This week we continue our discussion on superannuation planning, including non-concessional contributions.
You cannot claim a tax deduction on non-concessional contributions, however, if it is appropriate to make these contributions, the long term compounding effect of reinvesting a greater amount of the income earned in superannuation, versus outside of superannuation, still applies.
Using the same assumptions as above, but investing the same $6,050 both inside and outside superannuation, the results are as follows:
|After tax value after sale in 10 years||Average annual return over 10 years|
As part of your long-term retirement plan, some other key advantages to consider regarding superannuation are:
- When your fund starts paying a pension to you, the tax on earnings in the fund is 0%, which further increases the benefits of compounding higher after tax returns through retirement.
- When you withdraw your funds as a pension after the age of 60 (or if you are eligible, as a lump sum amount), the payments from the fund are tax free. For people born before 1 July 1960, the earliest date they can generally access their super is 55. For those born after 30 June 1964, the age is 60. For birthdays in between 1 July 1960 and 30 June 1964, the access ages will be 56 to 59, depending on the financial year in which they were born.
There is a myth that superannuation returns are poor.
There are really only three types of assets that you invest in:
A superannuation fund generally owns the same assets that you can individually. There are a few more restrictions for Self Managed Superannuation Funds (SMSF) that you should be aware of if you own or intend setting up an SMSF. The key here is not necessarily the types of assets but the investment strategy and performance of the fund investment manager that impacts on the return. Superannuation is regarded as “set and forget” by most people – meaning money goes into super, you leave it there and hope it will grow and be there for you when you need it. You need to make sure that your superannuation investment strategy is aligned to your overall goals and objectives, and you pay the same attention to it as you do to your other assets.
What type of fund should I invest in?
Most people invest their superannuation in a public offer fund. These are funds that anyone can invest in and are often the recipient of 9% superannuation guarantee contributions. When investing in these funds, investors rarely seek advice to ensure the asset style they are investing meets their objectives. The decision of the investor is usually based on the information provided in the Product Disclosure Statement of the fund, which is rarely read by the investor. As a result, the likelihood that their superannuation asset is invested in line with their ultimate retirement strategy is low. If you use a public offer fund, make sure the assets are invested to align with your goals and objectives.
Some institutions provide more sophisticated superannuation solutions, which enable the assets of the member to be individually owned and managed within their fund. This provides a better solution for tailoring the investment strategy to align with investors goals. However, in most instances, these investments are not actively managed by the advisor. The key is to ensure your superannuation assets are actively managed as an investment, just like any other asset you would own outside of super.
Please check in with us again next week, when we bring you the conclusion to the Superannuation Plan, complete with Superannuation Plan Checklist.
Take advantage of the benefits of superannuation today. Call FWO Chartered Accountants on 07 3833 3999 or email firstname.lastname@example.org to arrange an appointment with one of our qualified advisors.