Personal financial planning - Essay Example

Assignment Part A Briefly explain what options are available to Jack with respect to the payment he will receive upon termination of his employment, including his superannuation balance. Calculate the resultant tax treatment of the payment with respect to those options. One of the best options jack could plan is to pay a small amount of future pre-tax salary to the investments. The plan for such investments would also help to pay for personal insurance to protect the family income. Investment in $ Tax rate Tax contribution Net amount (No other deduction assumed) Tax saving 2000 15 300 1700 330 5000 15 750 4250 825 10000 15 1500 8500 1650 20000 15 3000 17000 3300 Part B Estimate the total capital the couple will need to accumulate in order to achieve their preferred lifestyle in retirement. (Assume a real return above inflation of 4% per annum). Since Marion has 7 more years before attaining the period of superannuation thus at the present income level the financial planning necessary to be undertaken in future are as follows The current expenditure is $ 45,000 per annum The income received by Marion is $ 45,000 per annum. Hence for next seven years , the Marion income is adequate for both of them to meet the lifestyle expenditure. During this period Jack would have return of deposits amounting to $ 8000 and the return from superannuation as $ 1350. This could be deposited on long term basis and as the seven years are completed the amount could be added with the Marions return to meet their living expenses. At the present rates both Joe and Marion would require $ 55,000 to lead a very comfortable life. If this is the amount that the couples expect after their retirement then the they must have accumulated saving of $137500 at 4 % interest per annum. Their total savings is estimated as 4,36,000/- which doesn't include the superannuating benefits of both Joe and Morion. Even if these aspects are accounted the current position would be enough if they expect to support in the same manner in future. The cost of living certainly would enhance and hence the gaps that exist between the current estimate and actual expense in future would be very huge. Part C Explain the purpose and operation of the transition to retirement provisions The major benefit of transition to retirement provision is to receive a part of superannuation as pension while being involved with it. It would help to sail smooth into the retirement period while enjoying some tax related concessions available to pensions. The guideline for opting the transition to retirement varies from one scheme to another. As an example, some of them specify that one's preservation age must be below 65 years and continues to be in workforce. And the government might not have specified the minimum or maximum hours that you might be working. One could collect the super as 'non-commutable account based pension". In some situations, the account holder is allowed to take a maximum of 10 percent only while being in a transition period. A minimum account balance, say $ 25,000/-, is to purchase some of the products designed for transition to retirement. Also, certain stipulations like minimum account balance of $ 1000/- is required in the account. Part D Describe two current legally accepted strategies that could be employed by the couple to enable them to maximise any Centrelink benefits in their final retirement. The important areas that could be employed by the couple for planning the post retired life are Age pension : This can chosen based on the qualifying age and also on certain test conditions like asset and income test. Allowances are related to the people who are not presently in the workforce. Commonwealth Seniors Health Care Card is anothet option for those who fail to qualify for the senior health care card. Part E Identify the two methods of nominating a beneficiary for superannuation members and the advantages and disadvantages of each. Outline the tax treatment of superannuation lump sum death benefits. As per the newly proposed eligibility criteria Joe would be eligible for the age pension scheme. Joe's age is 68 much above the eligibility mark of 61 years. Marion, on the other hand considering the date of birth need to attain the age of 64.5 to qualify for the age pension scheme. Still Marion would be able get the benefits like discounted public transport and purchase of pharmaceuticals (Commonwealth bank.). Nominating a beneficiary for the superannuation could be undertaken either by short term nominations or long term beneficiary nominations. In the case of short term the members would have the option of changing the nominated person and it would be attached to new person after fresh application is filed. Part F Discuss the areas you think would need to be raised with Jack and Marion, including their ability to manage their affairs for each other in the future. The primary aspect in the case of estate planning is the proper documentation systems. Besides the agreements and preparation of wills should also be given the proper attention. Though it is a very attractive proposition to the couple as presently they don't have any burden of the liabilities. Part G Provide an explanation of how the ownership of the following assets would be affected and any tax liability that may arise if Marion should die unexpectedly: a) Principal residence On the death of Marion , Joe would naturally inherit the residence which was jointly held. As the nature of holding is explicitly stated as joint no ambiguity exist in the transfer of this asset. After the period of Joe, what would be the nature of holding is quite uncertain at this point of time. No statement to support this is available in the information supplied. The change in owner ship of this asset would not bring any significant tax liability to Joe (Sirkin and Associates). b) Home contents The home contents and the car too are jointly held and hence upon the death of Marion, all these assets would be automatically passed to Joe. These assets that would now be independently held by Joe could be eliminated from the tax liability based on the existing civil partnership agreements (Civil partnership.) c) Bank account The bank accounts are also jointly held and hence it would automatically pass into the hands of Joe. The tax implications that existed earlier on the earnings and receivables would continue to exist when Joe independently handles this account. d) Marion's shares Marion's share cannot be transferred to Joe directly as it is independently in the name of Marion. The possibility of this asset moving to the common pool that includes Joe and his children and the tax implications would be related to all the holders of the fund. e) Marion's superannuation. Marion's superannuation amount would be passed to Joe .and it could add to his tax liability. REFERENCE Civil Partnership, Death and Inheritance , web : 12 October 2009 http://www.civilpartnershiplaw.co.uk/index.phpid=561, Commonwealth bank , Super and retirement, web : 11 October 2009. http://www.commbank.com.au/personal/super-retirement/income-in-retirement/centrelink-benefits.aspx Sirkin and Associates , Shared ownership top 10 issues, web : 14 October 2009 http://www.andysirkin.com/HTMLArticle.cfmArticle=133 Unisuper, Transition to retirement, web : 11 October 2009http://www.unisuper.com.au/members/accessing-your-super/transition-to-retirement Read More