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Posted December 18, 2018 by MoneyLink

Financial Decisions at Christmas

With Christmas almost upon us financial considerations are about to give way to fun times with family and friends. Yet many of us still have important decisions to make.

Are you retiring?

A small group of people will be retiring this Christmas. Benefits in some NSW Government super funds are maximised if employees receive their final salary payment in January. These people often have the choice of a lifetime pension or a lump sum payment to set up a personal pension account they control.

The lifetime pension looks attractive as it is indexed to inflation and guaranteed for life. It may also pay a partner at a lower level if they live longer. The major disadvantage is that there is no residual payment for the family on death. The retiree consumes their capital.

Those who live a long life receive a high rate of investment return. People who live for a shorter period in retirement receive little or no return on their super savings. So anyone with health problems or parents who died young should probably think carefully.

Christmas spending

Buying gifts for everyone with a limited budget is a challenge for many at Christmas. When the cost of the gifts needed exceeds the available funds there are options. It may be possible to make some gifts from low cost components that people will appreciate.

There is no law that says gifts must be new. Sometimes a solid second-hand item repaired or repainted will be greatly appreciated if well chosen, and a lot cheaper.

Nor do Christmas gifts have to be physical goods. Often a ticket to go somewhere or do something unusual will be popular and less costly.

For those who really have to borrow to pay for presents it is better to redraw on the home loan, or use some other low-cost loan, than to use credit cards costing twenty per cent or more interest.

A managed fund can be a great gift

People with more financial resources might like to think about starting a savings plan for a young person. Grandparents are often quite keen to open a bank account for a grandchild and start putting smaller, regular or ad hoc amounts in it. This is a great start.

It can make a big difference to a small child’s future decades down the track. The only catch is the interest rate on bank accounts. Compound interest over the long term is a very powerful force but even it cannot do much with the rates paid on bank accounts with small balances.

The best answer solution is a managed fund investing in growth assets. They can be started with as little as $1,0000. Adding a regular contribution of $100 per month or more is optional. This is a strategy that can build a substantial investment for the child by the time they reach adulthood.

This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.

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