Superannuation

Like most things in life, the best way to secure your financial future is to start with clear goals in mind.

Building wealth

Like most things in life, the best way to secure your financial future is to start with clear goals in mind. Here you’ll find some useful ideas for making the most of your super savings.

Reduce tax and save more for later

Did you know if you arrange with your employer to put some of your pre-tax salary into your super, the most you’ll pay on the contribution and investment earnings is 15%? This compares with your marginal tax rate which could be as high as 46.5%¹.

If you’re self-employed or not employed, similar benefits are also available if you invest in super and claim a tax deduction³ for it.

Talk to us about this and similar other strategies, to find out which ones are more suitable to you.

The secret to long term success

We often hear of investors attempting to use short term historical market movements to predict what the share markets will do in the future. Recently, many people reduced their allocation to growth assets, like shares, to retract to the perceived safety of defensive assets, like cash.

However by chopping and changing strategies you may actually end up missing out on the market recovery, and lose yourself thousands in the process.

Each year the DALBAR study³ calculates how much money is lost by the average US investor who typically chops and changes their investment strategy to chase the latest trends or run from negative returns.

They found that over a 20-year period to 31 December 2008, the average US investor in equity funds achieved an average return of 1.9% pa. This compares with the average return of the market of 8.4% pa, as measured by the S&P500 index.

What this means is that poor investment decisions cost these ’chasers’ an average of 6.5% pa over 20 years. On a $100,000 super balance, that’s the difference between a retirement balance of $145,000 and one of $501,000!

It can be hard to stay the path when all those around you claim to be jumping on, and benefiting from the latest trends. And that’s why your financial adviser is the best person to help you see through the hype, and concentrate on what really matters in ensuring you meet your long-term wealth creation goals.

Four ways to boost your super

1. Bump up your bonus
Salary sacrifice your bonus into super rather than receiving it as cash. This reduces the tax on your bonus by up to 31.5% and allows you to make a larger after-tax investment.

2. Invest personal assets in super
The tax-effectiveness of saving through your super fund can be really powerful. This is because investment earnings are taxed at a maximum rate of 15% and all benefits received at age 60 or over are completely tax-free.
With this in mind, why not consider cashing in an asset and making a personal after-tax super contribution? This strategy works really well if your money is currently invested in a term deposit or other asset where you won’t have to pay capital gains tax (CGT) on withdrawal. And even if you do have to pay CGT on assets such as shares, the tax benefits of super may more than offset the impact of CGT.

3. A helping hand
If you earn less than $61,920²pa you could be eligible to receive a Government co-contribution to your super.T o qualify for the full co-contribution of $1,000 you generally need to make a personal after-tax super contribution of at least $1,000, and earn less than $31,920² per year. A reduced co-contribution may be payable if you contribute less than $1,000 and/or earn between $31,920² and $61,920² pa.

4. Stump up for your spouse
If you have a spouse who earns less than $13,800, make an after-tax super contribution on their behalf so you can receive a tax offset of up to $540 while increasing your spouse’s retirement savings.

Manage your own super

Self managed super funds (SMSFs) are growing in popularity, and it’s not hard to see why. According to a survey by the Council on Financial Competition⁴, the main drivers of SMSF popularity are:

the ability to invest in direct shares, property, and other assets
tax effectiveness. While the tax rules for all super funds are broadly the same, the way tax is accounted for can differ between SMSFs and some retail, corporate and industry funds. This can result in SMSFs being more transparent and tax-effective
for larger account balances, SMSFs can be cheaper to run, and
control over the timing of taxable events (eg realization of capital gains and losses) and estate planning.
Greater flexibility in investing and more direct involvement in your financial future are some of the major benefits of a SMSF.

However, running a SMSF isn’t as easy as many believe. A 2006-2007 report by the Australian National Audit Office⁵ revealed:

over 24,000 SMSFs had never submitted an annual return
around 30% of SMSFs fail to lodge their income tax and regulatory returns on time every year
funds existed with no members, more than four members and some had no assets
15% of SMSFs lack a detailed investment strategy, and
a small number of SMSF members had inappropriately accessed their super or made illegal investments.

Due to the intricacies of SMSFs, many advisers also recommend and use a compliance and administration service.

Did you know? By purchasing insurance through super, you can take advantage of a range of concessions that may make it more cost-effective than insuring outside of super?

Going the self-managed route can be likened to building a new house, as opposed to buying an existing one. You can choose the number of rooms, the dimensions of the porch, the color of the window sills etc. However, chances are you’ll need to meet certain specifications and use a builder, an architect or various tradespeople to make it happen.

Starting a SMSF is a serious commitment, but it need not be as stressful as building a house. By working with an adviser, you can take the stress out of managing a SMSF.

And that way, you and your adviser can concentrate on your investment strategy and building your wealth for retirement.

Five good reasons why super still makes sense

With the last year and a half of market volatility delivering negative returns, and the Government reducing the amount you can contribute in certain circumstances, many are asking themselves whether super is still a good place to save for retirement.

The good news is, super is still one of the best places to save for your retirement. Here are four reasons why.

1. Super is a long-term investment. As you generally can’t access your super until you are at least 55 years of age and retire, super enables you to be a long-term investor. And by sticking with your mix, you may save thousands.

2. There’s a lot of investment choice. Super gives you the flexibility to invest your retirement savings in arrange of asset classes. These include more conservative assets such as bonds and cash, and assets that are more volatile (but potentially more rewarding over the long-term) such as property and shares.

3. Pay less tax on your earnings. Investment earnings in a super fund are generally taxed at a maximum rate of 15% (not your marginal rate, which could be up to 46.5%¹. What’s more, from age 60 you pay no tax on super benefits received. And, if you convert your super to a pension, you pay zero tax on investment earnings within that account.

4. Use super to make your insurance more affordable. By holding your insurance inside your super fund you may be able to reduce the cost of life, TPD and income protection insurance by using pre-tax dollars and taking advantage of bulk discounts.

5. Get help from the Government. If you earn less than $61,920² pa, and make personal after-tax super contributions before the end of financial year, the Government will help you out by matching your contribution with up to $1,000. To qualify for the full co-contribution, you need to contribute at least $1,000 and earn $31,920² pa or less. A reduced amount will be paid if you contribute less than $1,000 and/or earn between $31,920² and $61,920² pa.

Talk to us about all these and similar other strategies, to find out which ones are more suitable to you.