2009 Economic Update Seminar Neil Cox, CFP Director &Head of Investment Research Director & Head of Investment Research Presented by

General Advice Warning Today’s presentation may contain some general advice. This means that individual objectives and needs have NOT been considered in providing this advice. This information is general in nature and does not constitute comprehensive advice. Before acting on this advice, you should give consideration to the appropriateness of the advice for you. You should seek proper personal financial advice. While the information given in the presentation is in good faith and is believed to be accurate and reliable, Financial Foundations Australia does not give any warranty as to the reliability for any errors or omissions.

Helping you through the financial crisis  Dealing with Market Volatility – Dollar Cost Averaging  Have your cake and eat it too with more super for your retirement – Transition to Retirement  Improve, or gain access to a Social Security entitlement– Centrelink  Improve, or gain access to a Social Security entitlement – Centrelink  Legislative Update - Income Test Reforms from 1 July ‘09

2008 was a ‘1 in 50’ year event for Australian share market returns Source: Standard & Poor’s to to to to 0 0 to to to to to to to 70 All Ords /ASX 300 Accumulation Index – 50 years to 2008

But every period of negative returns is generally followed by increased gains Source: Standard & Poor’s to to to to 0 0 to to to to to to to 70 All Ords /ASX 300 Accumulation Index – 50 years to 2008

Dollar Cost Averaging  A way of dealing with volatility  Helps decrease risk of investing at the top  Can help make a profit even in a overall flat market

Dollar cost averaging Down market: lower price, buy more shares Up market: higher price, buy fewer shares $$$$$$$$$$$$$$$

$200 invested every month for 10 years ($24,000) The Benefits of Dollar Cost Averaging “Steadily rising share price” Share Price ($) Year $32,231

$200 invested every month for 10 years ($24,000) The Benefits of Dollar Cost Averaging Share Price ($) Year “Rising share price with short term volatility” $42,434

The Benefits of Dollar Cost Averaging Share Price ($) Year “Share price recovery” $62,640 $200 invested every month for 10 years ($24,000)

The Benefits of Dollar Cost Averaging $200 invested every month for 10 years ($24,000) $32,231 “Steadily rising share price” Share Price ($) Year $ 42,434 “Rising share price with short term volatility” Share Price ($) Year $ 62,640“Share price recovery” Share Price ($) Year

Opportunities  Accumulators Cheap markets represent an excellent long term entry point; For regular investors, volatility brings increased future profits by using DCA techniques; Great time to begin/increase a regular investment program Protect your family and income with appropriate insurances for Life, Disablement and Income Protection Don’t forget super

Retiree’s Retiree’s No quick fix, we need to ride out this volatility;No quick fix, we need to ride out this volatility; Ensure using new super rules to maximum effect - your own private tax haven;Ensure using new super rules to maximum effect - your own private tax haven; Assets tested Age Pensioners, seek a Centrelink review now to get a pension increase based on market value reductions. Assets tested Age Pensioners, seek a Centrelink review now to get a pension increase based on market value reductions. Cont….

$10,000 SALARY Taxed at marginal rate 31.5% $6,850 Incomeat31.5% Capital Gains 15.75% 24%..RETURN....IMMEDIATELY SUPER 15% Contribution Tax $8,500 Incomeat15% Lump Sum Tax 15% (Worst Case)

Transition to Retirement - Overview Problem – how to boost your super as you transition to retirement without lowering your current income Problem – how to boost your super as you transition to retirement without lowering your current income Solution – a strategy based around accessing your super through a non-commutable account based pension (NCAP) Solution – a strategy based around accessing your super through a non-commutable account based pension (NCAP) Action Steps Action Steps  Continue to work  Boost your super with salary sacrifice payments  Maintain current income with an NCAP Result – have your cake and eat it too with more super for your retirement Result – have your cake and eat it too with more super for your retirement

Your Preservation Age If your date of birth is: Your preservation age is: Before 1 July 1960 Between 1 July 1960 and 30 June 1961 Between 1 July 1961 and 30 June 1962 Between 1 July 1962 and 30 June 1963 Between 1 July 1963 and 30 June 1964 After 30 June

NCAPs in a nutshell  NCAPs can only be started once you reach preservation age  Purchased with superannuation money  No work test  Minimum and maximum payment limits  Lump sum withdrawals (commutations) generally not allowed

How to have your cake and eat it too Once you’ve reached your preservation age, continue to work at your present level Once you’ve reached your preservation age, continue to work at your present level Purchase an NCAP with your superannuation money Purchase an NCAP with your superannuation money Salary sacrifice into your super account (subject to employer’s agreement) Salary sacrifice into your super account (subject to employer’s agreement) Purchase an NCAP with your superannuation money Purchase an NCAP with your superannuation money Maintain current income by drawing a pension from your NCAP Maintain current income by drawing a pension from your NCAP Tax advantages mean your income stays the same but your super may receive a boost Tax advantages mean your income stays the same but your super may receive a boost

Peter’s story  Peter, age 55, wants to retire at 65 and work full- time until then  He earns $60,000 per year - $47,250 after tax and Medicare levy  Peter has $300,000 in super  On 1 July 2008, Peter rolls over all his super into an NCAP and chooses the maximum pension payment of $30,000  He salary sacrifices $37,519 (year 1) into super and receives the same net income of $47,250 after tax and Medicare levy

Peter’s position without a Transition to Retirement strategy Superannuation $300,000 (Accumulation) 15% Tax on entry 15% on earnings Tax-free Withdrawals (after age 60) Employer Pays Super Guarantee (9%) Take Home Income $47,250 TAX MAN Employer Gross Income Taxed at Marginal Income $60,000

An NCAP gives Peter a super boost TTR Strategy Superannuation $300,000 (Accumulation) 15% Tax TTR Pension 0% Tax Salary sacrifice $37, comes with a 15% rebate 60+ Totally tax free Saved Take Home Income $47,250 TAX MAN Employer Gross Income Taxed at Marginal Income $22,481 Employer Pays Super Guarantee (9%) Accumulated Super used to purchase NCAP $30,000 $300,000

The projections in this strategy are based on various assumptions, including but not limited to: maximum pension payment = $30,000 in year 1; salary sacrifice = $37,519 in year 1; no change in take-home pay before/after strategy; no change in risk profile; estimated investment return (Prudent portfolio) = 6.1% pa (super), 7.0% pa (pension); all investment earnings figures are after tax and after fees; no change in Super Guarantee contributions, ie 9% of $60,000.

Peter’s estimated gain  It’s estimated that by using this strategy Peter will have built an extra amount of around $91,800 in super by age 65  The increase is due to tax advantages and will not require a change in investment strategy  By making additional salary sacrifice contributions Peter could increase his super still further

Implementing a TTR Strategy  Once you’ve reached preservation age, a transition to retirement strategy can potentially boost your super as you transition to retirement without lowering your current income.  To re-cap it involves  continuing to work  rolling existing super into an NCAP  boosting your super with salary sacrifice payments  maintaining current income with an NCAP  As a result you can have your cake and eat it too with more super for your retirement

Improve, or gain access to a Social Security entitlement With super fund returns continuing in the negative many investment / superannuation account balances are probably lower since your last assessment. What you can do: Existing clients should contact Centrelink and request for a re-assessment of the value of these investments to see if they are eligible for an increase in their age pension entitlement. Clients who were previously not eligible to claim the Age Pension due to the assets test may wish to contact Centrelink to see if they are now eligible.

Legislative Update - Legislative Update - Income Test Reforms from 1 July '09 Proposal to assess certain 'salary sacrificed‘ contributions to superannuation as income is to broaden the definition of income that is assessed in determining eligibility for government support Programs Review of how the proposed changes will impact the more popular strategies used for Clients:

 Personal deductible contributions to super and 10% rule From 1 July 2009: Any amounts sacrificed into superannuation from salary or wages will be added back to assessable income to determine whether the employee meets the 10% rule or not. Government Co-contributionFrom 1 July 2009: This strategy will no longer be viable to high income earners as any salary sacrificed amounts will be added back to assessable income for determining eligibility. Commonwealth Seniors Health CardFrom 1 July 2009: The income definition to determine eligibility for the CSHC will be expanded to include non-assessable (tax free) income from superannuation pensions and lump sums, salary sacrificed contributions, personal deductible super contributions and total net investment losses. This is a consequence of the expanded "adjusted taxable income“ definition. Mature Age Workers Tax Offset, Spouse Super Contributions Tax Offset From 1 July 2009: Assessment for the above tax offsets will include any salary sacrificed amounts to superannuation. Family Tax Benefits (A&B), Child Care Benefit, Baby Bonus, Senior Australian Tax Offsets, Child Support, Medicare Levy Surcharge From 1 July 2009: Assessment for the above benefits will include any salary sacrificed amounts to superannuation AND/OR any amounts contributed to superannuation as a personal deductible (concessional) contribution. Cont…….

Where to from here? Remember, no one has a Crystal Ball Remember, no one has a Crystal Ball –‘ We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful’. Warren Buffet Always get quality advice and buy quality investments; Always get quality advice and buy quality investments; Focus on your strategy and long term goals; Focus on your strategy and long term goals; And finally… And finally… “In each and every market down turn a massive amount of wealth is transferred from the impatient to the patient” We want to make sure you are one of the patient ones!

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Disclaimer This information is a summary based on Financial Foundations Australia Pty Ltd’s understanding of the relevant legislation. It is general in nature and may not be relevant to individual circumstances. The case studies should not be considered recommendations or personal advice. You should not do or refrain from doing anything or rely on this information without obtaining suitable professional advice.

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