Retirement Planning

There has been plenty of discussion from a range of different sources on the optimum superannuation balance to setup a Self-Managed Super Fund (SMSF) – but much of it is up for debate and most SMSF providers have their own guidance on what they feel is a correct level of funds.

Perhaps you’ve thought about using a SMSF as a vehicle to fund your retirement, but you’ve heard different arguments about the amount you require to establish one. Much of this can be put down to a combination of different advice guidelines, the Australian Securities and Investments Commission (ASIC) suggested minimum superannuation balance and the trustee’s individual circumstances. Here at Anne Street Partners, we take a view that for a SMSF to operate properly and provide adequate returns to the fund, a minimum balance of $200,000 is required.

There will be some circumstances where less than $200,000 is acceptable, and others where it won’t be enough – just like most financial circumstances, it all depends on the individual scenario. Here’s why we feel $200,000 maybe a great starting point for a SMSF:

  • Greater certainty – running a SMSF can have more costs than operating an industry fund and having a minimum of $200,000 can help leverage investments and cover these costs. The costs can include:
    1.  Establishment costs – setting up and registering the fund
    2.  Administration fees – the costs of running the fund
    3.  Compliance fees – a yearly audit of the fund required by the ATO
    4.  Life Insurance costs – SMSF trustees are required to consider life insurance for the members of the fund
  • Investment strategy – you’re operating an SMSF to generate a return to help you fund a comfortable retirement. Because a SMSF affords you with the flexibility to determine your own investment preferences and control, the more investment resources you have available the more ability you may have to help generate a good investment rate of return.
  • Taxation – operating an SMSF can have some real tax advantages with a rate of tax of generally 15%. Maintaining a healthy balance allows you to take full advantage of these taxation benefits.
  • Structure – an SMSF can operate both pension and accumulation accounts within the fund which enables you to draw from the fund and contribute to it at the same time. Many other funds require these to be separate, so operating this with $200,000 helps to ensure the fund continues to provide adequate liquidity and returns.
  • The power of 4 – an SMSF has a compelling advantage with the ability to have up to four members in one SMSF. This can have additional benefits – including lowering overall operational costs by spreading these across all the members of the fund. Combining $50,000 per fund member to start an SMSF is an increasingly popular choice and one that can enable all members of the fund to benefit from a greater overall investment pool.
  • Time – maintaining an SMSF will take more time than a regular fund – this goes hand-in-hand with the additional levels of control and investment flexibility. However, developing this strategy can take more time and you may need to seek advice on the right investment structure. Having a good superannuation balance enables you to leverage investments and seek additional education about an investment where you may require it.

Overall, although there isn’t a hard-and-fast rule that specifies the superannuation balance required to establish an SMSF, leveraging a healthy balance of $200,000 or more can help to deliver more benefits from the fund as it’s going to give you more to start to invest from the outset.

The additional control you have with an SMSF also will require more time and attention dedicated to the fund, than say an industry fund, so bear this in mind as its only natural that you’ll expect the fund to return more.

In most cases and with a starting balance of $200,000, an SMSF is a solid foundation that can be used to create returns that help to fund your retirement objectives and goals. They won’t suit everyone, so if you’d like to explore whether an SMSF is right for you and your circumstances, talk to your Financial Adviser. They’re here to help understand your objectives and goals and develop a retirement strategy that suits your needs.

For information on how to secure the financial future for you and your family, please talk to your financial adviser. They are here to help.

General Advice Disclaimer

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this article you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.

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A reduction in concessional contribution caps, the lowering of the Division 293 tax threshold, capping tax-free assets in retirement and a non-concessional contributions cap of $100,000 p.a. starting 1 July 2017 are just some of the changes that were in the Budget announcements this year to impact superannuation. These changes may impact your SMSF and retirement planning and require you to reassess your existing strategies or contemplate new ones.

Understand the major changes to superannuation and how they may affect you with this snapshot and easy to digest superannuation changes information guide.

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Retirement is a time for relaxing, seeing family and friends as well as enjoying your favourite pursuits. It should also be a time we all look forward to in life. Planning for retirement is something you should start thinking about quite early on in your career. The general guide is to start saving as early as your 20s in order to ensure you have enough money to live on and sustain the type of lifestyle you are aiming for later on. Retirement is a major change in your life and planning for your nest egg should be a high priority.

A common question is where could you invest throughout your working life in order to provide for retirement?

There are many different types of investments that may work for you which could be

 * Property investment

* Stocks and shares

* Super investment

* Managed funds

Get on top of your finances by finding out

* What assets (property, stocks, investments) you have and how much they are worth

* How much super you have and when you can access it

* What debts do you currently have and when will they be settled

* How much in savings you have and what the interest is

* When you can apply for the age pension and whether you are likely to be eligible

It is also important to consider how your needs might change over time. For example, retirement is a great time to pick up a new hobby or do some travelling. You may wish to redecorate your home or move to a different area. Planning for these possibilities will allow you to estimate the type of retirement income you are aiming for.

Not sure where to start? View our video on retirement savings and understand how long your retirement savings could last you:

For more information, talk to one of our friendly financial advisers at Anne Street Partners today on 135 444

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Take control of your super

 It can be hard to think about your Superannuation and long term financial goals when retirement can seem so long way away. Ask any person approaching 50 and they’ll agree that they should have paid more attention to their Superannuation earlier in life.  But, all is not lost. Making a few simple changes now, can make a dramatic difference to your lifestyle when you finally do hit retirement.

Start to get to know your super

 It is actually yours! But are you aware of its current balance?  Superannuation can be a very complicated topic and for many Australians it will represent the largest asset outside the family home.  For this reason alone, it makes sense to get to know what your current balance is, which funds you’re with, and the types of investments that you hold.  Consolidating multiple super funds is the easiest way to save on un-necessary fees and its something you can do right now.

Strategies for every stage in life

 You don’t need to be a millionaire.  Even though starting early will reap the biggest rewards, it’s never too late to build a better future, so if you haven’t paid a lot of attention to it – it’s not too late to start now.  Retirement will mean different things to different people.  A person in their twenties will have a different strategy to someone in their 40s.  But you’d be surprised to see how much difference a little involvement in your Superannuation could make towards your lifestyle when you retire – so the motto is be involved.

So you’re just starting out

 You hear it all the time – but although it’s probably one of the things that is further down your priority list, you can relax,  just  a small additional contribution now could mean a real boost to your Superannuation balance and lifestyle when you do retire.

Make sure you get an understanding of your entitlements too. You may be entitled to further boost your Superannuation through a Government Co-contribution.

With time for compound interest to do the work for you, even small contributions can grow (and grow…that’s the compounding part..!)

Think about taking a little more risk – you have the time and a high-growth investment strategy might be right for you.  Whilst this type of strategy may be riskier in the short term, with many years before retirement to ride out market fluctuations, it may prove to be a prudent choice.

Creating Wealth

 At this stage in your life you have started accumulating wealth through investments and may even have a family.  It can be hard to juggle all your financial commitments, although paying close attention to your Superannuation now may prove to be a wise decision as retirement is not actually that far away.  As time to retirement decreases, it may be worthwhile to review your investment strategy and take a more conservative approach – because you don’t want to risk losing what you’ve already gained.

 Retirement time

 You might have stopped working, but your Superannuation shouldn’t.  It makes sense to leave your money in Superannuation for as long as possible to maximise your retirement benefits.  Dependant on age, your Superannuation can start working for you as regular income or in lump sums.  With Superannuation changing constantly, it pays to keep up-to-date with what’s going on. The great thing is, at this point you have the time to take a firm interest in any changes that could affect you.

What about Self Managed Super Funds (SMSF)?

 Self managed super isn’t for everyone, but it can provide investment options and benefits far out of reach to most funds. Having a good financial adviser means you don’t need to be a genius to make SMSF work for you.

Firstly there is the control – the ability to take control of your own investment decisions is what drives most people towards an SMSF.

Through the control over investment choice, SMSF trustees have the ability to purchase investments that may have been restricted in their existing fund. This may range from direct shares or direct property all the way through to gold bullion or rare collections (which are known to have generated good returns). For business owners an SMSF may even own the business premises and lease these back to the business.

 There can be Tax Advantages – An SMSF allows personalised strategies to effectively manage tax. Some strategies include but are not limited to:

  • reducing contributions tax to zero,
  • reducing tax on investment income to zero, and
  • reducing tax on capital gains to zero.

These are not catered for in a retail or industry fund, as the trustee does not keep your personal situation in mind when making its decisions.

 Estate Planning – An SMSF has the ability to provide an effective estate planning vehicle which can retain wealth for future generations. An SMSF does not stop when you retire, nor does it necessarily stop upon a member’s death. In fact through the use of prudent trustee structures and investment strategies, an SMSF may continue almost indefinitely over multiple generations.

Personal Insurances – By placing personal insurances such as Life, TPD and Income Protection inside an SMSF, you may be able to free-up personal cash flow for alternative uses. Furthermore, an SMSF may be able to claim a tax deduction for policies that are otherwise not deductible in a personal situation.

What do I need to know before starting?

 In order to realise the benefits that come with managing your own Superannuation, you must also accept a level of responsibility. Your Financial Adviser, along with your fund Administrator/Accountant, can guide you through the requirements.  This responsibility mainly involves the realisation that:

  • You do not have direct access to the money in your Superannuation fund and it must be held within the trust until you can access it on the advice of your Financial Adviser or fund Administrator/Accountant.
  • The sole purpose of the Superannuation fund must be to provide for your retirement benefit. Generally, you cannot enjoy a benefit from the investment, and investments must be for commercial purposes.

Want to know more?

 Talk to us. The superannuation team at Anne Street Partners have the knowledge to help you with complicated superannuation topics every day. We can guide you along the way and assist you with setting up the right fund or reviewing what you have. We’re here to help.

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