“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
CICERO – 55 BC
This is an early newsletter:
The Federal Budget will be delivered on Tuesday 9 May, after which I’ll be doing a special bulletin. Labor has already promised no more changes to super but I’ll believe that when I see it.
I’ve got three speeches booked in after the budget and I am sending this newsletter now to give you plenty of notice if you would like to come.
Inflation
The Reserve Bank usually announces interest-rate movements on the first Tuesday of the month, which means the next announcement will come on Tuesday next week. Of course, there are the usual differences of opinion as to what the rate rise, if any, may be. My suspicion is that they will announce another rise of .25%.
Inflation is getting worse and the building trade is a complete shambles.
The Courier-Mail. 12 April 2023
Builders are going broke everywhere. Brickworks Limited have announced a reduction in their brick output because of a lack of demand for bricks – not because bricks are no longer needed, but because there is such a shortage of bricklayers that brick consumption is way down.
While we were playing golf last week, a friend who is running a huge residential construction project at the Gold Coast told me that many contracts are falling through because the builders can’t complete them, which gives potential buyers a get-out. It’s also difficult to hold sales when nobody knows when the final completion date will be. He said that over Easter the CFMEU called for eight days of special leave, which put the building sites that were operating even further backwards. At present, if you want a concrete pour you have to book in three months ahead!
Another friend told me that he had a commercial building all approved and set to go two years ago, with an expected building cost of $25 million. Right now, he can’t find any builders and the best guess for the final cost is over $50 million.
I have no idea where this madness is going to end. If you drive around Brisbane now, it is just full of cranes with construction going flat out everywhere. It’s the same in most suburbs and I’m sure it’s going on right around the country. I’m not at all convinced that continually pushing up interest rates will have much of a positive effect. All it does is hurt the poor families with kids and a mortgage.
I guess we should feel lucky that we don’t live in the United Kingdom. The latest inflation data from their Office for National Statistics shows that last month it decelerated from 10.4% to 10.1% – despite predictions of 9.8%. These numbers are unlikely to be much consolation for those struggling with food inflation, which remains at a staggering 19.1%. Some products, like olive oil, are up by 49%. There are numerous reasons why food prices seem to be immune to the general downturn: these include poor harvests, Brexit trade barriers, the war in Ukraine, high costs for raw materials and rising labour costs.
Stay focused
Yes, there is plenty to be concerned about, but I’m most worried by recent research from Finder that reveals many Australian households feel like “a deer in the headlights” – they are so frightened that they feel unfit to make financial decisions.
It’s a natural reaction but not a helpful one. The way to solve a problem is to go back to basics. If a bushfire was bearing down on your home, you wouldn’t be sitting in the lounge room doing nothing – you’d be preparing your home in case the fire did strike. It’s the same with your finances.
Photo by Brett Jordan on Unsplash
Start by writing down where you are right now.
List your assets and liabilities, paying particular attention to any debts. Focus on any home loan first and try to refinance at a lower rate. To do this, your debt must be less than 80% of the value of your home, otherwise mortgage insurance will make it too expensive. The next step is to ensure your payments are at least $632 a month for every $100,000 you owe. That would be $2528 a month on a $400,000 loan. This is based on an interest rate of 6.5%, which will cover your interest and keep you afloat.
The next step is to do a budget.
There is no better place to start than ASIC’s MoneySmart website; moneysmart.gov.au. The material available there for free is probably the best in the country. Their page, Budgeting, starts with everything you need to get going. They also provide a free online budget planner that is easy to use and lets you save your results online. It lets you enter all your income and expenses and break them down into a wide range of categories. There is also an “other” category for expenses they have not listed.
Next, think about your credit card
Your credit card is a great barometer to help you understand your financial position. If you are using a credit card now and pay the balance in full by the due date every month, it’s a strong indication that you are living within your means. Congratulations! However, if you are not able to pay the entire balance before the due date, it’s a major warning signal that you need to take urgent action. Failure to do so can set you on a serious downhill path. My book Making Money Made Simple has a whole chapter on getting out of credit card debt.
Photo by Brett Jordan on Unsplash
Right now the media is full of all sorts of gloomy predictions, but I reckon it’s a safe bet that interest rates will keep on rising, and inflation will stay high despite the efforts of the Reserve Bank. This is not a time to be complacent and give in to inertia, hoping things will get better.
The strategies I have mentioned today are simple things that will get you on the right track. And they can do more than that: just taking action focuses your mind on what needs to be done to stay out of trouble and will give you energy and a sense of purpose that will carry you through. These are challenging times; your major goal is to survive them.
Events coming up
On Friday ,12 May I’ll be giving a speech in Ballina, New South Wales for the Association of Independent retirees from 10 to 11 am.
On Wednesday, 17 May The Southside Chamber of Commerce in Brisbane will be having a breakfast meeting starting at 7 am at the Mt Gravatt Bowls Club (to be confirmed).
The third event is on Wednesday 24 May for the Centaur financial planning group based in Palm Beach, from 10 to 11:30 am at the Currumbin RSL.
All events are free.
If you would like to go, please contact me on noel@www.noelwhittaker.com.au and I’ll put you in touch with the organisers in each case.
Aged care changes
The aged care interest rate went up to 7.46% on 1 April. It was the sixth consecutive increase since October 2021, when it was 4.01%. The change is likely to affect how people choose to pay for aged care accommodation. In most situations, you have the choice to pay for your accommodation by a lump sum, a daily payment or a combination of both (including deducting your daily payment from your lump sum). The daily payment is simply interest on any unpaid lump sum. When the rate increases, lump sums become more attractive to residents as daily payments become more expensive.
An aged care bed with a Refundable Accommodation Deposit (RAD) of $550,000 had an equivalent daily payment of $60/day ($22,055/year) in October 2021. Since the latest increase, that same bed will have a daily payment of $112/day ($41,030/year). While $550,000 is a common price (it is the cut-off for requiring government approval), in some cities it is not uncommon to find bed prices of $1 million and more.
The new rate applies to people who move into aged care from 1 April 2023 and to some existing residents who choose to move rooms or to another home.
Accommodation is just one part of aged care costs. Residents pay a basic daily fee, set at 85% of the single age pension, currently $59/day ($21,528/year). You can also pay a means-tested care fee (based on your assets and income) of up to $358/day (capped at $31,707 a year and $76,097 over your lifetime). Beyond that are personal expenses, which may include extra service fees for things like wine, entertainment and hairdressing as well as clothing, medication and gifts.
Most people wrongly believe that because aged care is means-tested, it is affordable – that’s simply not true.
Let’s look at Shirley.
She has a home worth $950,000, as well as $100,000 of investments and $10,000 in personal assets. Her personal expenses are $25 per day, she receives $27,664 a year in age pension and $3,000 a year in interest. The aged care home she wants to move into has a RAD price of $500,000.
If Shirley pays by daily payment, her cost of care will be $189 per day ($69,054/year), of which $102 is her accommodation payment. For most residents, this will be the situation when they enter aged care. So Shirley’s costs exceed her income by $38,390 a year.
Possibly her biggest decision will be whether to keep or sell the family home. This can be a hard decision for sentimental reasons, and financially speaking, keeping the home can have benefits too. It has a capped value of $193,219 for the aged care means test, and a 2-year asset test exemption for calculating her age pension.
Aged Care Guru Rachel Lane says that while selling your home often means that you can free up the funds you need to pay a RAD, reducing or eliminating the DAP cost, it can come with unexpected consequences. If your home’s value is significantly greater than the RAD, the extra funds may reduce your pension (a potential loss of up to $27,664/year) and increase the means-tested care fee you need to pay (a potential cost of up to $31,707/year).
Aged care decisions are complex, and you don’t want to end up “robbing Peter to pay Paul”. Seeking advice from a retirement living and aged care specialist is a smart way to ensure that you understand your options and there are no nasty surprises down the track.
If you do need age care advice and you don’t know an aged care specialist advisor, just email me and I’ll recommend a good one for you.
Health matters
In my book Retirement Made Simple, in the final section, on living a healthy and happy life, I wrote “I’m going to introduce you to the importance of having a healthy gut, in the hope that you will investigate further, as it could play a major part in how well you age. The bottom line is that certain foods, such as sugary drinks, red meat, and processed and fried foods can be harmful to your gut. A diversified diet based around fruit and vegetables, on the other hand, is not too hard to follow and can mean major health improvements. And of course you do get your treats: a glass of red wine and a piece of dark chocolate a day are not just okay but recommended. I reckon that’s pretty good.”
I must confess three of my favourite things are coffee, wine and chocolate.
Photo by Elena Leya on Unsplash
A study in 2011 from the University of Cambridge found that “high levels of chocolate consumption might be associated with a one third reduction in the risk of developing heart disease”. Specifically, the “highest levels of chocolate consumption were associated with a 37 per cent reduction in cardiovascular disease and a 29 per cent reduction in stroke compared with lowest levels”. Even more exciting: dark chocolate may stave off artery hardening in smokers.
Science has started taking the mood-lifting benefits of chocolate seriously. A 2019 study from University College London found that eating dark chocolate “may positively affect mood and relieve depressive symptoms”.
If you search online, you’ll find a lot of material about the benefits of chocolate. I won’t be stopping – I have two squares of dark chocolate every day.
And finally
If God wanted us to vote, he would have given us candidates.
Jay Leno
The problem with political jokes is they get elected.
Henry Cate VII
We hang the petty thieves and appoint the great ones to public office.
Aesop
Image by Nic Jux on Unsplash
If we got one-tenth of what was promised to us in these State of the Union speeches, there wouldn’t be any inducement to go to heaven.
Will Rogers
Politicians are the same all over. They promise to build a bridge even where there is no river.
Nikita Khrushchev
When I was a boy I was told that anybody could become President; I’m beginning to believe it.
Clarence Darrow
Why pay money to have your family tree traced; go into politics and your opponents will do it for you.
Author unknown
Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.
John Quinton
Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.
Oscar Ameringer
I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them.
Adlai Stevenson, campaign speech, 1952
A politician is a fellow who will lay down your life for his country.
Tex Guinan
I have come to the conclusion that politics is too serious a matter to be left to the politicians.
Charles de Gaulle
Instead of giving a politician the keys to the city, it might be better to change the locks.
Doug Larson
I hope you have enjoyed the latest edition of Noel News.
Thanks for all your kind comments. Please continue to send feedback through; it’s always appreciated and helps us to improve the newsletter.
And don’t forget you’ll get more regular communications from me if you follow me on twitter – @NoelWhittaker.
Noel Whittaker