February 2025 market update

As we move into the last of the summer months, local commentary is still heating up around where the RBA is heading with rate cuts in 2025, the upcoming Federal election, and the ongoing cost of living crisis - which is still hitting the hip pocket of most Aussies hard.

The government provided some cost-of-living relief, which has had a cooling effect on inflation - sitting at 2.4 per cent at the December 2024 quarter, down from 2.8 per cent in September 2024. Trimmed inflation is 3.4 per cent, down from 3.6 per cent last quarter. While inflation is nearing its target, multiple interest rate cuts throughout 2025 would be welcomed by mortgage holders.

Recently, Trump 2.0 has been making global headlines, the tech clash between the US and China has also been dominating. Last week, US tech giant Nvidia recorded a 17 per cent plunge in a single day, which is now the biggest loss in US share market history. This was due to Chinese AI company DeepSeek unveiling a program to rival its competitors and become more cost-effective to operate. Markets made a quick recovery.

Domestically, the ASX 200 continued a bumpy ride, although it finished the month at an all-time high of 8,532 points.

The Aussie dollar is holding steady around 62 US cents.

In this issue

Market movements and review video - February 2025

How to financially ease into retirement

Preparing your kids for financial success

Market movements and review video - February 2025

Stay up to date with what's happened in the Australian economy and markets over the past month.

Headline inflation eased more than expected during the last three months of 2024 - opening the door for the RBA to cut the cash rate.

While the release of China-based DeepSeek's new cut-price AI model sent shockwaves through markets late in the month, they quickly recovered ground.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.


 

How to financially ease into retirement

Deciding when to retire is a big decision and even more difficult if you are concerned about your retirement income.

The average age of Australia’s 4.2 million retirees is 56.9 years but many people leave it a little later to finish work with most intending to retire at just over 65 years.ⁱ

If you’re not quite ready to retire, a ‘transition to retirement’ (TTR) strategy might work for you. It allows you to ease into retirement by:

• supplementing your income if you reduce your work hours, or

• boosting your super and save on tax while you keep working full time

The strategy allows you to access your super without having to fully retire and it is available to anyone 60 years or over who is still working.

Working less for similar income

The strategy involves moving part of your super balance into a special super fund account that provides an income stream. From this account you can withdraw funds of up to 10 per cent of your balance each year.

As you will still be earning an income and making concessional (before-tax) contributions to your super, this approach allows you to maintain income during the transition to full retirement while still increasing your super balance, as long as the contributions continue.

Note that, generally speaking, you can’t take your super benefits as a lump sum cash payment while you’re still working, you must take super benefits as regular payments. Although, there are some exceptions for special circumstances.

Take the example of Alisha.ⁱⁱ Alisha has just turned 60 and currently earns $50,000 a year before tax. She decides to ease into retirement by reducing her work to three days a week.

This means her income will drop to $30,000. Alisha transfers $155,000 of her super to a transition to retirement pension and withdraws $9,000 each year, tax-free. This replaces some of her lost pay.

Income received from your super fund under a TTR strategy is tax-free but note that it may affect any government benefits received by your or your partner.

Also, check on any life insurance cover you have under with your super fund in case a TTR strategy reduces or stops it.

Give your super a boost

For those planning to continue working full-time beyond age 60, a TTR strategy can be used to increase your income or to give your super a boost.

To make it work, you could consider increasing salary sacrifice contributions into your super then using a TTR income stream out of your super fund to replace the cash you’re missing from salary sacrificing.

In another example, Kyle is 60 and earns $100,000 a year. He intends to keep working full-time for at least another five years. Kyle transfers $200,000 from his super to an account-based pension so he can start a TTR strategy then salary sacrifices into his super.

This will reduce his income tax, but also his take-home pay. So, he tops up his income by withdrawing up to 10 per cent of his TTR pension balance each year.ⁱⁱⁱ

A TTR strategy tends to work better for those with a larger super balance, a higher marginal income tax rate and those who have not reached the cap on concessional contributions.

Nonetheless, it can still be useful for those with lower super balances and on lower incomes, but the benefits may not be as great.

Some things to think about

TTR won’t suit everyone. For example, be aware that you cannot withdraw more than 10 per cent of your super balance each year.

Also, if you start withdrawing your super early, you will have less money when you retire.

The rules for a TTR strategy can be complex, particularly if your employment situation changes or you have other complicated financial arrangements and investments. So, it’s important to seek professional advice to make sure it works for you and that you are making the most of its benefits.

If you would like to discuss your retirement income options, give us a call.

i Retirement and Retirement Intentions, Australia, 2022-23 financial year | Australian Bureau of Statistics
ii, iii Transition to retirement - Moneysmart.gov.au

Preparing your kids for financial success

Here's some easy money management skills for children of different ages.

Teaching good financial habits, such as saving and budgeting, is one of the best ways to prepare children to have a secure financial future.

It's never too early or late to start talking about money with your children — start as soon as you are comfortable to and make learning as relevant to their age and life stage as possible.

Below are some strategies that parents can use with their children when they're at different ages.

Younger children (under age 11)

A great way to begin to teach younger children about money is to explain its value and its function in the world. Kids often focus on rewards-based systems, where they earn a reward for good behaviour or academic achievement. Use this time to teach them how to earn money as a reward and divide it into three categories: spend, save, and give. For example, spending may be related to buying a fun treat or toy, saving could be taught as a way to buy something they really want in the future, and giving is how you help those in need.

Activity: “Money jars”

1. Set up three separate containers for “bank accounts” and label them Spending, Saving, and Giving.

2. Each week, offer opportunities to earn money by using real-life experiences, such as listening well, completing homework early, or doing simple chores.

3. At the end of the week, count how much money they’ve earned in each category.

Tip: Sometimes when sharing the concept of saving with your child, it can be helpful to explain you’re “paying yourself for something fun in the future” and relating it back to an age-appropriate concept they can understand. You can make tweaks to this activity along the way. For example, if your child puts extra money into their Saving jar, you could provide a few additional dollars to help them understand compounding interest—how saving money can help them earn more over time. If they receive money as a gift for a holiday or celebration, bring out the money jars for a refresher. Repetition and reinforcement become important in learning any discipline, especially money management skills.

Preteens and young adults

Parents often associate the tweens and teens as the years their kids desire more independence and more options. In this case, tying money management and financial literacy to something relevant in their lives can help keep them engaged. For example, many young people are interested in gaming, so try to relate investing to playing a game. Before they start the investing game, provide them with an overview of the concepts of shares, bonds, and cash, and how they operate differently, like different players in a game. The different players in the game all act together to form an investment strategy. Depending on a child’s age, engagement, and appetite for these discussions, consider introducing the concept of building model portfolios. Review model portfolios that show different asset allocations, and then have each family member choose a portfolio. Once a family member chooses a portfolio, discuss what stood out to them about the portfolio. This will help reinforce the importance of asset allocation and diversification.

Activity: Investment simulators

1. Google the phrase investment simulators; many are available online.

2. These simulators allow you to invest in different securities and monitor their performance over time.

3. Have frequent conversations with your child about their portfolio’s performance. How would they feel if those were real funds in the market they “lost” or “gained”? This can help reinforce the concept of risk and reward in investing.

University graduates and beyond

At this stage, they may be ready to digest more advanced topics. Discuss the importance of goals-based investing by asking them to think about the next big purchase they want to make—are they saving for a car, a down payment for a home, or even setting aside money for future retirement? Ask: What is their time frame for that investment? When do they want to reach that goal? This helps teach the importance of time horizon as it relates to investing; the longer a person has to save and invest, the greater the likelihood for success in reaching their goals. Depending on their current situation, they may also have student loans to pay back. Budgeting may become a critical topic at this time, and sitting down with them to create that budget can be helpful. This is another important component of financial literacy and money management, and attaching it to an important life stage can make it all the more relevant.

This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing™

GENERAL ADVICE WARNING
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) is the product issuer and operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee and product issuer of Vanguard Super (ABN 27 923 449 966).
The Trustee has contracted with VIA to provide some services for Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc (collectively, “Vanguard”).
We have not taken your or your clients' objectives, financial situation or needs into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for the product before making any investment decision. Before you make any financial decision regarding the product, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard's financial products can be obtained on our website free of charge, which includes a description of who the financial product is appropriate for. You should refer to the TMD of the product before making any investment decisions. You can access our Investor Directed Portfolio Service (IDPS) Guide, Product Disclosure Statements (PDS), Prospectus and TMD at vanguard.com.au and Vanguard Super SaveSmart and TMD at vanguard.com.au/super or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This website was prepared in good faith and we accept no liability for any errors or omissions.
Important Legal Notice - Offer not to persons outside Australia
The PDS, IDPS Guide or Prospectus does not constitute an offer or invitation in any jurisdiction other than in Australia. Applications from outside Australia will not be accepted. For the avoidance of doubt, these products are not intended to be sold to US Persons as defined under Regulation S of the US federal securities laws.
© 2024 Vanguard Investments Australia Ltd. All rights reserved.

King & Whittle

Level 25, 140 William Street,
Melbourne VIC 3000

P 03 9602 4466

E enquiries@kingandwhittle.com.au

W www.kingandwhittle.com.au

King & Whittle Wealth Management Pty. Ltd. Corporate Authorised Representative 1243390 GPS Wealth Ltd ABN 17 005 482 726 | AFSL 254 544

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.