The key to life is living, not retiring, but there may come a time in your life when you want to change what you’ve been doing and either stop working completely, or take a long holiday and work out what’s next.

To be able to have this choice though, it’s imperative that you plan ahead, even if you think retirement is for everyone else.

As a rule of thumb, it is suggested people should aim for a retirement income of between 50% and 70% of pre-retirement salary/wages. Based on this premise, it is estimated you will need to save around 15% of your income for 40 years. The problem here is that your employer is only compelled to provide superannuation contributions for you at the current rate of 9.5% of your income per annum.

How might this be done? You can start contributing to super earlier in your working life, raise the combined rate of your super contributions to 15% by making personal contributions (keeping under the annual limits of course), and take heed of the following tips throughout your working life.

Young, single and independent

• Retirement is something your parents are doing but starting small and early lays the foundations for future choices.
• Maximise your government co-contributions—they can potentially add thousands to your super.
• If appropriate, take out disability insurance through your super fund. It is often the cheapest and most tax-effective way of providing insurance cover.
• Choose an investment strategy that suits your long-term risk profile.

A family and a mortgage

• Your focus may be on repaying the home loan, but don’t forget your super entirely.
• A mortgage and young children mean insurance is a top priority. Taking out life and disability insurance can be a sound decision at this stage.
• Check eligibility for a tax offset on spouse superannuation contributions and government co-contributions.
• Review your investment strategy and risk profile.

The “in between” years

• A higher income and a smaller mortgage open up the opportunity to boost your super but take care not to exceed contribution and balance limits.
• Find out if salary sacrifice could boost your super savings.
• Review your insurance cover and investment risk profile.

Retirement is looming (maybe)

• Over 55s enjoy some good incentives to contribute to superannuation but keep an eye on your total balance.
• Consider combining salary sacrifice with a transition to retirement pension if beneficial.
• Review your insurance cover, investment strategy and risk profile.
• Start comprehensive retirement planning or a new career focus.

Down tools or start anew

• You’ve made it. For retirees over 60, withdrawals and pension payments are tax free!
• Review your investment risk. Keep enough growth in your portfolio to ensure your money lasts as long as you do.
• Review your insurance.
• Stay active and enjoy life – or launch into your next career. There are no rules!

Remember, it’s never too late – or early to start…

 

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Property investing and SMSFs – the differences

Australians love to invest in property. And what’s not to love? It’s tangible, offers diversification and tax benefits, and can provide you with a good income and strong capital growth.

The benefits of investing in property can be amplified when held within super and with changes to borrowing within Self-Managed Super Funds (SMSFs) over the past few years, the ability to access property investment through super has widened significantly. This strategy however, is not for everyone.

Investing in property within a SMSF is not a straightforward proposition. It is a highly regulated affair and having an understanding of the rules is essential to ensure your fund remains compliant and you don’t get caught out in a compromising and costly position.

What type of property can be purchased within a SMSF?

You can purchase all kinds of property within your SMSF – commercial, industrial or residential. But there are different regulatory requirements for each.

Residential Property

Any residential property you wish to purchase through your SMSF must:

• meet the ‘sole purpose test’ – this essentially means the fund must be run for the sole purpose of providing retirement benefits to its members;
• not be attained from a related party to the member such as a spouse, family member or business partner;
• not be rented or lived in by a member or party related to the member.

Commercial or Industrial Property (Business Real Property)

Similar to investing in residential property, any commercial or industrial property investment must also meet the sole purpose test. Except that you can rent or purchase commercial or industrial property (business real property) from your SMSF – provided it’s at market rates.

When a SMSF can borrow

In the event that you have insufficient capital within your SMSF to purchase the property outright, your Fund can borrow to purchase property through the use of a limited recourse borrowing arrangement.

Be aware that borrowing arrangements through super can be very restrictive. There are rules around acquiring property using borrowings. For example, although a SMSF can purchase a vacant block of land, it cannot purchase a block of land with the view of constructing a house on the block using borrowings. This would breach the ‘single acquirable asset rule’.

Under this rule, a house and land package would generally not be treated as a single acquirable asset unless there are only two payments involved, e.g. a 30% deposit and a 70% payment of the balance when the house is complete.

You should be cautious when it comes to investing in property through your SMSF. There are many property “specialists” who have a vested interest in selling these kinds of investments to SMSF members. They are likely to receive some sort of commission and may push property purchases through super without having an accurate understanding of a member’s situation.

Investing in property through super is not advisable for everyone. Before signing any type of contract always seek advice from a licensed financial planner or authorised SMSF specialist.

Sources:

Australian Taxation Office www.ato.gov.au Super – Self-managed Super Funds – Limited recourse borrowing arrangements by self-managed super funds

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Super in your 60s. It’s still not too late!

For most Australians, their 60s is the decade that marks retirement. For some this means a graceful slide into a fulfilling life of leisure, enjoying the fruits of a lifetime of hard work. However, for many it means a substantial drop in income and living standards. So how can you make the most of the last few years of work before taking that big step into retirement?

Are we there yet?

Allowing for future age pension entitlement the Association of Superannuation Funds of Australia (ASFA) calculates that a couple will need savings of $640,000 at retirement to maintain a ‘comfortable lifestyle’[1].) ASFA equates ‘comfortable’ to an annual income of $60,977.)

How are we tracking as a nation?

In 2015-2016, 50% of men aged 60-64 had super balances of less than $110,000. For women the figure was a more alarming $36,000 – not even enough to provide a single person with a ‘modest’ lifestyle. (ASFA estimates that to upgrade from a ‘pension only’ to a ‘modest’ lifestyle would require a retirement nest egg of $70,000.)

Last minute lift

If your super is looking a little on the thin side there are a few ways to give it a boost before retirement.

• Make the most of your concessional contributions cap. Ask your employer if you can increase your employer contributions under a ‘salary sacrifice’ arrangement. Alternatively, you can claim a tax deduction for personal contributions you make. Total concessional contributions must not exceed $25,000 per year, although from July 2018 you may be able to carry forward any unused portion of this cap for up to five years.
• Investigate the benefits of a ‘transition to retirement’ (TTR) income stream. This can be combined with a re-contribution strategy that, depending on your marginal tax rate, can give your retirement savings a significant boost.
• Review your investment strategy. A common view is that as we near retirement our investments should be shifted to the conservative end of the risk and return spectrum. However, in an age of low returns and longer life expectancies, some growth assets may be required to provide the returns that will be necessary to support a long and comfortable retirement.
• Make non-concessional contributions. If you have substantial funds outside of super it may be worthwhile transferring them into the concessionally taxed super environment. You can contribute up to $100,000 per year, or $300,000 within a three-year period. A work test applies if you are over 65.
• The 60s is often a time for home downsizing. This can free up some cash to help with retirement. The ‘downsizer contribution’ allows a couple to jointly contribute up to $600,000 to superannuation without it counting towards their non-concessional contributions caps.

Bye-bye tax, hello aged pension?

One reward, just for turning 60, is that any withdrawals from your super account will be tax-free. This applies to both lump sum withdrawals and income stream payments. Depending on the preservation status of your funds you may need to meet a condition of release to access your superannuation.

Based on your date of birth, somewhere between age 65 and 67 you’ll reach age pension age. The age pension is subject to both an assets test and an income test and some advanced planning can boost your eligibility for the pension. For example, the family home is exempt from the assets test. Releasing cash by downsizing may reduce your eligibility for the age pension.

Get it right

This important decade is when you will make the key decisions that will determine your quality of life in retirement. Those decisions are both numerous and complex.

Quality, knowledgeable advice is critical, and wherever you are on your path to retirement, now is always the best time to talk with me, your Certified Financial Planner ®.

Sources:

The Association of Superannuation Funds of Australia Ltd – ASFA Retirement Standard http://www.superannuation.asn.au/resources/retirement-standard/

[1] As at December 2018