The. Report. A forecast for smooth sailing. Goal setting for success. Facts & figures AUTUMN 2013 ISSUE NO. 111

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1 Count The Report A forecast for smooth sailing Goal setting for success Facts & figures AUTUMN 2013 ISSUE NO. 111

2 Welcome A message from the CEO Welcome to the Autumn edition of The Count Report. In this edition our cover story looks at personal insurance. Many people are familiar with the concept of life insurance; however, there are other types of personal insurance that are less well understood but no less important. A forecast for smooth sailing focuses on income protection insurance and how it can help you prepare for the unexpected. In Goal setting for success we look at different situations that might make you think twice about leaving long term goal setting aside for another time. Goal setting is important, and making time for long term thinking and action planning can bring you more confidence about your financial future and peace of mind. Have you ever wondered how the cost of natural disasters in Australia compares to the rest of the world? In our back page feature Facts & figures, you will find some interesting information about insurance-related situations. To start us off in this edition, our regular contributor Stephen Halmarick discusses recent economic events in his Market update. In partnership with your Count Financial Adviser, we look forward to helping you achieve your lifestyle and financial goals. If you have any questions at all, please contact your Count Financial Adviser. "Consider the regular expenditures that would need to be maintained in the event of the unforeseen it will help determine the right level of personal insurance for you and your family. " David Lane Regards, David Lane Count Financial Chief Executive Officer 2 The Count Report

3 Markets Market update An economic update from Stephen Halmarick, Head of Investment Markets Research, Colonial First State. The big three What have been the major economic events of the past few months? 1. U.S. Fiscal Cliff In the US the focus early in the month was on the so-called Fiscal Cliff. Politicians were able to come to a deal in the early hours of 1 January 2013, which limited the fiscal policy tightening for 2013 to around 1.5% of GDP, rather than the feared 4%. However, while some potential tax increases have been put off permanently and the deal did involve some pleasing aspects, significant spending cuts have only been delayed by two months. US employment figures showed that 157,000 jobs were created in January. However, the unemployment rate increased slightly to 7.9%. The average job creation for the past three months has now moved to 200,000 per month, compared with 138,000 for the six months prior. There has been some discussion as to what this means for the Federal Reserve and its open-ended Quantitative Easing program. Following its January meeting, the Federal Reserve maintained its purchases of Mortgage Backed Securities and Treasury Securities at a pace of US$85 billion per month. This program is expected to continue until there is substantial improvement in the labour market. 2. Japanese economic stimulus In Japan, the Bank of Japan (BoJ) announced a number of new measures to spur economic growth, encourage inflation and to weaken the yen. The BoJ pledged to achieve a 2% inflation target (up from its previous guide of 1%) and announced an open-ended asset purchasing program but this is not due to commence until At this stage the measures remain relatively timid and further enhancements are possible when a new Governor is appointed in April. The expectation of further changes saw the yen depreciate 6.7% against the US dollar in January. 3. Conditions less volatile in Europe In Europe there has been a mild improvement in the economy, although conditions remain subdued. Market sentiment has improved with bond yields falling in a number of countries, like Spain and Italy. European banks were able to make some early repayments on funds they received from the European Central Bank s Longer Term Refinancing Operation in January. A total of 137 billion was repaid from 278 banks, which was more than expected of the 1,019 billion borrowed. In Australia AUSTRALIA QUARTERLY AND ANNUAL INFLATION (%) In Australia, Q inflation data was released. Headline inflation rose 0.2% on the quarter, taking the annual rate to 2.2% from 2.0%. Underlying inflation was recorded at 0.55% for the quarter and 2.3% per annum. Prices of vegetables and audio visual goods fell, while domestic holiday travel and fuel prices rose. See chart below for details. Australian employment data showed 10,400 jobs were created during January (after 3,800 jobs were lost in December), with the unemployment rate unchanged at 5.4%. Consumer confidence rose by 0.6% in January to hover around its five-year average, while business confidence also improved. Prime Minister Julia Gillard announced the next Federal Election will be held on 14 September Headline inflation Underlying inflation RBA Forecasts Source: ABS. Data to 31 December RBA forecasts as at November 2012 The Count Report 3

4 Personal finance income protection A forecast for smooth sailing Most of us have a good grasp of the notion of life insurance, but less understood is the value of income protection insurance. Few offerings create such useful protection against unexpected, health-related financial turbulence for you and your family. What is your most valuable asset? Is it your house? Your car? Or your investment portfolio? Of course it is none of the above. Your most valuable asset is the one that makes all the others possible you. But there is a chance that an accident or health issue could take away your ability to pay the bills. One in six men and one in four women between the ages of 35 and 65 are expected to suffer a disability that causes an absence of six months or more from work, according to a 2006 report from the Institute of Actuaries. If this was to happen to you, or to somebody you cared about, what is the likelihood you could continue to meet your current financial responsibilities? 4 The Count Report It s not just a question for those with families and/or dependents. It s just as much of a problem for singles and couples with no children when income is suddenly and unexpectedly lost. Mortgages and/ or rent still have to be paid. Medical bills have to be met and general cost of living continues as it always did. Income protection insurance can cover up to 75% of your regular weekly pay packet and sometimes up to 100%, in the event of you being unable to work as a result of serious illness or injury. Policies usually offer a monthly benefit during the time out of work, others also offer the choice of a tax-free lump sum payment in certain circumstances. In most cases premiums are tax deductible. In every case, if you have an unexpected break from the workforce, it can mean the difference between the terrible stress of financial hardship and having the ability to concentrate on recovery. How do you arrange income protection? Your financial adviser can arrange income protection for you. It is often set up with a four-week waiting period before benefits begin, which keeps the premium down and allows, where possible, the person to utilise their employer s sick leave prior to benefits kicking in. Once the pre-set waiting period is over, the monthly payments, which are taxable, begin. Generally, payments would be paid monthly in arrears but might be sooner depending on the circumstances and the policy. These payments are usually set at around 75% of the individuals insurable income. As previously mentioned, some policies also offer the choice of a tax free, lump sum payment. This does affect the potential tax deductibility of the premiums, usually bringing the deductible portion back from 100% (when outside a superannuation account) to 90%.

5 Personal finance income protection Questions that a financial adviser may ask you to consider: Am I the sole income earner? What is my total annual income? What are my total debts and expenses? How many dependent children do I have? How long might my savings last if I was unable to work? Could my partner pay all of the bills and expenses if I was unable to work? If the answer to the final question is no, especially if medical costs are added to the expense list, then it is very much worth organising an appointment with an adviser to discuss income protection insurance. Consider the options There are several types of income protection insurance that offer various options, benefits and tax advantages. It pays to discuss the options with your financial adviser to ensure the cover matches your lifestyle, budget, income and debt levels, and dependents. As your career and lifestyle changes, it s also worth re visiting the policy, with the help of your adviser, to check that it is still suitable for your current circumstances. If you're already covered by income protection, it may be helpful to discuss personal insurance with friends and family who may not recognise its value. The severe financial consequences of serious illness and accidents can affect all of the people around the victim. The experience is never a good one, but the removal of financial issues makes the recovery period, or the rehabilitation and ongoing treatment, more manageable. Case study Income protection insurance offers a person suffering injury or illness, and their family, to concentrate on what is important: rest and recovery. For example, a financial adviser recommended that his 35-year-old client Edward, an IT consultant at a large investment bank earning $142,000 per annum, take out income protection insurance with a total and permanent disability (TPD) option. The policy would offer a monthly benefit of $8,875 and would have a three-month waiting period and benefit period paid to age 65. After a serious motor vehicle accident, Edward suffered a major head trauma and a spinal injury which left him a quadriplegic. His insurance case manager felt it would take around three months to assess the claim fully so organised for an immediate bed confinement payment of $27,000 to be paid to Edward. The policy also contained a Boosted Disability Benefit which raises the monthly benefits by 33%, meaning Edward s monthly, taxable payments lifted to $11, Rather than taking the monthly payments, Edward decided to receive a tax free, lump sum payment of $2,262,000. This helped cover medical costs and rehabilitation care and also allowed him to pay off his mortgage and commence modifications to his home. The Count Report 5

6 Personal finance goal setting Goal setting for success As with most life goals, a financial objective is hard to meet without a plan. On the other hand, discussing the process with a professional, putting pen to paper and envisioning the steps to long-term success brings that goal into focus and makes it a reality. Plans written down on paper give your dreams a direction, whether they are for short-term saving or long-term wealth. They help you to figure out where things are going wrong or could go wrong, and they keep you motivated by proving it s possible and easing the fear of failure. The process of making a financial plan identifies steps that must be taken and turns a hoped for result into a viable goal. Importantly, in a turbulent economic period such as the one we have experienced in recent years, a written plan allows you to keep your eyes 6 The Count Report on the long-term prize, rather than making a panicked decision. It also gives you the chance to make far more accurate fine-tuning decisions, with help from your financial adviser, to ensure everything stays on track towards the agreed goal. The long-term nature of a financial plan can help ease any short-term concerns as it allows time for the market to smooth out the bumps and dips along the way, while providing the opportunity for growth. It also gives the investor time to make the most of compound interest. The first and most obvious step is to determine your priorities. When it comes to retirement this means figuring out what type of lifestyle you re hoping for. Are you looking to travel the world regularly and stay in five-star hotels or is a shack down the coast, and a few afternoons of fishing a week, your idea of retirement heaven? Armed with this information, your adviser will be able to crunch the numbers to work out what your final dollar amount needs to be. A qualified financial adviser will show you numerous ways to make your long-term hopes a reality, including the utilisation of tax effective financial vehicles, proper budgeting, protection

7 Personal finance goal setting of your financial future through insurance and constant fine-tuning as regulations change and new opportunities present themselves. A thorough plan will have milestones along the way that serve to break up the major plan into a number of smaller ones and also act as checkpoints to ensure you re still on track. Such a strategy is known in some circles as a SMART plan. SMART is a well-known and heavily researched guide to setting powerful but realistic objectives. A SMART plan sticks to these principles: S Specific & simple M Measurable & meaningful A Actionable & attainable R Realistic & relevant T Timely & timetabled Perhaps a final R should be added to the plan to represent Review and Reassess. As previously mentioned, once the plan is in place it must not be considered unchangeable. In fact, it should be fine-tuned at least once every 12 months during a visit to your adviser. Products develop, governments introduce new legislation, regulations are altered, changes to tax laws offer new opportunities and markets rise and fall. Whether in the name of change or simply to make you confident about your financial future, it pays to review your plan regularly. After all, if you're confident about your future, you re more likely to enjoy the present. The Count Report 7

8 Facts & figures Did you know? Dollar costs of disasters in Australia are relatively low compared to those in other countries. 2 Sydney Japan 1999 Hail storm $2.01 billion 2012 Tsunami & Earthquake $32 billion Queensland USA 2010/2011 Floods $2.3 billion 2012 Hurricane Katrina $66.3 billion According to the Association of Superannuation Funds of Australia, a couple hoping to achieve a comfortable retirement in Australia needs to spend $56,236 a year. 3 According to a 2010 report from Lifewise and the National Centre for Social and Economic Modelling: One in five families will be impacted by the death of a parent, a serious accident or illness that renders a parent unable to work. The Heart Foundation says each year there are approximately heart attacks in Australia about one every 10 minutes. 55,000 Females are just as likely to die from a heart attack as males and Cancer Council Australia says one in two Australian men and one in three Australian women will be diagnosed with cancer by the age of The same report says 95% of families do not have adequate levels of insurance. This underinsurance, in the next decade, will cost the federal government billion. 5 $1.3 CONTACT YOUR COUNT ADVISER AT: 2 Insurance Facts & figures 2012, Pricewaterhouse Coopers, Australia, 2012, p and 5 The Lifewise/NATSEM Underinsurance Report, Dr Simon Kelly and Dr Quoc Ngu Vu, University of Canberra, Canberra, 2010, p.2 Harding Martin Financial Services HEAD OFFICE: Level 19, 1 Alfred Street, Sydney NSW P This document has been prepared by Count Financial Limited ABN , AFSL , (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN Count and Count Wealth Accountants are trading names of Count. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. All opinions expressed in this publication are those of Count Financial Limited February The Count Report 221 Brisbane Street Ipswich QLD 4305 Phone: (07) Fax: (07) count@hardingmartin.com.au Looking after your financial life