and enjoying life’s pleasures. Some of us will move into retirement villages and enjoy a social life with all the amenities at our doorsteps. At this stage we might consider leaving our assets to our children and grandchildren when we pass on. We get our affairs in order as they say. Bear I mind that we should have done this when we started a family or joined with another to purchase a property way back when. It’s never too early to write a will.
All life stages require planning and careful execution if we are to gain the maximum advantage from our efforts.
All life stages require planning and careful execution if we are to gain the maximum advantage from our efforts.
Let’s think about each stage in more detail and maybe there are some things we can do to achieve better outcomes for our families and ourselves. Alan Lakein once said: “Failing to plan is planning to fail”.
When we are young we think we are bulletproof. If we own assets we need to protect those assets from the clutches of the State or to people who may make a claim against our estate, which we don’t want to benefit. Everyone should have a will and it should be updated as our circumstances change in life. For example: marriage, divorce and the death of beneficiaries. We may not want our child to receive our inheritance of $1 million at 15 years of age and so by making a will we can direct that money to be received later in life; meanwhile earning interest and/or providing living expenses or for their education costs.
As our career advances and our disposable income increases it may be prudent to save and invest more dollars. For instance, we may decide to invest in insurance bonds (tax-free with conditions) for our children’s education when they turn 18 and go to University or buy an investment property that is negatively geared (expenses are greater than the rental income) and so reduce the amount of tax we pay on our primary income, which may be at a high marginal rate of tax.
As our career advances and our disposable income increases it may be prudent to save and invest more dollars.
Perhaps we might decide that investing in the share market for the long-term will offer us a rate of return above what we could earn elsewhere and also allow us quick access to cash should we need it for say medical expenses or a holiday.
We may decide that it’s best to distribute our high income amongst family members so we pay less income tax overall and/or protect our assets in case of say death or temporary or permanent incapacity. In this case we would set up a discretionary family trust with the help of our trusted financial planner and lawyer.
Our trustee, which could be you and your partner or just you, may decide that the trust distributes income to the trust beneficiaries (including children and grandparents) in times of lower income and withholds income when the trust earns higher amounts of income in order to flatten the amounts of income tax payable, which will offset earnings from other investments such as share dividends or managed funds.
We may decide that adding extra amounts on a regular basis to our superannuation during our working life will add to our accumulated wealth and reduce the amount of income tax we pay at the same time.
Salary sacrificing our income to put into our super account is a viable strategy. I have friend who is 63 and still working fulltime along with her husband. For the last eight years she has put all her salary into her super and they live off his income. They estimate they will have $2m by the time they retire at 68, which is considered by the experts to be the amount we will need to live out a comfortable retirement well into our 80s. By comfortable, I mean enjoying an annual overseas holiday, eating out once a week and being able to afford living expenses without needing to be frugal. It also means being able to financially help the children with say mortgages or spend up on the grandkids.
All through life we take risks whether they are financial, emotional or physical. However, we can mitigate those risks by taking out insurance. We can pay for them over time with ever-increasing premiums or flat rates. We might buy products to pay for our living expenses in case of disability, or reimburse us for the loss of our home and contents, and to protect our income level in case we are retrenched or until we get back on our feet. It may be that we decide to ensure our life so that on our death the insurance company pays our family an agreed sum of money so they don’t have to struggle when we are gone.
All through life we take risks whether they are financial, emotional or physical.
Ensuring that others can carry out our wishes if we cannot is most important to us all. For instance, if we became comatosed, who would make decisions about our business? How would our loved ones access our bank accounts? How could they sell the house (if in two names) to pay for medical expenses? All these dramas can be eliminated if we give a trusted individual what’s called an Enduring Power of Attorney. In law, that person can make all financial and medical decisions in our best interests on our behalf. Perhaps our loved one is on the verge of suffering from dementia. Before it’s too late, we could persuade that person to have a lawyer draft an Enduring Power of Attorney, attend their office and have it signed in front of witnesses.
The services provided by a financial planner include:
- The preparation and presentation of written financial advice/plan based on one’s current financial circumstances, investment risk taking profile, aspirations and wealth goals
- Acting on instructions to implement their recommended plan strategies
- Asset portfolio management.
- Ongoing financial advice as and when our circumstances and goals change during life
- Access to investment and economic seminars
- Regular newsletters
- Regular reporting
Most financial planners offer the first consultation for free so visit one today and learn how you could build your wealth and secure your financial future.