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Superannuation guide for retirement planning

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As the time comes for you to consider leaving the workforce, it is necessary to plan how to make the most of your superannuation in order to strengthen the chances of a financially secure retirement. The reality is that you could spend almost as long in retirement as you did in the workforce. Careful planning can significantly boost your super and make a big difference to your future lifestyle.

Identify your dependants and non-dependants:
When it comes to planning your retirement and how your super will be used, ensure that you have clear plans about what happens to your super benefits and other assets in the event of your death. Identifying who will receive your super benefits becomes more important if you plan to leave them to a non-dependant for tax purposes, such as financially independent adult children. You can do this by ensuring that you accurately nominate your beneficiaries. Planning this ahead of time can help to relieve your family and loved ones of stress, as well as potentially save on tax.

Combine your accounts:
Consolidating your super funds could possibly save you thousands of dollars in fees. Other benefits include reducing your paperwork and making it easier to keep track of your super. You could also end up with more superannuation than you realise, as research has found that if all super fund members were to consolidate their multiple accounts, the average Australian account balance would increase by 79%.

Do a financial stocktake:
Another important step when it comes to planning your retirement is to work out what kind of income you would like to have. By planning this ahead of time, you can then calculate how much money is needed to finance your preferred retirement income. This will help in working out how much super and other savings you currently have and estimate what you will have if you continue your current savings strategy. If there is a gap between your desired retirement income and your projected savings, this is further motivation to make the most of your current superannuation.

Working out how much you will need to finance the retirement lifestyle you desire, will come down to a variety of factors, including whether you own your own home, your spending patterns and the value of your superannuation and other investments. The sooner you start planning and make moves to close any savings gaps, the more likely you are to achieving a comfortable retirement.

SMSF areas being monitored by the ATO

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Self-managed super funds are closely monitored by the ATO to ensure regulations are being met across all areas. As SMSF are run by members, it is their responsibility to comply with all related super and tax laws. The independent nature of an SMSF creates an environment that people are confused by or can attempt to exploit.

One area of concern for the ATO regarding SMSFs is that these types of funds are being used to gain access to super before preservation age. Preservation age is dictated by the year in which you were born, super cannot legally be accessed before you reach this age. A growing number of investors in their 30s, far off from their preservation age, are moving their super into an SMSF in an attempt to gain access to their super early. The ATO has noticed an increase in this strategy in the last five years. If found to be doing this, penalties can include funds being wound up, a 45% tax impost being applied, administrative penalties which have a cost attached, or being disqualified from running a fund.

The ATO is also looking into possible problem areas in relation to SMSF contraventions. Loans to SMSF members, in-house assets, investing in related-party assets and failure to keep assets separated, account for the bulk of the contravention reports. With that being said, the ATO lists administrative errors, sole purpose breaches, borrowings, operating standards and acquisitions of assets from related parties as categories also seen in contravention reports. To avoid these issues in relation to your funds, make sure your SMSF is accessible in regards to your assets and keep detailed records to help substantiate transactions.

Invest in your investments

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If you are in a position to invest, it can be a great venture to help grow your wealth as well as provide opportunities for others through your contributions.

Before investing though, you need to consider what is the best avenue as there are many aspects of an investment you will need to examine to determine if it is the right fit for you. On a personal level, you will need to make a financial plan, consider risks, establish a timeframe of when you can invest as well as decide how involved in the processes you would like to be. When deciding where to invest, you should consider the following:

Understand the business:
As an investor, you should understand the day to day workings of the business you are contributing to. This will help you when deciding if an investment is the right fit for you. Research not only the particular business or company you are investing in but the industry as a whole so you can properly assess suitability. Make sure there is a market and audience for your type of investment.

Company basics:
Investors are allowed to look at the aspects of businesses that not everyone else can. When your money is involved, you have a right to know many things such as how the company functions, what it earns and how they pay employees. You should also look into whether the company is growing, their tax rates, debts and any other expenses they might have.

Management:
The day to day operations is what will help your investment strive so the management of the company is something to look into. Management history is a good way to gauge consistency, effectiveness and overall satisfaction. There needs to be cohesion between shareholders and management. To ensure this, partner with a management team that you align with which will benefit everyone involved.

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