Money & Happiness

Many regard wealth to be a defacto measure of happiness.

But numerous research studies confirm our suspicions that 'money does not buy happiness', but on the other hand it clearly is no fun being broke either. Perhaps it’s useful to consider the differences between the 'happy rich' and 'unhappy rich' to determine why money may not deliver happiness in all cases.

Researchers1 point to one important difference between the “happy rich” and the “unhappy rich”:

  • The happy rich see money as a means to an end; a contributor to the achievement of goals that are consistent with their own personal values; where money is an ‘enabler’, and fuels their journey towards something worthwhile in their lives.
  • The unhappy rich see money as an end in itself; they pursue wealth without regard to wellbeing or any sense of greater good. Their wealth is their measure of self-defined success, and their sense of wellbeing is linked to their relative worth compared to family and friends.

The difference between these two groups is the degree to which their personal values drive their pursuit of and use of money and wealth. Our personal values are the drivers to determining 'how much is enough' in life because they give expression to our priorities and needs.

But wealth does make important contributions to a sense of wellbeing. Sense of wellbeing is linked to key areas within our lives.

  • Your family – plus your key relationships with those who really matter to you
  • Your ‘career’ – what you are doing and how you are doing it
  • Your community – and how your contribute to it
  • Your time – how you determine your priorities, leisure and action plans

It is an intensely personal thing to define and measure. But once you’ve worked out the balance it’s more than likely that happiness will take care of itself.

Source_1: Tim Kasser and Professor Martin Seligman our sense of wellbeing

Caring for your parents

preparing for your parents aged care

Aged care is a serious matter, one fraught with emotional and financial hurdles - for everyone involved. But in an ageing population like ours, finding and paying for the right type of care is something we all need to prepare for.

These days, there is a trend for seniors to live at home for as long as possible. To facilitate this, the government provides subsidised ‘home and community care’ (HACC) that offers varying levels of in-home care for retirees. Seniors need to be assessed by an Age Care Assessment Team (ACAT) to determine the level of care required, and the exact cost will depend on the extent of the service, the provider and your ability to pay.

For those people requiring live in aged care there have been a number of changes in recent times. Previously live-in aged care facilities were broadly divided into ‘low level’ care, formerly known as hostels, and ‘high level’ care, often referred to as nursing homes. However, new rules applied to residents entering residential aged care from 1 July 2014 mean that care will no longer be categorised as low level care or high level care but rather there will be only one type of approval for permanent residential care. In addition to this other changes from 1 July 2014 include a new means tested fee that combines an income and assets test, annual and lifetime caps on means tested care fees and residents will have the choice to pay accommodation costs as a fully refundable lump sum, periodic payments or a combination of both. The changes are summarised in the following table:

Before 1 July 2016After 1 July 2016
An ACAT assessment is needed to determine the appropriate level of care (high or low).
The distinction between high-level and low-level care has been removed. ACAT assessments will simply be to determine that any form of care is needed.
Upfront accommodation costs
Accommodation is paid as:

• An accommodation bond (lump-sum payment) if entering low-level care or an extra service facility.

• An accommodation charge (daily payment) if entering high-level care.

Accommodation costs are determined by a resident’s assessable assets.

Accommodation can be paid as a refundable accommodation deposit (lump-sum payment), a daily accommodation payment (daily payment) or a combination of both in all facilities.

Residents will have up to 28 days after entering a facility to decide on their payment method. Accommodation costs will be determined by a resident’s assessable income and assets. The prices of rooms must be published on the ‘myagedcare’ website.

Retention amounts
If paying an accommodation bond, the facility may deduct an amount each month for up to five years. This is called the ‘retention amount’.
Retention amounts will not be deducted from refundable accommodation deposits.
Ongoing care fees
Ongoing care fees include:

• Basic daily fee – Payable by all residents

• Income-tested fee – Not payable by full pensioners and determined by a resident’s assessable income. A maximum daily fee applies

• Extra service fee – Payable in an extra service facility and set by the facility.

Ongoing care fees will include:

• Basic daily fee – Payable by all residents

• Means-tested care fee – Will be determined by a resident’s assessable income and assets. The maximum daily fee will be removed however yearly and lifetime caps will apply.

• Extra service fee – All facilities will be able to offer extra services for an additional fee.

Assessment of the home to determine ongoing care fees
The value of the home is not assessed when calculating the income-tested fee.
The value of the home will be assessed for the means-tested care fee up to a cap (it is around $157,000 but this figure will change regularly), unless occupied by a protected person.

Securing a spot in either can take time - anywhere from a few days to a few months. The best place to looking is the Government's website which is an excellent resource:

invest time for the right result

Comparing facilities can be time consuming and each facility will be slightly different (potentially in services offered and also cost). Perhaps the best approach for this difficult area of family life is to talk through the issues involved. Family members are generally concerned with balancing the need for appropriate care whilst also trying to protect capital so as not to run out of money. There are also other issues to consider such as:

  • Keeping or selling the home - while there are a number of factors that may influence this decision, it is important to know that keeping or selling the home can affect your ongoing care fees if entering a facility on or after 1 July 2014. It is definitely worth exploring the financial implications of what to do with the family home.
  • Structuring accommodation payments - residents have 28 days after entering a facility to decide whether to pay for their accommodation as a refundable accommodation deposit or a daily accommodation payment. This choice can influence how much the resident pays for ongoing care fees. Thus we encourage clients to seek advice on this issue.
  • Investment strategy- your income and assets are assessed when determining your ongoing care fees, so an appropriate investment strategy can potentially reduce the amount you pay.

That’s why anyone considering aged care should get some upfront professional financial advice. It can make a significant difference in how you might structure your financial affairs.

emotional aspects of aged care

Money aside, it’s never easy for families to broach the topic of aged care. According to a 2006 study by University of Adelaide psychologist Dr Linley Denson, most retirees fail to plan ahead for aged care and many are prepared to risk their health in order to maintain their independence. Family members tend to take the opposite approach, giving the physical health and safety of elderly relatives top priority while failing to take into account their personal wishes.

With this in mind, perhaps the best approach for this difficult area of family life is to talk the issue through, letting senior parents have a strong voice rather than expecting them to simply hand over responsibility for the way they’ll spend the final years of their life. It makes sense to discuss the matter long before aged care is urgently required. This new stage takes some adjusting to, and allowing time for everyone to weigh up the pros and cons will go a long way to making the transition less distressing.

Life after work

Whilst the notion of living longer is a blessing to most of us, it does mean that we need to find ways to fund our lifestyle. Retirement for many will last as long as our working lives. The key challenge is this: will we have sufficient money to enjoy our extended lives?

the “R” word
The concept of retirement has only existed for around 100 years and today’s baby boomers are the first generation to face the real prospect of outliving their financial resources. The ‘baby boomer’ generation is rejecting the notion of retirement. In fact, according to the researcher Hugh Mackay* “retirement is a word they’d rather not use because it carries connotations for them of elderly folk sitting on the verandah with pipe and slippers, watching the sun sink symbolically into the west”.
So, far from contemplating “retirement” the baby boomers are looking forward to a healthy, active and engaged period where they can continue to exert influence and control over their lives. This is not a generation expecting to degenerate. And as Mackay observes “they will be looking for new ways to de-stress without appearing to have dropped out or given up”. And importantly, the boomers have found a new word to describe this period, replacing the downbeat “retiring” with the upbeat “refocusing”.

dreams versus realities
How achievable will be this dream period of active, engaged “refocusing” for those contemplating life after work in the next few years? Unfortunately numerous studies show that many people have under-saved, underinvested, over-borrowed and underinsured to guarantee the life they so desire. This trend has been exacerbated by the 2008/09 global financial crisis that threatens to have long term effects on the valuations of accumulated assets that the baby boomer generation will be relying on into the next decade or so.

what can I do to offset these uncertainties?
Refocus my expectations and priorities. Re-design my lifestyle for life after work around my projected financial resources and realistic capabilities. Be clear about what income my investments will generate into the future and adapt my spending accordingly.

Work longer. Postpone my transition from full time work and continue to build my asset base and my investment strategy to allow for any shortfalls. Be clear about what I need in terms of an investment strategy and income levels once I stop full-time work.

Be patient. Asset values tend to return to previous levels after major downturns.

Best of all – combine all three strategies and refocus your ambitions around what’s important and meaningful in your life. This is a wonderful time to reflect on these issues and reconsider your plans. We recommend you get advice to help you make the right choices for you.

Together, good planning and professional advice are the keys to ensuring you are prepared for life after work.

source: IPAC Securities 2010 & “Advance Australia …Where?”, Hugh Mackay, Hachette Australia, 2007

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The cost of retirement

Most Australians recognise the need to set aside funds for retirement. What’s less clear is just how much money we need to support a decent lifestyle in our senior years. It’s an issue many of us only address when we’re approaching retirement, and by then it can be challenging to build the level of investments needed for your preferred style of living.

There’s no single answer to the question of how much you need to retire on. It’s a very personal issue, and one that hinges on your likely living expenses.

A good starting point in determining how much money you need to be financially independent in retirement, is to work out an anticipated annual budget.

You will need to think about hobbies, travel, cars, eating out, entertaining, health, clothing and so on.

If you plan to own your home, remember to include maintenance, rates, insurance and so on. If you plan to rent, include rent in your costs.

Once you have an annual amount that covers all these outgoings, the next step is to decide at what age you would like to retire, or are financially able to if you want to enjoy a good one.

An example may help here. Let’s say you have decided you would need $X a year to fund your preferred retirement lifestyle. There’s a quick calculation you can do to give you the approximate level of accumulated funds you would need to provide this level of income.

You simply multiply the annual income you would like in retirement by 17 if you want to exit the workforce at age 55, multiply it by 15 if you want to retire at age 60, and multiply it by 13 if your proposed retirement is at age 65.

Let’s say you decided you would need $50,000 a year in retirement to give you your preferred lifestyle. Using the formula above, you would need accumulated funds worth approximately $850,000 to retire in style at age 55; $750,000 at age 60 and $650,000 at age 65.

Take your current investment assets and superannuation away from your required amount and this gives you the 'shortfall gap'.

We have now calculated that if you want $50,000 a year from age 60, you need $750,000. Let’s also say at present you have $200,000 in super and $100,000 in equity in an investment property, giving you total funds of $300,000. In this case you would need to build up another $450,000. Many people looking at this figure would wonder how on earth they’ll ever save that sort of money.

It can be done but the trick is to start early. It also helps to take advantage of the tax breaks offered by superannuation to boost your retirement savings.

There are some useful online calculators that will show how much money you’re likely to accumulate in super for a range of annual contributions. You can find one on the consumer website of our investment watchdog ASIC at Click on ‘Publications and resources’.

If you feel you’ve left your run a bit late, it’s worth remembering that seniors are entitled to some generous tax breaks that let you earn a decent annual income before losing part of your money to tax. And while the age pension is miserly, qualifying for even one dollar of a part pension will entitle you to some handy discounts on utilities and other living costs.

There’s a wealth of information of how to save and invest to become financially independent. The FIDO website is excellent, and there is also a range of useful personal finance magazines and websites around.

source: IPAC Securities 2010