Superannuation and You

As the average life expectancy grows, so does length of your retirement. In order to maintain the lifestyle you are accustomed to, it is imperative that you maximize your superannuation. Although employer contributions provide much needed assistance, it is ultimately incumbent on yourself to organize and manage your fund. A self managed superannuation can give you the tools to reach your retirement goals.

Beyond the ongoing legislative detail, those considering a self super should factor in the following issues before making a decision.

Tax Friendly

For a self managed superannuation, only a concessional tax rate applies. This rate is capped at 15 percent, which in most cases is substantially lower than the marginal tax rate paid on dividends or interest garnered from separate investments. Moreover, any funds removed from your salary for a self super fund

counts as a tax deduction for most individuals, with restrictions for those who are past a certain age. Contributions made on behalf of your spouse may also be eligible for various tax relief.

Retirees can take advantage of further tax benefits following retirement by purchasing an annuity or allocated pension. An allocated pension is a self super fund that pays you a steady income during the course of your retirement.

The Super Guarantee is Not Enough

Many Australians are under the false impression that providing additional money to their fund is superfluous due to the mandatory contributions made under the Superannuation Guarantee scheme. However, employers are only responsible for paying 9 percent of your income into a super fund. For most individuals planning on maintaining their current lifestyle, this amount is insufficient.

Asset Allocation

With a self managed superannuation, you have the ability to control where your assets are allocated. A self super fund can invest in the following four financial vehicles: shares, property, cash, and fixed interest. Typically, property and shares provide more growth over the long term, whereas cash and fixed interest offer less volatility for those closer to retirement.

For example, the following indices provide some insight over how a $10K investment might grow depending on the type of investment, with dividends and interest reinvested:

• Australian and International Shares (MSCI World/S&P/ASX 200 Accum) - $237K

• Property (S&P/ASX 200 Property Trusts Accumulation) - $126K

• Fixed Interest (UBSWA Composite Bonds) - $100K

• Cash (UBSWA 90-day Bank Bill Index) - $79K

Over a twenty year period from 1981 to 2001, money invested in international shares consistently outperformed property and fixed interest, with cash offering the most meagre earnings. On the other hand, an investment made over a much shorter time period may provide vastly different results, with shares possibly decreasing in value. Furthermore, assets can be divided amongst the four in order to diversify your portfolio and hedge the amount of risk.

The number of variables and options available make investing a complex algebra of risk weight and management. Individuals with questions should speak with a financial adviser to obtain advice regarding an allocation suitable for their self managed superannuation.

Important Disclaimer

As with all investments, past performance is not an indicator of future performance. The information provided is of a general nature and not meant to serve as a guide for how to invest. Individuals should seek professional advice catered to their financial situation before allocating their self super fund.

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