Your SMSF is up and running. It’s important you don’t let things slide and suddenly six months or longer has passed by without addressing your next steps. Now is the best time to plan for the future.
The sooner you start planning your journey towards retirement, the more you will be able to take advantage of the many benefits that SMSFs offer. Having a plan that can be adapted as needed and allow you to react to changes in your circumstances, can give you the control you need to move forward in a positive way.
Key things to think about include:
1. Are you saving enough?
Saving for retirement can take many forms and can commence using a number of alternative arrangements. Superannuation is one of the most tax-effective ways to save for your retirement. This is because:
- you may be eligible to make contributions from your pre-tax salary into super or claim your contributions as a personal tax deduction
- earnings from investments held in an SMSF are taxed at a maximum rate of 15% while you build up your retirement savings and 0% when the assets are used to pay a pension, and
- when you access your super benefits, concessional tax rates are payable on lump sumwithdrawals and pension payments if you are under age 60, and no tax is payable on benefits received at age 60 or over.
These concessions both while you are saving for your retirement and when you are in retirement are designed to encourage you to save in superannuation. They also acknowledge that saving for retirement is a long-term commitment where current financial resources are set aside for the future rather than being used now.
2. Review your investment strategy
It’s important that you review your fund’s investment strategy and make any necessary adjustments. You should be looking at the investment objectives you have set, in terms of the overall return you wish to achieve, against the investment choices you have made.
Where your investment choices are not meeting your objectives, it is a good idea to review those choices and see if the underperformance is due to factors such as poor market conditions for example, or whether a rethink of your investments is necessary. Whatever you decide, record your thoughts and decisions in trustee minutes and keep these as part of your fund records.
If you are moving into retirement and commencing a pension, you may need to ensure there is enough cash or other liquid assets in your SMSF to meet the pension payments and other current and future liabilities.
3. Do you have enough insurance?
Studies consistently show most people don’t have enough insurance to pay off their debts and make ends meet if they are injured, become sick or die.
If you need to buy life, total and permanent disability or income protection insurance, it may be more cost-effective if you purchase them using your SMSF rather than buying them yourself. You may also want to consider replacing any cover you already have outside super with insurance in your SMSF.
Always remember to retain your existing cover until the new cover has been accepted by the insurer. This ensures you have cover throughout the application process rather than having a period with no insurance.
One of the key benefits of insuring in super is that the premiums are paid from your super account balance from contributions you or your employer are already making to your SMSF. This can make the insurance more affordable if you are unable to (or would prefer not to) pay for premiums out of your after-tax salary which you would need to do if the insurance was owned personally outside your SMSF.
Alternatively, if you do have enough cashflow to pay for the insurance, you could benefit from tax concessions if you make additional super contributions to cover the premiums deducted from your super account. Remember that the maximum deductible contributions you can make each year are limited to $25,000 for the 2017/18 and later financial years.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.