1 November 2014

School’s out – but the bills keep coming in

Planning sooner will ease pain later, says investment manager

Every year about this time, throngs of newly graduated “schoolies” kick up their heels to celebrate their newfound freedom in some exotic (and not so exotic) locales. While it’s a time of celebration for the youngsters, for parents, the worry about their child’s wellbeing at schoolies can be matched by their concern about their own financial wellbeing.

That’s because the end of high school often marks the beginning of a whole raft of new, transitional expenses. And that’s not even to mention the cost of higher education should changes proposed by the Federal Government see the light of day.

According to Centuria General Manager of Investment Bonds Division, Neil Rogan, parents can avoid the pain by looking at investment options that don’t hurt to maintain, but deliver much needed relief when the ”schoolies” symptoms hit. And a new, tax effective insurance investment bond, TaxAstute, has been developed by Centuria Capital precisely for such a purpose.

“End-of-school transitional costs can come as an unpleasant surprise – or a real hardship – to parents expecting a spending break, and many are not prepared. But that need not be so, if they start planning early – and choose the right investment vehicle,” explained Mr Rogan.

“You’re looking at the cost of tickets and outfits for formal parties which can range around the $1000 mark, then the obligatory 10-day at “schoolies” holiday interstate or even overseas. With fares, accommodation and spending money this can easily mount to $3,000 or more.

“Add to that the prospect of funding at least six months’ rental or college accommodation plus ancillaries at university and you’re looking at a further $6,000 to $10,000. And proposed changes to tertiary education funding mean the reality for many parents may be that they will be unexpectedly funding another three to five years of education for their children.”

Mr Rogan outlined a number of illustrative examples of how a bond might work using a hypothetical 5% per annum post tax and fees return (equating to an x% pre-tax return and assuming 1% p.a. fees). However, Mr Rogan also noted that the 5% annual return used in the example was a hypothetical scenario used for illustrative purposes only. Each bond will have different investment strategies and risk profiles and may experience both positive and negative returns, and this would materially impact the outcome.  The examples given may not reflect the real outcome achievable and is not a forecast or opinion in respect of any of returns achievable within the Tax Astute Series.

  • A $1000 initial investment bond deposit plus $20 dollars per week contribution at 5% earnings p.a. over 10 years would yield $14,000 tax free
  • A $5000 initial investment bond deposit plus $100 per week per week contribution at 5% earnings p.a. over 10 years would yield $66,000 bond deposit tax free
  • A $7000 initial investment bond deposit plus $600 per month contribution at 5% earnings p.a. over 10 years would yield $94K tax free
  • A $10,000 initial investment bond deposit plus $10,000 per year at 5% earnings p.a. over 10 years would yield $132,000 tax free

Growth and earnings in the Centuria TaxAstute bond are taxed at a maximum of 30%, paid by Centuria on behalf of investors directly from earnings. Investors pay no personal income tax on the investment during its term and, if they hold it for more than ten years, pay no tax on withdrawals. Annual tax reporting is undertaken by Centuria and contributions and withdrawals are flexible.

“With TaxAstute we’ve taken an old-school product and revived it to suit a new-school market – quite literally, and now’s the time for parents to think about jumping on board, because the 10-year timeframe is the key. And, as a parent myself, I can certainly attest that the years fly past – so the sooner you start, the better,” said Mr Rogan.