by Jodie | Dec 21, 2010 | Finances, General, Insurance & Protection, Investments, Self Managed Superannuation Funds, Superannuation
Lots of people have heard about them, have friends who have them, and most people really like the idea of having more control of their super savings – but is a Self Managed Super Fund (SMSF) really right for you?
For some of my clients – and that’s a minority, they’re a perfect fit, but they certainly are not for all. SMSFs are really well suited to people who have larger super savings (usually $250k+) and are reasonably well educated about investing – or happy to outsource this part. Once you get the benefits of scale, you are also able to reduce the overall fees you may be currently paying. It’s often still advisable however to work with a Financial Adviser and an Accountant on the fund.
For client who just wants minimal fuss and returns in line with what markets are doing, low-cost industry funds or even retail funds are usually more appropriate. Industry funds have considerably cheaper fees than most financial institution super funds and have at times outperformed them as well. But then, you often get what you pay for – there’s limited ‘bells and whistles’ with these funds and you may not be able to nominate your preferred beneficiaries via a Binding arrangement or put in place and maintain the levels of insurance you’d prefer. Industry funds administration and call centres can also be hard to work with as their back office systems can be slow; and their staff less trained and helpful than other retail super funds. Often, there’s no-one to call and help you through the maze if you ever need to claim either.
The best place to start to work out if DIY Super is right for you is to work out the total costs of running a SMSF on an annual basis.
You will certainly have accounting costs and most Accountants can give you a ballpark figure of what you’re looking at. Depending on your level of complexity in the fund, I’ve found average fees can vary from as low as $1.2k p/a to around $5k+ p/a, but the bigger the amount you have invested, the smaller the percentage cost will be overall. You’ll also need to have the fund audited annually – which is usually around $350 – $550 depending on the Auditor.
If you’re using a Financial Adviser, there’s another cost (which most are happy to negotiate) and you could have Stockbroker fees if you choose buy and sell shares. Advisers may charge either a flat fee for advice on the fund regardless or what you have invested, or charge a percentage of the assets under management – i.e. $300k @ 1.1% = $3 300 p/a. Some may even charge entry fees on products recommended, so have a good idea of what you’re getting into first. Others are purely fee for service – but just make sure you’re happy with whatever arrangement you choose to go with.
Some industry funds are quite low cost and can start from as low as 0.8% – but again; they can vary. Most financial institiutions retail funds are around 1% for administration fees, but again, there’s much variation amongst them all. Often, you’ll have investment management fees on top as well. Some however have the flexibility to provide taxation benefits down to a member level instead of charging the Government’s flat 15% by returning individual franking credits to the appropriate investor instead of keeping them – or pooling them across all investors. Most retail funds also offer a more personal approach to insurance benefits which can greatly help with cashflow.
If you’re thinking about doing it yourself make sure you do your due diligence first – count the cost, and work out who you would like to deal with in the coming years for the funds. Understand the costs involved before jumping in, as along with your ongoing costs, there are setup costs too. You need a Trust Deed, Trustees, Beneficiaries, Investment Strategy, ASIC Registration fee, Tax File Number and maybe even GST registration. Again, you can choose to DIY or outsource.
Then, when you’re finally set up it’s important to have a well-balanced portfolio that’s in line with your Investment Strategy. Assets can be invested for income or growth within the fund and it’s good to work out what’s right for you. Will each investment pass the ‘sleep at night’ test or have you awake and worrying into the small hours? And most importantly, don’t bend that one important rule – the Sole Purpose Test. These funds by law are to be put aside to fund your retirement – and nothing else. They are certainly NOT designed for you to speculate on iffy investments, have a holiday home for the family or a great piece of art on the wall.
Again, know what you’re getting yourself in for first and be prepared to spend the time to get it right. Your own personal SMSF can be a great alternative to the public super funds if you love the idea of choice and control. However, if you’re the sort of person who’s incredibly disorganised; just too busy or not really interested in investments, then give SMSFs a wide berth.
The ATO publishes some great information on running a SMSF and what is expected of Trustees. Check out one of their guides here: http://www.ato.gov.au/content/downloads/spr46427n11032.pdf
Alternately, the Advisers at WPP would be happy to take the time out to help you do your sums and work out what’s best for your circumstances.
by Jodie | Dec 16, 2010 | Finances, General, Insurance & Protection
Whilst not all agree that a copy of the UK and South African ‘severity based’ Trauma insurance is right just yet for the Australian market, the product has now been launched by Macquarie after three years on the making.
This new class of insurance contract is called Macquarie Life Active and is modeled after the South African style contract where tiered benefits are available to claimants under their Trauma or Critical Illness contracts. Most of the existing Trauma contracts on the market are an ‘all or nothing’ style contract where you either qualify for the full benefit, or get a partial payout of 10% for less severe claims.
What makes Macquarie Life Active different is that the client is able to have multiple claims for various trauma events under the one policy. The severity of the condition you are claiming for and it’s impact on your finances and lifestyle is what determines the level of payout merited.
No longer do you need to head back to the Product Disclosure Statement (PDS) and go poring over definitions when you suffer an illness, but need to provide details on the impact of the trauma on your life.
Although the contract does have it’s detractors who note that full ‘payouts’ would be available under existing contracts whilst only a ‘partial payment’ is made under the new contract, it still has a place in the market.
Like everything – it’s ‘horses for courses’ and I’m sure the interest in Macquarie Life Active from Advisers and consumers will grow over time, and other companies in the coming years will wait and see the impact of something so new before jumping in and offering their own version of the policy.
It has however already snagged a couple of awards as the Best Life Insurance Product of the Year from the Australian Banking & Finance (AB+F) Insurance Awards, designed to celebrate and highlight the achievements of Australia’s Insurance sector; and also the Best Value for Money award from Your Money Magazine. Not bad for the new kid on the block.
Here’s a link to a quick overview of the Product Macquarie tout as “Life Insurance made for living.” http://www.macquarie.com.au/macquarielife/documents/active-client-flyer.pdf
Otherwise, give me a call I can arrange individual quotes and post out the full Product Disclosure Statement for you to learn more.
Life Insurance made for Living
by Jodie | Dec 13, 2010 | Business, Debt Management, Finances, General
Free E Guide to Debt Relief
A global credit crunch with rising prices and soaring interest rates is leaving more and more Australians struggling with debt. This guide explains how you can be in control of your debt which is one of the main queries I come up against when meeting with clients.
The Sydney Morning Herald Essential Guide to Debt Management helps to put you back in control of your finances by establishing what you owe as well as how much you spend compared to your earnings.
Learn how to Take Control, Where to Look for Outside Help, Finding the Right Solution and how to go if things head toward Insolvency and Bankruptcy.
This E-Guide is available here: https://www.wealthplanningpartners.com.au/pages/pdf/smh_essential_guide.pdf
by Jodie | Dec 13, 2010 | Investments, Self Managed Superannuation Funds, Superannuation
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by Jodie | Dec 7, 2010 | Business, Investments, Self Managed Superannuation Funds, Superannuation
I have reproduced here leading deomgrapher Bernad Salt’s comments on the implications of delayed retirement planning. Certainly some food for thought here for those – whether approaching retirement in the coming decade or later – who need to take responsibility now and increase those retirement savings dollars!
Retirement is a concept that plays well to the frugal generation. Never heard of the frugals? This is a generation that comes from the Great Depression, from before the Second World War. This lot values bizarre concepts like sacrifice and going without. The frugals are better known these days not for their own modest lifestyles but for the fact that they are the parents of baby boomers.
And if there is one thing that will distinguish consumerist baby boomers from their frugal parents it’s the matter of retirement. Frugals can and do happily live on an age pension. The very idea of an age pension existence frightens baby boomers. In fact I suspect that this notion frightens baby boomers to such an extent that boomers would much rather not even think about difficult issues like, do they have enough money to live in retirement in the manner to which they have become accustomed?
The elephant in room
Questions about retirement are a bit like the elephant in the room. Everyone knows it’s there; they just want to pretend that it doesn’t exist. I suspect that many baby boomers regard ‘addressing their financial plans for retirement’ in much the same way that some approach their doctor about a potentially fatal disease: if they don’t ask then the problem doesn’t exist.
But the problems of course do exist and they exist on several fronts in Australia. Consider this fact. There are 400,000 Australians currently aged over 85. These are the frugals who came through depression and war. By 2030 this number will rise to almost 800,000. And this later, bigger, number still doesn’t yet include the baby boomers. That demographic time bomb (lots of people over the age of 85) is a surprise waiting for the taxpayers of the 2030s.
The issue is that we are living longer and even though we are prepared to work longer, especially since the advent of the global financial crisis, there is still a good 20 to 30 years of life ‘beyond work’ that needs to be funded. This point was brought home by a new survey recently completed by international research group GfK for the AXA wealth management & insurance group.
This survey of 500 retired and 500 working Australians completed in early 2010 confirmed that 29 per cent of retirement income currently comes from a personal savings plan with the remainder coming from state pensions and superannuation funds.
Australians unaware of their retirement income
The same survey confirmed that barely 22 per cent of Australians are even aware of their likely retirement pension. This compares with 39 per cent of Americans who know precisely what their 401k retirement pension will be. This merely confirms the view that for many Australians the idea of retirement planning, and saving, is something they are quite uncomfortable with. Or at least they are content to believe that the matter ‘is taken care of’ by the government.
The same survey goes on to show that when Australian workers apply their minds to the issue of saving for retirement some 46 per cent would prefer that this be achieved by the state raising contributions (for example by lifting the superannuation guarantee from 9 per cent to 12 per cent); only 34 per cent thought increased personal savings would be a better way to go.
In America this issue is approached differently: only 17 per cent of workers thought that ensuring there are sufficient funds for retirement should be resolved by the state raising contributions; some 58 per cent thought this issue should be resolved by the individual increasing their savings.
I see this as an important difference that highlights a uniquely Australian attitude towards retirement planning. Australians are fortunate to have had a national savings plan, the superannuation guarantee, in place since 1992.
But there are problems with this facility. It leads to complacency. The superannuation guarantee is unlikely to provide sufficient funding to allow many baby boomers to live the retirement lifestyle they expect. And, importantly, for as long as they expect. It is also relevant that many first-wave baby boomers worked and paid taxes for perhaps two decades prior to the implementation of the superannuation guarantee.
Has the Superannuation guarantee made us vulnerable?
This has probably left many within the boomer generation with a false sense of security. For the last 20 years “the state” has been taking care of retirement funding by the superannuation guarantee. But despite this, many boomers understand that they have not been contributing to this scheme for the entirety of their working lives and, even if they had, their expected retirement lifestyle is likely to be much more expensive than that of their frugal parents.
And this is why the ‘elephant in the room’ is such an appropriate metaphor for the boomers. It addresses the “r” word (for “retirement”). It’s an issue that they know is important but for the moment at least they are happy to waft along in the delusion that “the state” will take care of everything. It’s odd that this is not the view of the people from the richest economy on planet (America) and yet it is precisely the view of Australians.
This may well be an inconvenient truth but perhaps it’s time for Australian baby boomers to confront the elephant in the room and at least establish what will be their retirement income based on their lifetime contributions. After all, it is only after establishing where you stand that you can move forward. Oh, and if you do move forward, do mind the elephant.
