Money Matters with Alan Tickle
I have two daughters, one who is just finishing university (Medicine) and the other who has finished her first year economics.
Both have superannuation accounts when they worked casually for a fast food chain that is getting eaten up by insurance.
Both will be home for Christmas. What do you suggest? RM.
First of all, I would be happy to talk through the issues with your daughters and offer some suggestions.
I have mentioned this in previous articles, but I would start with the superannuation fund that is getting eaten up with insurance.
There is possibly income continuance cover attached to the policy which is unlikely to be suitable given their present circumstances.
If the insurance is not required or not suitable, and if cancellation is not possible, which is often the case with industry funds, transferring the superannuation elsewhere can be considered in our discussions.
Your elder daughter is likely to soon earn good income with plenty of opportunity for higher income as she gains further experience and qualification.
That earning potential is her greatest asset but if she can’t work due to sickness or accident, any financial goals, hopes and dreams suddenly disappear. That income earning capacity needs to be protected through insurance.
One company I use is excellent for young doctors, as it gives automatic agreed cover of $120,000 pa once qualified, even though the actual start out income might be less.
Getting Trauma Cover is also important, as this provides a lump sum in the event of diagnosis of a number of major illnesses.
Obtaining this type of cover on level premiums while your daughters are young means that premiums remain affordable for income and trauma cover, rather than facing the increases each year that applies to stepped premiums as they get older.
We could then look at your eldest daughter’s objectives, and if saving for a home deposit is on her mind, establishing a Home Saver Account, which receives co-contribution benefits from the Federal Government and favoured taxation treatment, is a good way to accelerate saving for a home.
Superannuation fund suitability would also be considered when establishing a strategy for your eldest daughter.
Your youngest daughter might not yet be ready for income cover, but I believe that parents taking out Trauma Cover for their university student child, gives the safeguard of a lump sum should they fall victim to the wide list of illnesses classed as critical illnesses.
For example, $20 per month would give them about $130,000 lump sum cover.
We can all think of people who have had to have treatment for cancer and other serious illnesses, who would have loved that sort of cover.
Estate Planning and Authorities to Act
While discussion Wills and Powers of Attorney might sound a bit morbid to your daughters, anyone over 18 should make out a Will and having a Power of Attorney in place from your daughters to you, allows you as parents to act for them should they become incapacitated or unable to attend to their affairs.
This is useful if they intend to leave the country to travel and need assistance out of Australia.
Similarly, you should consider your own Estate Planning situation, because it might be time to give similar authority to your daughters to act for you.
What we have just touched on is a financial health check, where current circumstances verses objectives are lined up to see if the present strategy is appropriate and bases are covered.