Financial Health Assessment Report

Transcription

1 About this report The purpose of this report is to provide you a framework for assessing your financial health and, where relevant, trigger further action on your part. We also include insights and practical tips which you could utilise to enhance your overall financial well being. This report is for your information only and is not intended as a recommendation for the purchase of any financial product. Any advice is general advice only as we have not taken into account your personal objectives, financial situation or needs. You should consider if it s appropriate for your circumstances. Please note the results in this report are estimates only. The actual amounts may be higher or lower depending on your actual circumstances and other factors that we cannot predict. This report is not intended to be your sole source of information when making a financial decision. You should consider whether you should get advice from a licensed financial adviser. Overview of contents 1. Cash flow analysis Debt management... 5 #ReachingMyGoals #StartsToday 3. Risk analysis Retirement readiness Action plan & next steps Financial Health Assessment Report prepared for: John & Anne Sample Date: 20 May 2016 Report prepared by: Good Adviser Representative of: HSBC Bank Australia AFSL , ABN Address: 300 Queen Street, Brisbane Qld 4000 Phone: Financial Financial Health Health Assessment Assessment Report Report prepared prepared for for Jane Jane Sample Sample dated dated May May Page 2

2 Cash flow analysis Based on information supplied by you, we provide a snapshot of your cash flow position including the level of savings and tax efficiency. The table below shows the main sources of income and expenses. Level of savings Savings Ratio = Income Surplus/Net Income = 32.75% How is your income surplus used? How much income do you save? Description Jane ($) Employment income 170,000 Investment income 45,000 Total income 215,000 Estimated income tax* 56,043 Net income after tax 158,957 Home loan repayments 48,504 Investment loan repayments 40,392 Living expenses 18,000 Income surplus/deficit 52,061 *Estimated figure only. Please consult with your accountant or tax adviser for more details. Average weekly earnings Each quarter the ABS collects information from approximately 5,000 employers to determine estimates of average weekly earnings. Employers are asked to provide details of the total gross weekly payments to employees (including weekly overtime payments) split into full-time adults and all other employees. As at November 2014, the full-time adult average weekly ordinary time earnings is $1, which translates to an average annual income of $76, Average weekly spend by life stage Lone person aged under 35 Couple only (reference person aged under 35) How much surplus income do you have? Couple with kids (eldest child under 5) Couple with kids (eldest child between 5-14) Couple with kids (eldest child between 14-24) Housing $278 $360 $364 $325 $242 Fuel & power $20 $26 $28 $43 $48 Food & drink $104 $207 $224 $279 $314 Clothing & footware $23 $52 $54 $64 $82 Medical & health $24 $58 $67 $77 $104 expenses Alcohol $24 $41 $26 $31 $35 Transport $142 $224 $220 $254 $332 How does your Recreation $106 $182 $132 $208 $253 TOTAL $869 $1,429 weekly $1,484 spend $1,670 $1,900 ANNUALISED $45,188 $74,308 $77,168 $86,840 $98,800 compare to the average Australian? Sources: Australian Bureau of Statistics Household Expenditure Survey, Accumulate in bank account Spend on lifestyle goods and services Pay off debts Invest via regular savings plan Fund investment debts Other To increase your income surplus, consider strategies to reduce your expenses. A useful way to achieving this is to put together a budget so that you know where your money is going as well keeping a lid on how much you spend on each item. While keeping track of your expenses can be difficult, there are a number of tools available which may make this process simpler. Consider setting up a regular savings plan via direct debit from your bank account to ensure the process is automatic without you needing to remember each time. To work out whether you are making the best use of your income surplus to build wealth, compare the equivalent after tax return under each scenario. Tax efficiency Average tax rate = Tax Paid/Total Income = 26.07% How much tax do you pay for every To reduce your tax liabilities, consider the use of expenses that are allowable tax deductions. This can dollar you earn? include such things as income protection insurance premiums, concessional superannuation contributions and interest expenses on investment loans. Check to see if you are entitled to any tax offsets or whether you should alter your investment strategy to take advantage of any tax offsets such as spouse superannuation contributions or imputation credits. If you have any investments, review the ownership structure so that you hold it in the name of the entity that is on a lower tax rate. Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 3 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 4

3 Debt management Based on information supplied by you, we provide a snapshot of your debt position and the impact on your loan term and interest repayments in various scenarios. Your current debt position is as follows: Liabilities Balance ($) Interest rate (%) Interest payment ($) Total Repayments ($) Repayment Frequency Home loan* $1,100, % $48,510 $48,504 Monthly Investment loan* $916, % $40,396 $40,392 Monthly Personal loan $0 0 $0 $0 N/A Others $0 0 $0 $0 N/A Total $2,016,000 $88,906 $88,896 * Based on the figures supplied by you, you are paying interest only on these loans. Level of Debts Debt to Assets Ratio = Total Debts/Total Assets Debt Coverage = 54.86% Interest to Income Ratio = Interest repayments/total Income Average Debt to Assets ratio over time = 32.60% How much of your income is going to repaying interest? How much interest are you paying on your loans? Average Interest to Income ratio over time Source: ABS, December Quarter 2013 Scenario analysis The below analysis applies to your home loan only. Scenario 1: Current situation Loan repayment $4, Payment frequency Monthly Scenario 2: Increase loan repayments by $4,338 p/m* Loan repayment $8, Payment frequency Monthly Loan term Total interest How much Indefinite interest can you save by changing N/A your mortgage repayment? Loan term 8.94 years Total interest $233,106 Scenario 3: Increase loan repayment frequency to fortnightly Loan repayment $4, Loan term reduction 0.58 years Source: ABS, December Quarter 2013 Payment frequency Fortnightly Total interest saved $17,026 Note: The results from these calculations should be used as an indication only. You loan providers might have different methods of crediting payments. The differences in savings depend on when each lender calculated interest and how they charge the repayments. * This is based on your annual surplus of $52,061 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 5 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 6

4 Consider having your salary directly credited into your home loan or mortgage offset account. Use a credit card to pay for living expenses and pay off the credit card debt within the interest free period. This effectively reduces the loan balance used to calculate your interest, thereby reducing the amount of interest payable. If you have more than one loan, consider consolidating all inefficient debt into the loan that has the lowest interest rate such as your home mortgage. If you have any cash, consider depositing this into the mortgage offset account or home loan. You can always redraw or drawdown the offset account if you need the funds. Risk analysis Based on information supplied by you, we provide a snapshot of your financial exposure in the event of death, disability and critical illness. Financial exposure in the event of death Have you thought about all the expenses How much do you need? that might be incurred if you pass away? Initial expenses Amount Pay off debts 2,016,000 Funeral expenses 9,000 Estate administration 10,000 Total initial required 2,035,000 Ongoing expenses Annual Amount No. of Years Lump sum equivalent Living expenses for dependants 0 N/A 0 Children s education costs 0 N/A 0 Childcare costs 0 N/A 0 Domestic assistance 0 N/A 0 Total amount for ongoing needs 0 Total amount needed 2,035,000 What resources can you draw on? Calculation methodology Funerals can cost from $4,000 for a basic cremation to around $14,000 for a more elaborate casket, burial and flowers according to ASIC s research report (2012). We have used $9,000 in the calculation since it is the mid-point of the range. Living expenses for financial dependants are assumed to be 60% of current living expenses until the youngest child turns 18. Beyond this point, the remaining partner or spouse will be self-funding their cost of living. Please note the calculations do not take into account the effects of inflation or time value of money. This may overestimate the amount required if investment returns are above inflation and underestimate if the returns are below inflation. Children s average lifetime education costs per child for low income, middle income and high income families are $11,038, $22,322 and $95,804 respectively (source AMP.NATSEM The cost of raising children in Australia May 2013). In this calculation we divide the cost by 13 for each year of schooling to arrive at an annual figure. This translates to $849, $1,717 and $7,370 for low, middle and high income families respectively. Childcare costs assumed to be $100 per day. We have used an annual figure of $22,000 to cover a period of 44 weeks at 5 days per week. For domestic assistance we have included the cost of a nanny or au pair. Based on advertised services this can range from $170 to $340 per week. In this calculation, we have assumed a rate of $250 per week for 40 weeks which will continue until the youngest child turns 13. Have an estate plan with up-to-date wills and powers of attorney Confirm who your beneficiaries are in the event you pass away Have an open discussion with family on these matters to ensure your intentions are clear Consider any guardianships for young children Financial exposure in the event of disability and inability to work How will your family pay How much do you need? for medical expenses if you suffer an illness or Initial expenses injury that stops you Debts 2,016,000 from working? Medical expenses 50,000 Home alterations 50,000 Total amount for lump sum needs 2,116,000 Cash 970,000 Investments 1,160,000 Superannuation 63,000 Life insurance 660,000 Total lump sum resources available 2,853,000 Financial exposure -818,000 Ongoing items Annual Amount No. of Years Lump sum equivalent Living expenses for dependants 18, ,000 Medical expenses 5, ,000 Children s education costs Childcare costs Domestic assistance 10, ,000 Less continuing income 45, (675,000) Total required for ongoing needs 0 Total amount needed 2,116,000 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 7 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 8

5 What resources can you draw on? Cash $970,000 Investments $1,160,000 Superannuation $63,000 TPD insurance $660,000 Total lump sum resources available $2,853,000 Financial exposure $229,210 Permanent disability doesn t have to be physical, 45% of Australians aged have experienced a mental disorder in their lifetime. Source: Australia s Health 2010 Australian Institute of Health and Welfare, June Most primary carers in Australia are between age 30 and 64 and they are usually a partner or a spouse. The cost of care can have an impact on the lifestyle of the whole family. Source: Impact of home based long term care on informal carers Ranmuthugala G. August Calculation methodology Living expenses are assumed to be the same as current living expenses until the disabled turns 65. Beyond this point, other financial resources such as superannuation and Age Pension will fund the cost of living. Medical expenses are assumed to be $50,000 initially and $5,000 ongoing until the disabled turns 65. Did you know? Most primary carers in Home and motor vehicle alterations to facilitate greater mobility assumed to be $50,000. Please note the calculations do not take into account the effects of inflation or time value of money. This may overestimate the amount required Australia if investment are returns usually are above a inflation and underestimate if the returns are below inflation. partner or spouse. Children s average lifetime education costs per child for low income, middle income and high income families are $11,038, $22,322 How and $95,804 will respectively the cost (source of care AMP.NATSEM The cost of raising children in Australia May impact 2013). In this your calculation family s we divide lifestyle? the cost by 13 to arrive at an annual figure. This translate to $849, $1,717 and $7,370 for low, middle and high income families respectively. Childcare costs assumed to be $100 per day. We have used an annual figure of $22,000 to cover a period of 44 weeks at 5 days per week. For domestic assistance we have included the cost of a nanny or au pair. Based on advertised services this can range from $170 to $340 per week. In this calculation, we have assumed a rate of $250 per week for 40 weeks which will continue until the disabled turns 65. Financial exposure in the event of critical illness or trauma How much do you need? Debts $2,016,000 Medical expenses $100,000 1 year living expenses $18,000 Total amount for lump sum needs $2,134,000 What resources can you draw on? Cash $970,000 Investments $1,160,000 Critical illness/trauma insurance $82,500 Total lump sum resources available $2,212,500 Financial exposure -$78,500 Statistics from the Australian Institute of Health and Welfare show that 1 in 3 men and 1 in 4 women will be diagnosed with a malignant cancer before the age of 75. Calculation methodology Paying off debts reduces pressure on the family s budget in times of trauma or critical illness. Medical expenses are assumed to be $100,000 initially. One year of living expenses provides means for 12 months off work to recuperate or provide support to partner/spouse. How much is your earning capacity worth? Jane s lifetime earnings Amount Current annual salary $170,000 Number of years to age Total salary income accumulated until age 65* $3,075,256 * Assumes your salary will increase by 3% per annum. How much of your earning capacity is protected? How much of your income is protected in the event of a critical illness or disability? Current income protection cover (per annum) $120,000 Benefit period 2 Value of income protection cover (cumulative) $240,000 Current disability, critical illness and trauma cover $742,500 Total cover provided $982,500 Percentage of earning capacity protected 31.95% Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 9 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 10

6 Retirement readiness In this section, we estimate your likely income at age 65 based on what you are doing now. Jane s retirement readiness Amount ($) Existing balance in superannuation 63,000 Current annual superannuation contributions (net) 14,280 Number of years to age Projected lump sum at age 65* 492,245 Estimated income at age 65** 24,612 Cost of living (indexed)*** 27,768 Percentage of expected retirement income over current cost of living 88.63% * Assumed investment return of 6.5% p.a. ** We have assumed that you commence an account based pension at age 65 and drew the minimum pension allowable (which is 5%). *** Cost of living is indexed at 2.5% p.a. The ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a comfortable or modest standard of living in the post-work years. It is updated quarterly to reflect inflation, and provides detailed budgets of what singles and couples would need to spend to support their chosen lifestyle. Budgets for various households and living standards (September quarter, 2014) Modest lifestyle single Modest lifestyle couple Comfortable lifestyle single Comfortable lifestyle couple Housing ongoing $68.30 $65.56 $79.16 $91.77 only Energy $41.07 $54.55 $41.68 $56.53 Food $77.05 $ $ $ Clothing $17.67 $28.68 $38.25 $57.37 Household goods $26.57 $36.03 $74.75 $87.57 and services Health $40.64 $78.43 $80.63 $ Transport $96.05 $98.78 $ $ Leisure $73.78 $ $ $ Communications $9.33 $16.33 $25.64 $32.64 Total per week $ $ $ $1, Total per year $23,489 $33,784 $42,597 $58,326 Will you have sufficient income at retirement to meet your cost of living? If you have more than one superannuation fund, consider consolidating them to save costs. Regularly review how your superannuation is invested to make sure you re on track to achieve your retirement goals. Action plan & next steps Based on the Financial Health Assessment, are there any further actions required? Cash flow management Yes No Are you satisfied with the level of savings you are currently making? Complete a detailed budget to identify cost saving opportunities Review tax effectiveness of current cash flow Devise a regular investment plan Debt management Yes No Would you like to implement a strategy to pay off your loan quicker? Review current loan arrangements and implement new debt management strategy Risk management Yes No Do you have any financial exposures in the event of death, disability or critical illness? Conduct a more detailed analysis to confirm the extent of the financial exposure Obtain up to date information on any existing insurance policies (complete Authority form) Obtain insurance quotes for the nominated financial exposure Implement risk protection plan Retirement readiness Yes No Are you on track to achieve your desired standard of living in retirement? Review your existing superannuation arrangements (complete Authority form) Devise a retirement plan Client Acknowledgements What steps can you take to address any gaps? I would like our HSBC Financial Planner to assist me with the Action Plan and Next Steps as part of this Financial Health Assessment. Client 1 name Signature Date Client 2 name Signature Date Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 11 Financial Health Assessment Report prepared for Jane Sample dated 25 May Page 12