Bryan Ashenden is the Head of Financial Literacy and Advocacy at BT Financial Group.
First appeared in Switzer Daily, 8 July 2018
Retirement is a big decision. Your existing work/life pattern changes. Your income source, and often income level changes. You may actually have more time on your hands to do what you really want to do. But if you have a self-managed super fund (SMSF), is there anything different that you need to think about?
Just like the decision around retirement, the decision to run an SMSF is a significant one and should not be viewed lightly. And as you decide to move into retirement, there are a number of important factors to consider.
The first question you should turn your mind to is whether maintaining and running your SMSF is something you want to do in retirement. As you should be aware, the proper and effective running of your SMSF does take time, and shouldn’t be considered lightly. Getting professional support can certainly make things easier, but doesn’t remove your responsibility. If one of the reasons for your retirement is to pursue dreams beyond a working life, do you still want to spend time running an SMSF? Arguably you should have more time to do so, but if your dreams involve travel, you could find yourself with less time to devote to your SMSF.
If you do decide to continue with your SMSF, the next step is to ensure that it is “retirement ready”. What do I mean by that? You need to ensure that your SMSF can support your needs in retirement. The most critical point here is to ensure that your SMSF Trust Deed allows for payments to be paid to you in the form required (for example, a lump sum or pension payment), at the right time or frequency, and pays the right amount.
This should be obvious, when you consider that the whole purpose behind super (and an SMSF) is to accumulate wealth to be drawn down in retirement. But if your SMSF has been around for a while, its Trust Deed could be quite rigid in terms of the types of income streams it can pay in retirement, and they may be more rigid (or less flexible) than is actually allowed under superannuation laws today. Similarly, the Deed might talk to types of income streams that are no longer permitted.
If you find yourself in this situation, it can be rectified by having the Trust Deed amended, but the processes required and the level of change required will differ from one SMSF to the next. So getting the right legal advice on the changes required and processes to do so is important. Even if no changes are required, having your SMSF’s Trust Deed reviewed to confirm no changes are required can at least give you some piece of mind.
You should also review your investment strategy to ensure it is appropriate for your future needs. This doesn’t mean go and change all your investment to cash, term deposits and the like – things that are very capital stable so that you don’t need to worry as much about market fluctuations. Going too cautious with your investments reduces your ability to still benefit from capital growth that may be available, and it’s the potential for capital growth that could assist in making your money last longer.
Similarly, think about what options you have to balance the need to draw an income, still have access to capital, and provide you with some potential longevity in your savings. There isn’t a single easy solution to this, as many factors come into play. But it’s worth exploring what options you have.
Estate planning may become even more important for you in retirement. Let’s face it, retirement is usually associated with getting older, and getting older generally means the time we have left is getting shorter. Do you have the right estate plan in place – over your super and non-super savings? What’s changed since you last looked at it? Do you have nominations in place for your super to prevent it becoming an estate asset, subject to your Will, and are those nominations current and to the right people?
Finally, it is really a case of coming back to the first consideration mentioned around the suitability of maintaining your SMSF in retirement. Still having one might be the right answer for you today, but at some point in the future (unless you have more members join), your super savings (and the overall balance of your SMSF) will start to diminish, and the relative costs of running it will likely increase. Rather than waiting until it’s all too late, if you aren’t exiting now, you should think about what your future exit plan will be.
There is no reason why an SMSF can’t continue to play an active role in your retirement plans into the future. Just ensure you have considered what role you want that to be and don’t be afraid to seek professional advice to guide you to the right decision.
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Information current as at July 2018. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any super law considerations or comments outlined above are general statements only, based on an interpretation of the current super laws, and do not constitute legal advice. This publication has been prepared by BT Financial Group, a division of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian credit licence 233714.