5 essentials for a good retirement

It is Never too Late to Make a Difference

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If you hope to self-fund your retirement and your superannuation is all you have, then you need to accumulate an amount of at least $500,000 and a lot more than that if possible.  For homeowners, your super is likely to be the second only in value to your home.  For non-home owners it could well become the highest value asset you own.

Saving even half a million dollars seems like an impossible task.  But it is not necessarily, because you don’t have to save it all.  You only have to save enough capital, and save it quickly enough and early enough to allow sufficient time for the law of compounding returns to kick in and do an ever-increasing amount of the work for you.

You may not realise it but your superannuation is invested in managed funds.  It is also a compulsory, long term, regular savings plan operating in the lowest tax environment we have in Australia. It is fueled by the regular contributions that your employer makes on your behalf but there is another force at work behind the scenes. That is, a never-ending investment process.  Growth returns and reinvested distributions (similar to dividend income) earned by your investment also cause your superannuation balance to increase.  So your money makes money even though you may not be watching it.

Obstacles that get in the way of this money making process include:

  • Breaks in employment i.e. no contributions
  • Economic downturns (e.g. the GFC)
  • High product fees and adviser fees

But by far the biggest obstacle to this money making process is owner neglect.  There are ways of cushioning the adverse effects of an economic downturn, overcoming unemployment and reducing high fees.  But neglecting your super for 30 years is guaranteed to lose you a fortune.

Let’s look at two fictitious examples.

 

EXAMPLE 1 – NEGLECT 

Let’s say you are suddenly and magically aged 50 and on a salary of about $70,000.  Your earliest access to your super is 10 years away.  You have a total superannuation balance of $50,000, split between two funds.  Your current employer contributes $1,400 each quarter (after 15% tax) to a fund which has $30,000 in it.  Your other fund has $20,000 in it and now it is lonely and neglected since you changed jobs.  Let’s assume the investment return in the neglected fund roughly equals the fees and other costs, so it doesn’t grow and it doesn’t go backwards.  The fund to which your employer is now contributing on your behalf achieves a net annual return of 6% after all fees.  After 10 years, your balance in this fund would grow to about $131,500 while the fund you neglect remains at $20,000.  (I am being kind here because there is every chance that fees would eat into it).  In this example, your total super at age 60 would be about $151,500.

Your first mistake was not consolidating your two funds into one.  As a result, you have just blown the opportunity to earn a further $16,000.   Why? Because the quarterly contributions of $1,400 were added to a fund with $30,000 in it instead to a fund with $50,000 in it.  The law of compounding returns works a lot better on a higher balance, not just regular contributions.  In your neglected fund you had neither working for you.   The investment return that was actually working hard for you sadly had only 60% of your super to work with.

This example highlights the cost of owner neglect.  It is not only neglect of scattered superannuation that hurts you financially.  There is also widespread neglect when it comes to high fees, default investments, mismatched risk, poor growth & earnings, decreasing insurance benefits, static premiums, and no thought to possible beneficiaries.  In most cases, all are accepted and none are ever questioned, regardless of the fact that every single one of these items is within your power to control and change to your advantage.

So when you are saving and investing, whether in superannuation or not, the seven (7) basic elements you need for the Law of Compounding Returns to work well for you, are:

1) A bigger balance is always better

2) Add more of your own money to it regularly

3) Injecting a lump sum will suddenly accelerate earnings

4) Allow it to run for a longer time, provided that the investment is going well

5) Every bit of investment return counts but you should be comfortable with the associated risk

6) Keep fees or costs as low as possible to achieve the desired result

7) Also think about who receives all this money if you pass away

 

EXAMPLE 2- LET’S DO A SUPER MAKEOVER

Now let’s assume the same starting circumstances (i.e. 50 years of age with $50,000 in super) but instead of ignoring your super and simply letting it drift along for 10 years, you finally see the light and decide to give it a makeover.

Firstly, you consolidate your entire $50,000 into one fund.  You do some research and find that no two super funds are the same and if you look around, you can do very well for yourself.  You also realise that the two funds you have aren’t suitable because one has high fees and the other is not portable.  So decide on a personal super that is portable, meaning you can take it to every future employer.  The fund has a good name; is simple to access and operate online; it has enough investment options for you to choose from; and it has a relatively low fee structure.   Your employer is fine with the change because you do have the right to choose your own fund.

Secondly, you decide on an investment mix with a level of risk you feel very comfortable with.  As a result of this and and lower fees, you find that your total annual rate of return (after fees) has now increased to 7.0%.  My point here is that 1% can make a big difference over many years and it doesn’t have to be achieved by taking on unwanted investment risk.  You also realise that you have access to quality insurance cover that actually increases (with indexation) as you get older instead of decreasing to almost nothing at a time when you are most likely to need it.  Like all insurance in super, the premiums are automatically deducted from your super account.

Thirdly, because you now know about the law of compounding returns, you realise that your 7% rate of return will make a greater difference on a larger balance, so you decide to increase the total balance of your fund to $100,000 to by adding a $50,000 lump sum as a non-concessional contribution.  This simply means you add your own money.  This could be from your savings, an inheritance or money from a property you sold.

Fourthly, because you only have one chance at making this 10-year period count towards your retirement, you also decide to salary sacrifice more of your gross salary into super.  You ask your employer to contribute more for you.  Although it will decrease your take-home pay, it will increase your retirement savings and lower your income tax.  You will be paying more tax at 15% and less at your top marginal rate (32.5% in this example).  So let’s assume that the quarterly contributions now made by your employer on your behalf increase from $1,400 to $1,700.

Lastly, you have thought about who should receive your money in the event you pass away, and you complete a valid Nomination of Beneficiary form and send it to the fund Trustee.  You are not sure whether it should be binding or non-binding so you ask a financial adviser.

In this example, the result over the same 10-year period is a whopping $299,000.  That is double the $151,500 you would have resulted in the neglect example.  You had to change a few things to do it but you should feeling a lot better about facing retirement  And there is more.  Because you now realise that time invested is your friend, you decide to carry this strategy on for a further 5 years to age 65.  Your balance grows to around $464,000.  So how happy are you feeling now?

My examples are built on financial mathematics and general advice, and show you how it is possible to get near that $500,000 mark if you try.

So why is $500,000 my magic minimum target amount?  Ok let’s say you retire at age 65 and decide to draw a pension income stream from your super.  To receive it as a tax-exempt pension including no tax on investment earnings, you must draw a minimum amount each year equivalent to 5% of the 1 July opening balance of your fund each year.  This minimum rises by 1% at 75 and a further 1% at 80.  If you draw at least this minimum amount at age 65, 5% of your super disappears in that year.

However, it is still invested.  That is why it is called an account-based pension.  You draw until the money runs out.  So as you can see, preserving your capital invested is a big deal.  So it stands to reason if you make at least a 5% return on your money during the year, your super balance stays much the same.

I know that $25,000 (i.e. 5% of $500,000) isn’t a fortune, but with no debt, you can start to avoid starvation.  If you can get a higher return on your money, such as 6% or 7% a year, then you can take a higher tax free pension draw (e.g. $30,000 & $35,000 respectively) without eating into you capital.  Even if you only make 5% investment return and you draw 8% ($40,000) per year, your invested balance is dropping, but slowly and in a controlled way.  Do you see what I’m getting at?

I won’t name names here but there are quite a few well known super funds that achieved 7% and a bit more last year in their balanced investment (mid-range risk) options; and their fee structure is quite low.  I’m just saying … it is never too late to make a difference!

Cheers

Gary

 

 

Are you Short of Super?

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If you are in your forties, you are already into the second half of your working life.  Sooner or later, you will ask yourself if you have enough money to retire.  The answer will probably be no.

According to ASFA, the mean average superannuation balance in the 2013-14 year for the 45-49 year age group was $119,500 (males) and $67,805 (females).  If you are in this age group, you’re in the first generation of workers who have been in the compulsory Superannuation Guarantee (SG) system for all the past 25 years since it started in 1992.  That’s the good news.  Now for the bad news.  You only have another 10-15 years before you are staring retirement in the face; and if your super isn’t a lot more than the averages above, you are seriously underfunded for retirement.

So here’s how the compulsory super system works.  Employers are currently required to put away 9.5% of your gross wages into a superannuation fund for your benefit.  So the first obvious point to note is that the system does not benefit everyone.  It only benefits employed people because the compulsory obligation only rests with employers.

So to make the most out of the system (i.e. maximise your savings by the time you reach retirement) you probably should be male.  I mean no disrespect to females but so many are clearly disadvantaged in the world of superannuation. Ideally, you need to be continuously employed on a full time basis for the entire 45 years of your working life on a very good salary.   It would also help to work the entire 45 years for an employer (e.g. certain sections of the public service) who contributes more into your super than just the minimum 9.5%.

Everybody else is at a distinct disadvantage and will worse off at retirement.  The system isn’t as kind to part time and casual workers, simply because they generally aren’t at work as much.  The system doesn’t place the same obligation on self-employed business people (i.e. who trade in their own name) to many tend to ignore it.  It most unkind to disabled, sick and injured people; and females raising children because they are largely absent from the workforce.

So if your superannuation is likely to be your only source of money saved in your name when you reach retirement then you have some work to do.  Although superannuation isn’t the only way to save for retirement, it is the most tax effective way.  If you are over 60, legally retired, and in so-called pension phase by drawing an income stream from your superannuation, you should be in a completely tax-free environment.  That is why people in the know try so hard to get as much money as possible into their super prior to retirement, and why the government tries ever harder to restrict them.

So the first step is to start with these 5 home truths:

  • Your super is actually your money; it is just not available to you at the moment
  • To retire on super alone, you will probably need an amount as much as, if not more than the value of your house
  • You do have control, so you can add to it, make changes to it or even change funds
  • Your employer is only obliged to deduct super for you and put it somewhere, that’s all
  • It is your money so it is YOU who is expected to MANAGE it

Ten to fifteen years is enough time to make a significant difference to your super but you should act now.  Now that you have a reason to hurl yourself into action, call me and I will show you how to give your super a 6-Part Makeover.

Cheers

Gary

 

 

 

 

My Best Way to Retire is …

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I am often asked the best way to retire.  It’s not an easy answer because everyone is different in terms of their dreams, personal situation and money.  However, I can tell you with genuine insight how I personally am approaching and dealing with retirement.  I’m in the second half of my sixties and so far, so good.  This is how I’ve handled it so far.

The first thing I did was not to sit back, do nothing and let it just happen to me.  I started thinking seriously about it around 10 years ago.  I thought about it a lot and actually visualised what I wanted my retirement to look like, and feel like.  I practised what I preach.  That is, to be able to enjoy my retirement on my terms requires some fair dinkum planning.

A question I get asked a lot is …. “If you are retired, why are you still working?”

My answer is that I hate golf, I am a lousy fisherman and I don’t want to haul a caravan around Australia.

When I thought about my own retirement, I thought about three (3) things:

  1. Purpose
  2. Health; and
  3. Money

 

Health

The way I see it, without good health I won’t be enjoying retirement on my terms.  The money will play a different role.  It will be financing medical costs and life extension rather than the life I had planned.  So when I wake up each day, it is not money or purpose I am thinking about.  It is maintaining good health.  Because it is only with good health that I can make the rest of it work.   I confess right here that I haven’t been anywhere near perfect or disciplined about this over my life and, as so often is the case, I got a big wake-up call recently, which fortunately I survived.  Fortunately, it wasn’t a heart attack or a stroke but only because I am a believer in regular medical check ups and the signs were detected early.  It was two things.  The first was 5 years of Atrial Fibrillation for which I eventually had two catheter ablations.  The second was a deteriorating aortic valve which resulted in an open heart valve transplant last year.  After all of that, I lost weight, reduced the lifestyle risks and am making the most of my new lease on life.  I consider myself very fortunate to get another go at good health so it remains my top priority.

Purpose

I struggled with this for a while because I wanted to do something worthwhile and self-satisfying.  I’m a bit of a home-body but not 24/7.  I do like to travel, so does my wife.  At the other extreme, I didn’t want to be on holidays forever nor do I want to hang out with old farts, comparing health problems and medications.  I think that is the fastest way to meet the grim reaper.  I know not everyone likes their job but I do.  I actually like being a financial adviser because it helps people, and after all these years I have gotten really good at it.  So why give it up?  The solution for me is to work part time and leave plenty of time for coffees, travel and socialising.  There is no rule that says retirement must be devoid of all work, or that money can’t be earned along the way.  The way I see is that it’s nothing more than a new and evolving phase of my life cycle and I can structure it any way I like.  Besides, if I am working, I am not annoying my wife and she is free to enjoy her retirement in a way that best suits her.  Also I think flexibility is the key here.  If I find something more than work that I am more passionate about, trust me I will quit working and start doing that.  I most certainly don’t view retirement as a homogeneous journey.  For me, I want it to be a time of fulfillment as well as a time of new experiences.

Money

Money is certainly important but not my top priority.  There are many ways to get money and it really doesn’t matter how, provided that it’s legal.  In my view, the main purpose of money is to provide choices throughout retirement, such as accommodation, standard of living, travel and fun; then in later years (much later hopefully), to pay for medical expenses, aged care and a funeral.  Money doesn’t buy health or purpose.  It also doesn’t buy a happy marriage or replace a lifetime partner or lost friends.  For me, my biggest retirement goal as far as money is concerned was to be debt free before cutting back on work and allowing myself to think ‘retirement’.  Without debt, I can live very cheaply if I want to; and importantly I can conserve money that might be needed later if health and mobility deteriorate.  Of course, out of all the different types of personal debt, the home mortgage is the one that takes the longest time to whittle away.  But credit card debt and personal loans etc also have to go.  In retirement, carrying debt is like dragging an anchor.   It will strip away retirement savings in no time, which can make the later years of retirement downright miserable.  My second priority is to try to be as tax-free as possible.  Of course this is impossible while I am still working part time but access to superannuation benefits after age 60 (with conditions) and after age 65 (without conditions) certainly helps the cause.  In the end, everyone in retirement needs some form of income to live so in that sense, paying tax if necessary is generally a good financial sign.

So there you have it.  That is my take on retirement.  What you do will be different to me, but the process of planning it should start early.  The reason I say that is while there is plenty of time to contemplate your retirement purpose, you might want to start getting a grip on your health before you get the frightening wake up call; and you might want to start saving and buying some investments that can help with the retirement cause later on.  The issue isn’t whether you utilise or trust superannuation or not.  Superannuation for all its complex rules and government tinkering is just a tax concession, nothing more.  The main game here is you taking action early enough to squirrel away some money and assets for later on.   The challenge is to do it when you have so much else on.

Call me if you want a chat.  All I charge for a first meeting is a cup of coffee.   I am much more interested in getting to know you and your circumstances; and figuring out how I can help you, rather than what I can sell you.

Cheers

Gary

 

Retirement – Making the Most of the Last Lap

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Retirement is generally regarded as quitting full time work somewhere in our 60’s, and starting a new phase of life without having to trudge off to a daily shift at the salt mine.

Although retirement can last 20 or 30 years, it is the last lap because there is only one outcome at the end of it.   We don’t get any younger; the body starts to fail and at some point we die.

So broadly speaking, retirement has two (2) phases which are often blurred and overlap.

  • The early part is enjoying a new-found freedom and having fun.
  • The later part is the drawing near to life’s end

The early fun part often requires part time work and some budgeting so that money doesn’t run out.  The later end of life part always needs some serious planning to make sure that (a) any time spent in failing health or aged care runs as smoothly as possible; and (b) we don’t leave a mess behind after death for our kids to clean up.

In my case, I am 66 and for me retirement is pretty good at the moment.  I survived a serious heart problem last year and now I run my business part time from home.  I am healthy and relaxed. I spend time with family and friends; and I work at my own pace.  That would be at enjoyable pace rather than high speed, high stress pace of the past.  I see fewer clients than I used do and they have to be a little more patient sometimes because they find me away on a holiday occasionally, whereas two years ago that would never happen.  Work is now fun and it keeps my brain active.  I feel I could do this for at least another decade; and I will if I can because I love what I do.  I am very good at it and I know I can make life so much easier for others.

So here I am at the start of my retirement, and I am very mindful of the deterioration of health and end of life that is somewhere ahead.  So here is my top ten (10) checklist to make sure that my own affairs are in order:

  1. Get debt free, my number one priority as it is a lot less expensive to live debt free in retirement.
  2. Boost super as much as is affordable.  The government constantly screws with it but it is still the best tax concession saving we have.
  3. Live as tax free as possible.  Superannuation pensions and the Age pension (Centrelink) help this cause, while income producing assets outside super (e.g. shares and rental properties) tend to work against this cause but if you are happy to pay tax then it’s fine.  Every situation is different so it is a matter of structuring for the best result.
  4. Review personal insurances.  Is all of it still needed?  Typically, it gets hellishly expensive as we get older.
  5. Check insurances in your super fund.  You are paying for it even if you think you aren’t, and they are also age-based premiums.
  6. Review your Self Managed Super Fund.  Is it still appropriate in old age?  Do you have a plan for it?  So many SMSFs perform poorly and there is no mercy from the ATO for ageing trustees.  Additionally, there are some real benefits for older people to transfer back to retail super (depends on your situation though).
  7. What to do with your business?  Business owners need to make decisions about what to do with theirbusiness and the company or trust that owns it.  Will it be a family succession or will it be an external sale?  While succession continues your legacy and helps the family, proceeds from a sale can attract a big capital gains tax concession if you transfer it to super.
  8. Plan for mental health deterioration.  We all need to have someone we trust beside us to make decisions and sign on our behalf (i.e. Enduring Powers of Attorney and Medical Directives).
  9. Plan for aged care.  Nobody wants to go there but in the event that it becomes necessary, have a plan and tell the kids well in advance so that the decisions are yours, not theirs.
  10. Organise your Estate.  This is an area that two thirds of Australian adults ignore which is silly because your family then has to deal with the Public Trustee, which can be an excruciatingly long, frustrating and expensive process.  For most of us estate planning is so much more than a will because a will only covers assets in your own name (only).  Separate arrangements must be made for super, companies and trusts.  The idea is to make your instructions clear through your will, your super nominations and other post death instruction documents.  Also be aware that you can put extra protections in place for a disabled beneficiary; and extra protections in place for yourself against a problem beneficiary (e.g. a child with a marital, gambling, drug or spendthrift problem).

So there it is.  My message to you is get this stuff done, find a purpose in life, and have an enjoyable retirement with a lot less to worry about.  Call me anytime to discuss because nothing I have outlined here is straight forward.

Cheers

Gary

 

 

 

 

 

 

 

Seven Questions to Ask Yourself before Jumping into an SMSF

Your Super – the Inside Story

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Superannuation is the government’s legislated system of saving for retirement.  Its main advantage is the concession of reduced taxation and because it is compulsory for employed people, it’s a type of forced savings.  The disadvantage is that it is complicated for the layperson; and in fact a good many financial advisers avoid detailed superannuation advice because there are just so many rules.

If you are working as an employee then you are going to have compulsory superannuation put away for you.  If you are self-employed as a sole trader or in a partnership, it is optional.   So while super is a tax-effective way to save, each successive federal government wants to tinker with it which usually means some reduction or other in allowable concessions, either in areas of putting in or taking it out.  This has the effect of making other retirement options increasingly more attractive, including reliance on the Age pension.

There are many choices when it comes to super funds.  The government says you have a choice of which super fund your employer puts your money into.  That is true for some.  There are many people who don’t have that choice.  In my experience however, the majority of people tend to go with whatever their employer has in place because the time and effort required to research a suitable alternative is all too hard.  If you want to know if you have the right to choose your super fund or not, ask your employer.

Apart from Self-managed super (which I will talk about in another post), and large corporate super funds, superannuation for most people in the business (non-government) sector is broadly split between industry funds and retail funds.  The former (industry funds) are often associated with trade unions, although not all, and the latter (retail funds) are generally made up of personal super arranged by financial planners with an individual and small corporate funds arranged by financial planners with small  medium business employers.

Whilst there are so many different funds in the Australian super scene with a wide range of features and offerings, they are all subject to the same rules.  So in some respects, it’s not so much the fund you have, as what you do with it.  Neglect is the number one worst thing you can do to your super.

So regardless of which fund you have, check these four (4) things:

How much is it costing you?   – Generally speaking, industry funds are cheaper than retail funds and the reason is, you get what to pay for.  But if you take no notice of your super then you may not mind.  However if you have had your personal super arranged by a financial planner in the past, you might be interested in this next point.  While you might be vaguely aware that that the government banned commissions from super in mid 2013, you may not realise that the grandfathering rules mean that if your retail super fund was put into place prior to that time, you could still be paying adviser commissions.  Not only that, there are some older retail funds that are ridiculously expensive regardless of adviser commissions.   The retail super market has become a lot more competitive now, and its much more online friendly, so it’s worth having a look at your statement and asking your adviser for a review.

Are your investments suitable for you?   – The issue here is whether your investments would keep you awake at night (if you knew what they were).  For example, if you are a naturally conservative person when it comes to risk taking then you may want your super investments to be much the same.  If you are a risk taker then you might want your super investments to be at the growth or high growth and of the investment spectrum.  The point is that your investments should be driven by your attitude to risk.  It’s up to you so it might be worth getting yourself tested for risk appetite with an adviser and check which end of the risk spectrum your super investments are.

What insurance benefits do you have?  – There are some good reasons why you should be aware of this.  Most Australians are under-insured and the only insurance benefits they have are in super – the type that just appears because you took the job.  So it is worth having look at what you have and consider whether you need any more.  Also the insurance benefits are there for a reason.  That is, to protect your retirement savings between now and retirement.  So if you are off work for a while, there may be some temporary disability benefits that can help you.  If it turns out that you can never return to work, any permanent disability insurance you have will be a blessing.  Of course any death cover you have will help your family a lot if you die before you retire.  The other important issue is that the insurance you automatically get in your super may be the only insurance you can ever get due to the current condition of your health.  So knowing it’s there might stop you forgetting about it, or inadvertently cancelling it by changing super funds.  So that brings me to another point; if you are thinking about consolidating a few super funds into one, please do not forget about the valuable insurance benefits they may contain.  Get advice before doing it.

Have you nominated a beneficiary? – Ok this is about what happens to your super when you die.  Even if you do prepare a will, it won’t include your super unless you specifically fill in a ‘Nomination of Beneficiary’ form and send it to your super fund, directing your super into your estate.  Of course, you can nominate your dependents (e.g. spouse and kids) directly as beneficiaries but be aware that you can’t nominate mum, dad, brothers, sisters, aunties and uncles.  This makes it difficult if you are single and effectively leaves you with one choice.  And don’t forget about life insurance that you might have in your super.  if you die, it becomes a factor in money left to your beneficiaries.

I hope that helps answer a few superannuation questions.  My purpose in writing this article is to make you a little more aware of your super, and to encourage you not to neglect your super. It’s your money.  Also need to tell you that nothing in this article should be interpreted as advice.  I encourage everyone to seek advice relevant to your personal situation from a licensed financial adviser.

 

 

 

 

 

SMSF Putting The Certainty Back Into Superannuation

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If you like the safe feeling of keeping your retirement nest-egg close to you, then you are not alone. There are many people who also want to control their own wealth in their own way.

Some like the feel of cash, while others prefer to invest in tangible bricks and mortar. Then there are those who are avid DIY share market enthusiasts.

People are heading towards Self-Managed Superannuation in numbers. With the scars of the global financial crisis (GFC) still fresh, there is a growing desire to become ‘Master of own Destiny’ when it comes to wealth and retirement building.

For many, it is a comforting and safe feeling to have superannuation under close control, even if it stays in cash. I don’t think many would seriously argue that they are better investment managers than the professionals, but then nobody has the same level of care and invested emotion in one person’s retirement as the individual retiree in question does.

For several people, switching to SMSF is also the opportunity to leave managed funds behind, together with inherent investment risk and the association with advisor commissions. And I can understand why.

Managed funds are at the heart of the Australian superannuation system. In a system where so many people had their superannuation savings brutalised through the GFC, it is no surprise that managed funds are widely associated with eventual loss.

After many discussions with clients, I would rank the following as their most common perceptions of managed fund-based super:

You start a new job and get what you’re given.

Often, there is only a limited number of one-fund investment choices.

They are often accessed through platforms with confusing layers of fees.

The options available are rarely capital guaranteed and therefore carry risk.

There is widespread unawareness of the risks until it is too late.

Unseen faces are ultimately in control of members’ retirement benefits.

There is a strong association with advisor commissions even through a downturn. Even after recent banning, grandfathering provisions mean that there are a lot of funds still paying commissions to advisors.

Personally, I am a fan of managed funds because I know them and understand them. Even so, there is still widespread exposure to risk and, in my experience the majority of people in or near retirement are generally risk-averse. They simply can’t afford to lose their capital because, after ceasing work, they have no means to replace it.

Older Australians I speak to generally want safety and certainty when it comes to their retirement savings. The mainstream superannuation system is not set up to deliver that, so risk-averse people feel they are left with little choice but to take matters into their own hands.

Very few make the move to an SMSF because they have a burning desire to be a superannuation trustee. They view that responsibility as the price to be paid for total control over their own money.

Most retirees I talk to agree that they need some growth in the capital base that underlies their super and pension, but they don’t necessarily see managed funds as the way to achieve it.

So I think this is an insight into why we see so many SMSFs where members hold the majority of their funds in cash and term deposits and purchase a relatively small number of direct shares. It’s all about safety, certainty and control.

 

If Investing in SMSF, Create a Vision

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In my experience as Principal Advisor at Gary Weigh & Associates, many people don’t have a clear vision for their SMSF before jumping in. The overriding need for control over superannuation is not enough. It is important to understand why the need for an SMSF exists.

As an experienced financial advisor, I can tell you that in some cases the need exists because an accountant or financial planner suggests it does. It depends on the advice provider’s motivation because an SMSF recommendation can also mean years of ongoing SMSF service work which can be very profitable for the advice provider.

But regardless, I encourage anyone heading down the SMSF track to do their homework and satisfy themselves that significant need exists that an SMSF will satisfy where no other form of superannuation can.

Start by asking the following questions of yourself and / or the person who recommended an SMSF:

1. Do you have a special skill as a trustee, administrator or investor?

2. Is the prime purpose to acquire your business premises?

3. Is the prime purpose to purchase residential real estate?

4. Is the prime purpose to invest in Collectables (e.g. collections of art, wine, coins, stamps etc.)?

5. Are you aware of the SMSF rules pertaining to real estate acquisition, limited recourse borrowing, collectables and restrictions on investment?

If your answer is NO to all of these questions, I can’t see a strong need for self-managed super and you may be better off staying out of an SMSF and choosing another form of superannuation.

So for example, “If the purpose of your SMSF is to invest in listed shares, term deposits or managed funds, you don’t need an SMSF to do that. It can be achieved with a superannuation wrap”.

Furthermore, even if you answered YES above, and do intend to invest in mortgaged real estate property, ask yourself the question, “Is it really worth taking on trustee responsibility, setting up three separate entities, incurring additional legal costs, and years of ongoing admin and compliance, with no ability to improve the property, just to acquire a real estate investment that may be eligible for a tax break?”

The majority of people are not expert property investors and simply want to have enough money for a comfortable retirement. So I encourage prospective SMSF trustees to have another look at personal superannuation.

From experience, I can confidently say that with good investment advice and a reasonably priced administration platform, personal super can deliver investment performance and control at a reasonable cost is very achievable without all the work and hassle of an SMSF.

For more information about SMSF and other retirement services visit http://garyweigh.com/advice/

 

Facing Retirement

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facing retirementRetirement can be an emotional as well as a financial challenge.

This I know from personal experience.  Before I actually had to face retirement myself, I used to think of my retirement and other people’s retirement in financial terms only.

That is, basically if I could guide them to accumulate enough money before retirement and / or generate a passive income during retirement, then all was sweet.

How wrong I was!

Whilst the financial side of retirement is still very important, I find there is a whole other emotional side to retirement that only hit me in the face once I was past the ‘BIG 60’.

So a little bit of back-story!

As a financial adviser, I have enjoyed working from home for years.  I have a lovely office setup here at home and while my wife has gone to work four days a week I have enjoyed a decade of absolute peacefulness and bliss.   You couldn’t prise me out of here back into a city office with a crow bar.

I am generally out and about Tuesdays to Thursdays having a glorious time meeting with new and existing customers, who are mostly around my age.   I am working but its work I love.  Many are now friends and it’s always a chat over a cup of coffee, a bikkie or a few sandwiches.

Mondays and Fridays are generally the times when I am in my office all day doing follow-up paperwork and organising things for my clients.  I’m in my cave …. happy days!

A week ago, my wife began long service leave as a prelude to retirement.   My peace is shattered!  Now don’t get me wrong, I think the world of her but things are changing.   She likes to be active around the house and in the garden.  So with the buzz of daily activity, my office isn’t quite the sanctuary it used to be.

We are having the first of many pleasant discussions about how our retirement might go and, not surprisingly, we have different views of retirement.   Whilst I have no intention of ceasing the work I love until a health misfortune leaves me no choice, she has her sights set on travel.   So what to do?

After the first round of negotiations it seems that she will travel at every opportunity, either with me or with her girlfriends, and I will continue my passion for work and travel with her a whenever I can.

Welcome to my retirement!

Gary