Financial Planning

Ask our Advisors (Aug 2011)

Mortgage One - Monday, August 08, 2011

SMSF not for everyone

My wife and I will be turning 60 in December. We have been retired for the past 2 years. We have drawn down to the non taxable limit on one of our two super funds. We have $400,000 in a term deposit maturing in June 2012 at 3.4%. There is $80,000 in one super account and $780,000 in the other which are invested in balance/growth area. We have about $50,000 in another fund that matures in 2016. What guidance can you give and would a SMSF benefit us?

If you haven’t run your own portfolio before a SMSF may not be for you. SMSF are not necessarily easy and foolproof. I would suggest that you put as much as you can (be wary of the investment caps) into super between now and 65 (no further contributions can be made without meeting the work test) so that you have as close to 100% of your income from a super pension where it will be untaxed.

I would like to keep 60% - 65% in equities depending on the state of the sharemarket.

You always need more than you think in retirement

I would like to know how much is enough in retirement? Is there a basic rule of thumb? I am currently 40 and looking to plan for retirement.

I don’t believe in rule of thumb, but I would suggest that you should aim to retire on 75% or more of your ‘cash in hand’ income. Hence if a couple retiring at age 65 would need to have $1.3 million to achieve a starting income of $75,000 a year indexed at 3% to meet inflation for about 22 years (87 year expectancy). However this assumes that your home will be significantly debt free to fund your entry into an aged care facility. However if one partner becomes ill sooner and requires to enter a nursing home this will throw out this neat calculation. You should never underestimate how much one needs in retirement.

Working a little post retirement can help build your super

I am a 66 year old pensioner and my husband is 68. We wish to downsize and enter a senior resort. We will be selling our house for $1.3 million to fund the purchase and will have $500,000 left over. We have a portfolio of shares worth $150,000 from which we receive dividends and and allocated pension of $30,000 each per year. What would be the most tax effective investment for the $500,000 and can we add this to our existing super account?

You existing allocated pension is paid from your superannuation fund and as you are over 65 you are not entitled to make additional contributions without meeting a ‘work test’ that is you need to work 40 hours within 30 days during the financial year. If you choose to meet the work test you can contribute $150,000 each financial year into you superannuation fund without being tax on the entry as this will be deemed ‘non-concessional contribution’. If you can’t meet the work test then you will need to invest these monies outside your superannuation account with an emphasis on security and income. There are many options available and hence you should seek professional advice to have a plan drawn up for you.

If you have a question for our Advisors please email m1fs@m1.com.au

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