Spring Clean Those Finances!

We all strive to be ready for any financial scenario which may occur during our lifetime...and to possibly win the lotto! There are always bills to be paid and surprise expenditure that will pop up every few months e.g. car repairs, health bills, house maintenance etc.

In the words of the mantra I like to sometimes use, Fail to Prepare or Prepare to Fail! The best we can do is to be ready and informed. So in saying that, here are a few tips to help you along your financial journey.

• Spending : Know what you are spending your money on and where it is going. A budget can be a very useful tool for seeing where you need to possibly make changes as a result of logging and assessing all of your expenditure. Shopping around for a competitive price when it comes to life assurance/mortgage protection, car/house insurance and groceries is also a good practice for knowing that you are not spending more than is necessary.

• Savings : Short Term and Long Term. Saving an allocated amount each month, be it in the credit union, a pension or a personal savings plan is a very good habit to keep. In the short term, you may have unexpected bills that will come along when you least expect them. So having some type of emergency fund can be very reassuring. In the Long Term, you may be looking forwards to having a retirement pot and to finally reap the rewards of your hard-earned money.

• Protection : Whether you are employed/self-employed, have bought or rent a home or have a family/dependents, it is highly essential to make sure you protect yourself. There are many variations of life assurance, serious illness cover and income protection available. I am just a phone call or email away and can explain the benefits and costs for any of these products.

• Debt : Save on paying high interest charges by clearing any credit card debt monthly. Using a debit card rather than a credit card can also be a better way to manage your day to day expenses and will stop credit card bills building up.

• Be Sensible : Be informed when making financial decisions. Always seek guidance where investments are concerned and be ready for the long game. The markets can go up but you also need to be ready for the down. This will inevitably happen over the lifetime of any investment and a minimum of 6-7 years will give a good reflection of how your fund is performing.

You’ve worked for your money, make sure your money is working for you!

Although I believe commissions will remain part of the process on one level, I have been working on a new financial planning service which I will be offering to new clients over the coming months. Many existing clients have found this a very useful and concise tool in setting out a clear plan for their future. I believe this is a prudent exercise, wanting to know how our future will look and getting the most from our money.

Do you ever imagine what you would like to do in retirement or when your mortgage is paid off or even to retire earlier than you thought?

Some questions and comments I regularly hear when I meet people for the first time are:

• I know I should save into a pension, but can you explain why it’s better than saving into a savings plan?

• What will my pension pay me at retirement?

• I am self-employed, can I protect my income if I am unable to work due to illness or injury?

• I have pensions from a previous employment, can I get access to them on any level or what can I do with them?

• I think I have mortgage cover, but I do not know what it does, can you explain it to me?

• Should I pay more towards my mortgage and if so, what change will it have on my term and interest payments?

• I don’t understand how a life assurance policy payment affects me if my partner dies.

• What is the difference between Leaving Service Options and Retirement Options?

Should a person wish to avail of this financial planning service, it involves a simple 3-step process:

1. You will receive a link to a budget planner where you fill in your personal and financial details. This is a comprehensive budget and will take up to an hour to complete.

2. You submit the planner and I review and prepare recommendations and advice.

3. We meet to discuss the results of your budget, your priorities and how you can better manage your money from a savings / pension / life assurance perspective.

Following this, you decide what step to take next. Either way this process will at the very least be an education to anybody who has no current strategy for retirement or savings needs.

Smokers Pay Way Higher for Life Cover

Quitting smoking can pay off in more ways than one... as ex-smokers stand to save substantially on life cover.

Smokers can pay twice as much for life insurance than their non-smoking counterparts, according to figures released today by a leading protection specialist, though people may not be aware of just how sizeable the difference between the premium costs.

At this time of the year when people are challenging themselves to kick the habit as part of their new year’s resolutions, the cost comparison may be the encouragement they need to keep going.

Smoking in Ireland – The Statistics

The Healthy Ireland Survey 2018 results showed that smoking rates are the highest among the 25-34 years group. For people in this demographic the financial implication that being a smoker has on the cost of their life assurance will add up. A smoker who will turn 35 on their next birthday can expect to pay over €5,700 more than a non-smoker for €300,000 worth of Life cover over a 25 year term.

Another example; a smoker turning 45 on their next birthday will pay over €16,600 more in premiums than their non-smoking counterpart for €300,000 worth of Level Term Life Cover over a 25 year term.

Sample Cost Analysis

Level Term Assurance Life Cover

Age      Term (year)       Monthly premium non-smoker        Monthly premium smoker     Savings over 25 year term

35                25                                       €24.11                                                     €43.37                                    €5,778.00

45                25                                       €53.01                                                    €108.53                                  €16,656.00

So for anyone who gave up smoking at the start of 2018 and are purchasing cover for the first time; they can expect to pay less than they would have one year ago. For individuals with protection cover already in place who have managed to give up smoking for more than 12 months, they can potentially avail of a reduction in the cost of their premiums.

Most Life companies would classify a non-smoker based upon total abstinence from any tobacco products in the last 12 months, including the use of e-cigarettes and nicotine replacement products such as patches or chewing gum.

Trump to the left of us, Brexit to the right…stuck in the middle with EU

There has been a lot of uncertainty surrounding Brexit and what impact this will have on people’s investments and pensions. A question I have been asked recently by clients, is whether they should move their investments to a safer fund or stick with their current strategy. At any given time, you need to accept the value of your investment when reviewing it. What you wish it was worth is not as important as taking a cold hard look at your circumstances for how you wish to strategize your investment going forward.

There are some things I would suggest you consider before giving any sort of advice:

•  How long do you have before you will most likely need to mature your investment?

• How much of your money can you afford to lose?

• How will you react if you lose a significant value of your fund? Will you cash in your investment or move to a safer option or remain committed to your fund strategy?

• What portion of your fund/investment would you call significant?

What has this got to do with Brexit? It has everything and nothing to do with it. I would not recommend that people try to time the market in terms of getting in and out of investments. Brexit may be the most immediate danger to the stability of the market, but it won’t be the only one over the coming years. So, if a person learns to see their investment as something that will go through good and bad periods, they will improve their chances of making the right decisions at different times.

One of the important things to note, is how long you plan to invest your funds. The longer you intend on investing your money the potentially greater the risk you can afford to take. The next thing is trying to work out how comfortable you will be with these fluctuations and this will help determine how much risk you can take.

So, what will happen with Brexit? Well, nobody really knows. Perhaps it will be a “Hard Brexit”. Maybe there will be a referendum or an election which will change the direction the UK is taking. What impact this has on investments is anybody’s guess. One would not expect that Brexit should lead to a worldwide recession like the crisis of 2007/08.

Did you also know....?

Did you know... you can get Whole of Life cover which offers you several options once you have paid into it for 16 years. Following this time, every year thereafter you will have an option to continue paying or encash the policy (receiving up to 70% of your premiums back) or stop paying for the cover and you will maintain a specified amount of Life cover forever.

Did you know... Aviva Best Doctors is a second medical opinion for any chronic or troubling ailments affecting quality of life. Your partner, your children and your parents are automatically included on this benefit. The list of best doctors around the world may clarify that you are getting the best care/treatment or they may recommend an alternative (or newer) treatment. For example, sports injuries, skin diseases, cancer, blood diseases to name just a few. This feature is available at no additional cost and Aviva will match the lowest market price available for the cover.

Did you know... a Financial Broker has access to the best prices and special offers that are not always available through individual financial institutions and in most cases can save you money on a policy. A broker is not tied to one provider so can compare companies to find the best deal and price.

Did you know... some people may be hesitant to apply for life assurance for personal health reasons. I recently helped a 63-year-old client to obtain life assurance cover even after she went through an aggressive form of breast cancer 7 years ago. Even if she had been declined in this application, since she was under 80 years of age, there is an over-50’s life policy available to apply for irrespective of your health.

Did you know... that some people are able to drawdown all their pension funds into their hands as cash. This can be dependent on the type of pension you hold and the amount in that pension.

Did you know… that tax refund/relief is available for people who take out salary protection which pays them an income if they cannot work due to illness or injury. This tax relief is like a pension contribution and is at your standard rate of income tax (20% or 40%). So, if you were paying €50 per month, you would receive tax relief/refund of €10-€20 per month.

Did you know… that a lot of self employed people take out salary protection, life cover and make pension contributions where the company pays the premium.

Did you know....?

Did you know... after the recent budget many people will now get full access to their Approved Minimum Retirement Fund (AMRF). This is the case when their annual state pension is over €12,700 per year.

Did you know... the inheritance threshold for children is now €320,000 before tax is due. This means that they can inherit up to €320,000 from your estate but everything over this amount is subject to Capital Gains Tax of 33%. This tax will accrue interest very quickly if not paid when it falls due.

Did you know... both parents can avail of an annual gift exemption for their child up to €3,000 per year without it counting as inheritance. Parents can setup an annual savings plan of up to €3,000 per year (paid monthly if desired) with their child as the benefactor which can be a way of utilising the annual exemption over a long period of time.

Did you know... most life assurance companies are treating vape smokers as full smokers. This can potentially double the cost of all assurances. There is still currently one company that doesn’t charge smokers the full extra cost.

Did you know... most people take out life assurance (mortgage protection), when they take out a mortgage. In some cases this is directly through the mortgage provider who cannot offer the most competitive cover or the best benefits.

Did you know... not all life assurance is the same. Some life companies have extra benefits for free on their life cover plans. For example, some companies have an extra benefit which allows you, your children and your parents’ access to a second opinion professional service.

Did you know... some companies have more life cover and serious illness coverage for children. One company in particular offers up to €25,000 serious illness cover for children, hospital cash payments and overseas children’s cover.

Did you know... in most cases these extra benefits do not cost anymore because the life companies will price match with their nearest competitor. What frequently happens is that it is easier for people to take out life assurance with the mortgage so many people are losing out on benefits because they have not reviewed what they were covered for initially.

Did you know... many people I meet for the first time are not aware of their pension entitlements at retirement. Most people know that they should save into a pension for retirement but they may not understand what they will be getting from their pension at retirement. As a rule of thumb you are normally entitled to a tax free lump sum from your pension and the remainder of it is income subject to income tax.

Pension Update: AMRF and Potential Retirement Options

When you retire you are usually given several options for your pension savings. In most cases it involves a tax free lump sum and an option with the remaining balance. This is normally an option to buy a Pension/Annuity for life or alternatively to reinvest the balance into another pension vehicle called an ARF (Approved Retirement Fund) or an AMRF (Approved Minimum Retirement Fund).

A new revenue update carried out in recent months may be very beneficial for anybody who has or will have an AMRF after drawing down their pension benefits. Previously pensioners who held an AMRF could not access their funds before they were 75 or unless they had a guaranteed pension/annuity of €12,700 a year. This created problems for those who were on the full State pension but with no other income as the maximum they receive is €12,651 (€243.50 per week).

As a result of this update, Revenue will now accept the Christmas Bonus payments to those receiving payments from the Department of Social Protection. This means that some people who were originally below the €12,700 annual income threshold are now eligible to deduct more income from their AMRF policy.

AMRF holders currently on the maximum rate of State pension should be able to access their funds in full in December this year after they receive the Christmas bonus on their State pension. Some people may not pay income tax over age 65 if their total income is less than €36,000 (married couple) or €18,000 (single person). A person/couple could use this as a strategic way to drawdown these pension benefits in a tax efficient manner.

Over a period of years, a retiree may be able to completely withdraw their current AMRF tax-free. They could withdraw it faster but might pay some tax on the withdrawals. I would always suggest that the most prudent way of doing this is with the help of a qualified accountant who can help calculate the most tax efficient way for your personal circumstances.

If you feel you may meet the €12,700 income criteria at this time, you can look to attain official documentation to confirm this. Some people do this by contacting the social welfare services office on 1890 500 000 and request a “Statement of Social Welfare Payments”.

What is a Guaranteed Pension/Annuity?

This is effectively a guaranteed Income for life and is taxable as income. The state pension, public service pension and private pensions are the main methods of building up such an income.