SMSF – the Pros and Cons

A popular method of saving for retirement is via a Self-Managed Superannuation Fund (SMSF).  This can allow people to directly control and manage how their retirement savings are invested. But…SMSF’s can be complex and there are a number of rules and regulations that govern SMSF’s. Importantly, they may not be suitable for everyone.

Let’s look at some of the advantages and disadvantages of running a SMSF.

Advantages

The benefits of a SMSF include:

Investment choice

  • SMSFs offer a wider range of investment options compared to other superannuation funds. This includes investing in direct property.

  • An SMSF can also borrow to purchase an asset, however this is becoming increasingly difficult as many banks have removed their SMSF lending products from the market.

  • They are popular with small business owners or the self-employed as a commercial property can be purchased by their SMSF. This property can then be rented to their business providing this is at the prevailing market rates.

Flexibility & control

  • There is the flexibility to tailor the rules of the SMSF to suit their specific needs and circumstances.

  • Allows you to make quick adjustments to your portfolio following market changes or to take up sudden investment opportunities.

Effective Tax Management

  • SMSFs have the same tax rates as other superannuation funds, however there are specific tax strategies that you can take up to best benefit you and your situation.

Costs of running your fund

  • Modern SMSF management is now a much more cost-effective option for all due to advances in technology.

  • The level of professional support you engage (accountant and/or financial adviser) will determine the costs associated with running your SMSF.

  • Most of the operational costs of running an SMSF are fixed. Therefore, as a fund grows in value its costs will generally reduce proportionally. This is different to Industry or Retail Super Funds where costs are usually taken as a percentage of your overall balance.

Pooling your super with others

  • SMSFs allow you to pool your superannuation with up to 5 other people. This opens up the opportunity to invest in things an individual may not be able to on their own such as direct property.

Protection from Creditors

  • Creditors cannot generally access an individual’s superannuation. That is unless clawback laws apply where someone has deliberately transferred their assets into an SMSF to escape paying their creditors.

Disadvantages

Although SMSFs carry many benefits they are not suitable for everyone. The disadvantages of having an SMSF include:

Duties & Responsibilities of being a Trustee

  • When you ‘self-manage’ your retirement savings you take on the ‘responsibility’ of investment decisions; however a specialist SMSF financial adviser will provide crucial guidance and management in this area.

  • As a trustee, you should make sure you have a reasonable understanding of investment options as poor investment decisions will have a direct impact on the assets of your fund and also the retirement savings of other members.

  • Furthermore, trustees are responsible for ensuring that their fund complies with the legislation and tax rules. Serious breaches can result in an imposition of higher tax rates.

  • SMSFs can demand extra time from their trustees to ensure investments are managed properly. Assistance from an SMSF administration manager, such as your accountant, can make your life much easier!

Living overseas

  • The majority of a SMSF’s members must permanently reside within Australia.

Costs of running your fund

  • The cost of running an SMSF can be disadvantageous when the assets held within the SMSF are low in value.   Costs to operate an SMSF do, however, reduce proportionately when the value of the fund’s assets are high.

  • The general consensus is that you should have at least $350,000 of assets in your fund to make the costs of running an SMSF worthwhile.

Seeking good advice from a professional financial adviser, who specialises in self-managed super funds, is crucial to determine if an SMSF structure is right for you.

For a clearer picture of what retirement holds for you, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Who will your Super be left to?

It is important to ensure that if you pass away, your superannuation savings end up with the right beneficiary.

The trustee of your super fund has the ability to consider your potential beneficiaries and decide who should receive the money. But you are able to give instructions through a binding death benefit nomination if your super fund offers this option.

The trustee will have no choice but to follow these instructions if your nomination is valid and current at the time of your death. This means you make the choice instead of the superannuation fund trustee.

But this is where many people make some very simple but significant mistakes. They either don’t keep the nomination up to date or fill in the forms incorrectly. These mistakes may make the nomination invalid and ineffective.

Here are some tips to help you avoid these mistakes:

Renew your nomination regularly

Most binding nominations need to be renewed every three years or they lapse. It might be easier to diarise a renewal every year, perhaps on 1 July or when your super statement arrives.

Make sure the person you nominate is appropriate

You can only nominate a beneficiary who meets the super rules to be nominated. This includes your current spouse, child or another person who is either financially dependent upon you or in an interdependency relationship with you. Your nomination is not checked until after you have passed away and if you nominated the wrong person, the nomination is invalid. If you want the money to go to someone who is not an allowable beneficiary, you could nominate your estate and provide instructions in your will.

Review if your circumstances change

If your circumstances change (e.g. you marry, have a child or separate from your partner) look at who was nominated as your beneficiary and make changes if necessary.

Estate Planning and Super law can be tricky.  Discussing your options with one of our financial planners will provide clarity and comfort and allow you to ensure that your wishes will be carried out to protect your loved ones!

For a clearer picture of what retirement holds for you, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Retirement Income – What you NEED and what you WANT!

When discussing ongoing income needs in retirement with clients, we look at two very different and very important areas – NEEDS and WANTS.

Needs – This is the income that you spend on a day-to-day basis.  It is used for buying the groceries, paying the phone and electricity bill, a dinner out and a trip to the movies on the weekend… just the normal, everyday living expenses that you require to live a certain lifestyle.

Wants – These are the ‘special objectives’. You may have heard me call it your ‘Fun Fund’. This income covers your travel aspirations, your renovations, your gifting objectives and any expenses that you will incur outside of the normal day-to-day parameters.

Moving closer to retirement, it is important that you start considering your NEEDS and WANTS in relation to your income objectives.

A great place to start is with a cash flow budget – I know…it’s a bit boring!  But it’s essential that you understand ‘how’ you spend your money to understand what your future lifestyle, based on today’s situation, looks like once you finish work.

“Contact your adviser or our office on 3371 0866 to access our client-specific, online Budget Questionnaire”

Once you have a better understanding of your expenses – the NEEDS – you can start to define your WANTS.

For example – if travel is an important objective to you, start considering where and how you want to travel.  Do your plans involve overseas trips each year, with lots of activities?  If so, you will need to allow for a larger sum of funds to cover this expense.  If staying in Australia, seeing the sights and generally taking it easy is more your style, then a smaller amount of funds will most likely be required.

You may wish to allow for a new car, a new caravan or look at some major renovations on your home.  These are all areas you will need to consider when defining your WANTS.

Either way, it all comes back to being clear on your objectives (what is it you really want to do when you stop working?) and understanding your cash flow requirements (what does it cost me to live my life the way I want to on a day-to-day basis?).

Our retirement planning specialist advisers can help you to understand your options, articulate your goals and objectives and work towards funding your best life once you finish work.

For a clearer picture of what retirement holds for you, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Federal Election 2022 – what could this mean for you?

A number of changes were proposed by the Government during the election campaign, and support was also announced for a number of proposals made by the previous Government. 

So where do things stand, what’s next, and how could these proposals impact you? Below is a summary of some of the key announcements to date, and the opportunities which may exist. 

Proposals at a glance

Social security measures

– The Government has committed to freezing deeming rates for two years until 2024. This may benefit you if you’re receiving an income tested pension or allowance, or are a concession card holder. While the deeming rates are subject to periodic change, the current deeming rates have been in effect since 1 May 2020. 

– The Government has proposed to extend the existing 12 month exemption that applies if you’re a social security recipient, and you sell your primary residence. The exemption applies to a certain potion of the sale proceeds of your home under the assets test. The proposal is to extend the exemption for an additional 12 month period. 

– The Commonwealth Seniors Health Card (CSHC) may be available to you if you’ve reached your Age Pension age, but don’t qualify for the Age Pension due to the income and/or assets test. The CSHC has an income test which is used to determine eligibility for the card.  It is proposed that the income test eligibility thresholds will be increased as below:

Housing

– The Regional First Home Buyer Scheme is proposed to provide support for 10,000 first home buyers to purchase a home in regional Australia.  The Government will guarantee up to 15% of the eligible purchase price which would allow mortgage insurance to be avoided. 

– The Government has proposed to introduce the Help to Buy scheme, which is a shared equity scheme. Support will be available for up to 10,000 people each year.  If you’re eligible, the scheme will provide support for up to: 

               – 40% of the purchase price of a new home, and
               – up to 30% for an existing home.

Superannuation

– The eligibility age for downsizer contributions is already legislated to be reduced from 65 to 60 from 1 July 2022. Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home to superannuation, without impacting other contribution caps. 

What next?  

It is important to remember that at this time, these proposals are not yet law. You should not act on any of these announcements until they are legislated, or take effect. It is also important to speak to your financial adviser for more information about the changes and to understand how they may provide opportunities for you. 

Note – This communication does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 21 March 2022. No liability or responsibility is accepted by Collective Wealth Advisers or any of its employees of Collective Wealth Advisers, for any loss arising from reliance on this communication. 

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Super Opportunities Coming Your Way in 2022

Get ready people!  There are a raft of new opportunities coming your way in 2022 and they are ‘SUPER’!!!

The Federal Government has announced a range of changes to legislation that will present plenty of opportunities for Australians to contribute more of their money to the ‘tax-haven’ of super.

Increased Employer Contributions

As of July 1, 2022, Employer Superannuation Guarantee (or SGC payments) are legislated to increase to 10.5% from the current 10%, significantly increasing contributions being made on behalf of employees and boosting long-term retirement outcomes.  The government’s aim is for that figure to continue to rise until it reaches 12% on 1 July 2025.

With even more money going into your super retirement savings, it is even more important to ensure you have an up-to-date strategy in place to make sure you can lead the life you want in retirement.  Those with a salary sacrificing strategy in place, may need to revisit their current personal contributions to ensure they do not breach any contribution caps.

More access to the downsizer contribution

From 1 July, 2022, the minimum age that you can make a ‘downsizer contribution’ will drop from 65 to 60. The downsizer scheme allows you to make a one-off contribution into your super of up to $300,000 (or $300,000 each for a couple) from the sale of the family home.  Importantly, this does not count towards any concessional or non-concessional contributions caps.

Example – Tom and Robyn, aged 64 and 68 have decided that their current family home, which they have lived in for over 10 years, is too big and getting harder to manage.  They have decided to ‘downsize’ by purchasing a smaller property that better suits their lifestyle.  They sell their home for $1.2 million and purchase their new smaller home for $800,000.  This leaves them with a surplus of $400,000.  They make a contribution to their super for $200,000 each under the downsizer legislation (using the left over cash from the sale of their home), which is invested and now provides them with more ongoing income in retirement and preserves their retirement savings capital for longer.

The ‘work test’ for retirees will be removed

From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions. These individuals will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.

Example – Noel is aged 69, retired, and holds a personal (non-super) investment account with a balance of $600,000.  Currently, this places him in a position where he is paying income tax due to the earnings of the investment.  Previously, he has not had the opportunity to contribute more to his pension due to his age.  He can now potentially make a contribution to his super fund of up to $330,000 next financial year.  This will ensure his funds are invested in a tax free environment and he will most likely no longer pay any income tax.

Summary

The recent changes highlighted are a positive step in the right direction for everyday Australians.

But, as with any new legislation involving superannuation and contributions, the details can be complex and there are a number of other issues to consider.  Professional advice from your financial adviser is a must when considering these strategies.

To discuss your opportunities in light of these new ‘super’ changes, contact us today!

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Navigating Separation and Super

Splitting your financial assets during a separation or divorce is often complex and overwhelming. Superannuation can often be overlooked but it is incredibly important!

 

Navigating separation and divorce can be an extremely stressful time for all involved.  The divorce rate has been falling over the last 20 years, however, the divorce rates in couples who have been married for 20 years or longer, is increasing.  With more and more Australians going it alone in retirement, the importance of superannuation in divorce proceedings, is greater than ever.

All situations are different, but in general, a couple’s superannuation is included in the overall ‘pool’ of assets (oddly not in WA however – I have no idea why!) along with your house, invested assets and any savings.  And given women generally have a lower balance of super than men, due to a number of social and work issues, this presents an issue for women to appropriately fund their retirement and be financially secure in their later years.

We have worked alongside many couples and individuals in their 50’s and 60’s to ensure their retirement needs are taken into consideration when separating or divorcing.  From our experience, there  are a number of issues to take into consideration:

– How much do I need in retirement to lead a certain level of lifestyle?

– What will be the impact on any Centrelink entitlements that I may be eligible for?

– What legal advice do I require and who can assist me in this area?

– What about any non-super assets I may receive as part of the settlement?

– What will my cash flow look like once we separate?

Being educated, understanding your options and getting help from the experts will ensure that you are prepared to make the most of your situation and create the best outcome possible.

For those who are members of a Self Managed Super Fund or a Defined Benefit Scheme, it is even more important to speak to a specialist about how to best navigate these waters as there is added complexity.

Essentially, you are not alone in having to make these decisions.  Separation is emotionally hard. Having expert and personalised advice on your financial arrangements will make a significant difference to your financial security, both now and in the future.   

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

Retirees need to plan for higher inflation

Taking into account the effects of inflation should be an important focus of all retirement plans.

Rising inflation hits retirees the hardest. They normally do not have employment income or the time necessary to accumulate more retirement savings. And with inflationary pressures here to stay for a while longer, it’s never been more important to understand the effect inflation has on retirement income streams and retirement savings capital.

According to the Association of Superannuation Funds of Australia’s Retirement Standard (ASFA), prices rose 2.8% for those living ‘comfortably’ in a couple and by 3% for singles on a ‘budget’ over the year to September 2021. This represented the highest annual increases since 2010.

A large part of our role as professional retirement planners, is to prepare strategies to provide ongoing income to meet a clients lifestyle objectives once they stop working and earning a wage. This includes detailed cash flow and capital projections based on their situation, their desired level of income and all the fun things they want to do once retired – travel, buy a caravan, live next to the beach, etc. It is imperative that inflation is factored into these projections to give a true representation of a client’s situation over the longer term.

According to Challenger Investments, even low rates of inflation can have a large impact on your purchasing power. For example, if inflation averages 2.5% per annum, then after 15 years, 31 per cent of the real value of each dollar of retirement savings has been lost. After 28 years, half of the real value of their money has gone.

There is also the rise in superannuation guarantee (SG) to 12% over the next few years that will serve to help with the issues mentioned here for those still in accumulation stage and receiving an ongoing employment income.

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together! 

40 needs to be the new 60!

61… That’s the average age of Australians when they start thinking about retirement and what life looks like after work.  61…!?

As retirement planning specialist advisers, we know that this leaves precious little time to implement important strategies and to make the most of investment and compounding returns. 

I get it.  Superannuation and retirement planning can be scary and complex and it is natural for people to just put it in the too-hard basket.  And then there are the BBQ chats… Friends, colleagues and family telling you what you should do.  How does the Centrelink age pension even work?  And don’t forget the media, who seem to have a different opinion every week (whatever sells papers…right?).

At the end of the day, it’s not all just about the dollars and cents.  What matters most is the lifestyle YOU want to enjoy once you do not have a regular employment income coming through the door!  The ultimate result of not addressing your retirement needs is that your lifestyle is not what you envisaged it to be.  And that’s a position we do not want to see anyone in.

So maybe we need to start getting the message out there that 40 is the new 60!  This is when people are hitting their straps professionally, have started a family and are working towards paying down their mortgage and investing their hard-earned cash savings!  With guidance, Australians can reap massive advantages from tax-effective strategies to place them in the best position possible for their eventual retirement.  

If you are nearing retirement and have not put thought into your options, strategies or what retirement is going to look like to you, then now is the right time – after all, it’s better late than never.

For more information on how we can help you plan for YOUR ideal retirement, contact us at Collective Wealth Advisers.  We tackle today, and tomorrow, together!