An article on the website Professional Planner talks about the Federal Government’s stance on the Superannuation sector; one that it has made abundantly clear through the latest Federal Budget. The government had stressed as a part of its pre-election gimmick that it would not be making any changes in the structure of Superannuation in its first term of office. In many ways, it is heartening that the government has stuck to its promise.
Super News
Is $1M Enough to Retire Comfortably?
Retiring with a million dollar in your bank account is something that’s desired by a lot of Australians, but those who’re actually expecting to have $1 million by the time they retire are in for a shock, according to one of the leading providers of retirement incomes.
Jeremy Cooper, a superannuation industry veteran and chairman of retirement income at Challenger, notes that a typical $1 million nest egg was used to buy a lifetime income and with the current interest rate environment, you’re looking at $1297 a fortnight, which roughly the same as a government pension.
Assuming that you’ll have $500,000 or even $1 million in super leading to a comfortable retirement can be suspect, given the current environment, states Cooper.
A comfortable retirement can cost more because $1 million is the fair price for the age pension with today’s interest rates. An individual is looking at an income of $33,717 a year for that $1 million. This is the brutal reality, Cooper points out.
Cooper’s statements are based on the government’s intergenerational report wherein by 2055, Australians’ life expectancy could climb to 95.1 years for men and 96.6 years for women, compared to today’s 91.5 and 93.6. This calls the need for more retirement planning.
Read the rest of the article by clicking on this link.
What I think about retiring comfortably
It just goes to show that the current low bond and interest rates can be a big factor that can affect the returns of investors and many of whom are preparing for a lump sum windfall instead of a steady income.
The way things are now, we are currently on the quest to ensure that our super taxes are equitable and that we are in danger of facing heavy collateral damage to a large group of people who we intend to help. These people are the middle income households hoping to accumulate a large enough nest egg that will self-fund a reasonable yet comfortable retirement.
$1 million is not a comfortable amount for retirement and that assets below $2.5 million shouldn’t be taxed in order to boost savings.
Can I Pay My Pension Using My SMSF?
Drawing a pension from your SMSF
This is probably the moment you’ve waited for and probably the reason why you got a SMSF (self-managed super fund) in the first place. By the time you reach the age of 55, you can already start withdrawing money from your fund. But for some people, retiring on a super pension means never having to pay taxes again.
You can start a super pension the moment you satisfy a condition of release, like retirement, TPD or temporary or permanent disability, or financial hardship. You can also start a pension within the years leading up to the age of retirement the moment you reach the preservation age, which is 55 years. Now, SMSF have members in pension phase and some are in accumulation or pre-retirement phase, but there are also members that are in both phases at the same time.
Once your individual balance is in pension phase, you can no longer make contributions to that account, but some SMSF members have an accumulation account they can make contributions to and a pension account to withdraw from at the same time. This is easier to identify which account is tax free.
Types of pension
You can start with an account-based pension if you’re over the age of 65 or between the ages of 55 and 65 but retired. If you’re between the ages of 55 and 65 but you’re not retired yet, you can switch on an income stream with a transition to retirement pension (TT).
Account based pension is the most popular form of super pension, though there are restrictions on the amount you can withdraw from every year. Even with the withdrawal amount, there’s no upper limit on how much you can access or when. You can even withdraw lump sum amounts.
TTR or transition to retirement pension: If you’re between the age of 55 and 65 and you want to continue working full time or part time, you can withdraw up to 10% of your super balance every year. Like the account-based pension, there’s a minimum annual withdrawal of 4% from July 1, 2013 and no restrictions on the timing of payments.
By the time you reach 65, it’s a simple process to convert a TTR to an account-based pension. An even better deal is by the time you reach the age of 60, all the withdrawals from your funds including lump sum are tax free. There is also no tax to pay on any income or capital gains from assets supporting the pension. This gives you the advantage to supplement your wages with tax-free pension income while increasing your super balance at the same time.
You can also maximise the tax benefits of such a strategy by salary sacrificing your super contributions from your pre-tax salary.
And to top it all off, if you’re fund is in pension phase and holds fully ranked shares, the ATO or Australian Taxation Office will send you a refund cheque every year.
A Super Quarter for Super Funds
Superannuation savings of Australians have had the biggest quarterly returns in three years.
The March quarter saw median balanced funds (60 to 76 per cent invested in growth assets) recorded returns of 5.7 per cent, noted as the best quarterly increase since March 2012 (a time when funds climbed to 5.8 per cent)/
The strong returns are due to the climbs to the international and domestic sharemarkets. The falling Australian dollar also contributed to the increase in returns on international equities.
Coincidentally, this marks the third consecutive year where the superannuation returns recorded with double digit growth for the first time since the global financial crisis.
The figures released by SuperRatings, a superannuation research firm, showed that super funds grew by 1.9 per cent in January, 3 per cent in February, and 0.6 per cent in March of this year. This amounts, or rounds up, to 5.7 per cent in returns within three months.
The ASX200 index increased by 10.3 per cent in the March quarter and helped to boost the returns.
Jeff Bresnahan from SuperRatings states that Australians should be thrilled with the returns but cautioned citizens that a good run may come to a halt any time soon.
Bresnahan also states that Australia is likely to have another strong financial year, given that the country is more than 75 per cent up on where we were when the GFC (global financial crisis) happened. The sharemarkets could come back by up to 10 per cent and could affect super returns, but the effect wouldn’t be significant.
The returns on super accounts ar at a 10.8 per cent for a financial year-to-date and in the past year, members have enjoyed gains of 13.1 per cent.
Brendan O’Farrell, Intrust Super chief executive officer, said that Australians should be pleased with the returns but should be ready when the returns come to a halt.
Losing sight of the many uncertainties can reverse some of the strong gains, O’Farrell said. He also reminds that with long-term investments, investors should be ready for bumps along the way.
0
Points to Ponder Before Opening a SMSF
Depending upon whether a SMSF fund is meant for an individual or a corporate entity, the fund owner becomes a trustee or the director of a company (to which the trust belongs).
Irrespective, it is entirely the onus of the trustee or the company’s director to adhere to the trust deed and the rules of the SMSF. The essential idea for forming a SMSF remains the same- provision of retirement benefits to the members.
The Need for Demystifying SMSF Myths
At the risk of facing adverse and unintended consequences, myths around the tax status of self-managed superannuation funds or SMSFs are being perpetuated, according to Chartered Accountants Australia and New Zealand superannuation specialist, Liz Westover.
She pointed out that the SMSF industry has had to get rid of the myths and misconceptions that surround the SMSF, including those that say that the SMSFs operate under special tax laws.
Misconceptions like these are being continued or spread by people who should know better. The myths also gained momentum because the flow of funds into the SMSF sector has been a concern for some of the larger funds for some time now.
Westover points out that there are no special tax laws for SMSFs and that the tax rules are the same for all superannuation entities.
One of the advantage of the SMSFs is they were able to manage the rules more efficiently than their larger counterparts and they cited the example of sale of assets for capital gains tax purposes or the timing of investment transactions with pension commencement.
In an adverse outcome of the continued myth surrounding SMSFs, people are driven to establish SMSF or to make enquiries about SMSF simply because of the tax reasons.
Read the article here.
What do I think about this?
The myths surrounding the SMSF, or at least any myth surrounding money, can be very misleading and oftentimes, it can lead to serious consequences whenever they are listened to and accepted on face value. Let’s face it. Retirement income is a very serious topic for discussion even at the early age of 30 and 40 years old because you don’t want to retire broke.
But the thing about these SMSF myths is that they not only mislead people into getting one but they also make SMSFs look bad. This is why whenever I talk to people about getting an SMSF, I make sure to clarify these myths or issues surrounding them.
