Superannuation and Retirement Planning
It is never too early to start planning your retirement. Small actions now will make big differences to your lifestyle later.
According to the Association of Superannuation Funds of Australia Limited (ASFA) the retirement lifestyle definitions are:
- One annual holiday in Australia and regularly eating out at restaurants (good range and quality food)
- Owning a reasonable car
- Afford bottled wine, good clothes and afford regular hair cuts at a good hairdresser
- Take part in a regular leisure activity
- Own a range of electronic equipment, replace kitchen and bathroom over 20 years and maintain private health insurance
- One or two short breaks in Australia near where you live each year and infrequently eat out at restaurants that have cheap food
- Owning an older less reliable car
- Afford cask wine, reasonable clothes and afford regular hair cuts only at a basic salon
- Take part in one paid leisure activity infrequently
- Not much scope to run air conditioner, no budget for home improvement
- Even shorter breaks and only club special meals
- No car
- Home brew beer, basic cloths and less frequent hair cuts
- Only taking part in no cost activities
- Less heating in winter, no budget to fix home and no private health insurances
Cashel House believes that most people want a lifestyle that is boarder and more fulfilling than these narrow definitions. We have made it our mission to achieve more for our clients.
- If you are single, $646,626, which over 25 years, at a rate of return of 5% will generate a retirement income of $43,695 p.a.
- If you are a couple, $888,850, which over 25 years, at a rate of return of 5% will generate a retirement income of $60,063 p.a.
This assumes you own your home outright.
- If you are single, $359,163, which over 25 years, at a rate of return of 5% which will generate a retirement income of $24,270 p.a.
- If you are a couple, $516,635, which over 25 years, at a rate of return of 5% which will generate a retirement income of $34,911 p.a.
- If you are single, $1,323,261, which over 25 years, at a rate of return of 5% should generate a retirement income of $89,109 p.a.
- If you are a couple, $1,818,950, which over 25 years, at a rate of return of 5% should generate a retirement income of $122,986 p.a.
This assumes you own your home outright.
Superannuation is one of the most tax effective investment structures to accumulate wealth in. The tax rate varies depending on your stage of life:
- Accumulation phase. During your working career income tax will be applied at 15% and capital gains tax applied at 10% within your superannuation fund
- Pension phase. During your retirement you will pay 0% tax for member balances less than $1.6 million.
No. Self-managed super funds are actually one of the most expensive structures to accumulate superannuation in. In 2013 Rice Warner conducted research that indicated that the average SMSF costs were $8,033 per year. Along with having in-appropriate insurances, a SMSF is one of the major costs that can impact your retirement lifestyle.
Only where you have over $1 million in your SMSF does the costs of operating it compare favorable to a retail superannuation fund. Despite this, the latest research shows than approximately 65% of SMSF have less than $1 million invested, 43% have less than $500,000 invested and 19% have less than $200,000 invested.
Under the recent changes to the legislation that governs superannuation, there is limited benefits to having a SMSF. The main reasons that would make a SMSF appropriate for you are the following:
- If you would like to buy real estate. A SMSF enables you to obtain gearing and to buy real estate. However the new legislation means that you may utilise the full contributions cap within your SMSF through one property acquisition and hence have a retirement fund highly concentrated to the success (or failure) of one or two real estate assets. Financing in a SMSF is also generally more expensive than gearing outside of a SMSF.
- If you would like to have multiple members, including children. A SMSF enables you to have multiple members including those under the age of 18. However this can also be achieved with some retail superannuation funds, such as through the Cashel Superannuation Fund, and
- If you would like to take advantage of reserve accounting principles. Reserve accounting principles enables you to manage the contributions cap under the $1.6 million limit through accounting for volatile investment returns. If you have not been doing this to date, this is likely to be something of focus by the ATO.
If you are a trustee of a SMSF and intend to work overseas you will likely be treated as a non-resident and as such be taxed as such, under these circumstances you would be best to transfer the assets to a small APRA fund or a Retail Superannuation Fund.
Many people were advised to set up a SMSF to enable broader investment options. This is no longer needed, many industry super funds are allowing direct share investments, and Cashel Superannuation Fund enables complete choice (within reason) due to its global custody arrangement.
A small APRA fund (SAF) is essentially a self-managed super fund with a professional trustee. A SAF offers all the freedom and flexibility of a self-managed super fund but without the associated trustee responsibilities and risk of compliance breaches. There is however costs that are higher than a retail super fund.
Please feel free to contact a Cashel House adviser to assist with calculating your likly retirement savings. Alternatively please use the calculators provided on the ASIC Money Smart website.