CASE STUDY – John & Lyn – To use SMSF to take control and work towards property in super

CASE STUDY – John & Lyn – To use SMSF to take control and work towards property in super

To use SMSF to take control and work towards property in super

John & Lyn were interested in Self-Managed Super funds (SMSF) so they can take control of their retirement savings and build them up to work towards getting property in super. They already had a couple of investment properties, and the changes to super since 2007 now allowed more investment possibilities, such as borrowing for property.

There are 5 easy steps to planning anything – start where you are at, decide what lifestyle you want to have, what that lifestyle state/position will cost in money (to maintain or living costs) what you need invested to meet that cost of having what you want, and what action we need to take now to get there. (See the 5 S Easy Steps to Plan your Retirement).

WHERE they were at – John was a tradie with a good company doing well. Lyn had just had their second baby and planned to go back to part-time work in 12 months if possible. They had about $75,000 when they pooled all their several super funds together, and were paying off their own home. There were also 2 investment properties.

WANT to have – They wanted to be self-sufficient and comfortable as much as possible and not rely on the Government Pension, which is becoming a concern around the world for all Governments and citizens, due to ageing populations.

COST of that lifestyle John & Lyn estimated in today’s values, an annual income to retire would be at least $40-50,000 in today’s money. That would be close to the AFSA definition of “Comfortable” and allow meals out and occasional trips overseas.

NEED invested to return the costTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this means at least 20 times the income goal – that rounded to approx. $800-1,000,000 of income-producing assets other than the family home.

NOW what to do After meeting the advisor who explained the Pros and Cons of SMSF, they met with Paul the Administration Manager at SuperBenefit who supplied FAQ sheets, a Checklist of what was required, a list of what would be included in the service. Once the Trust Deed was prepared and executed, and bank account formed and applications to their superfunds signed they could organise for John’s employer to start paying his super to his new SMSF.

John & Lyn liked that the SuperBenefit Programme had a CONNECT/ASSIST service which could help with who to talk to for advice and other help besides the financial advisor, such as investment property experts, and our private-client share broker who supplied a list twice a year after the Australian company reporting seasons, summarising financial data on companies with strong financial health that are likely to perform well.

There is also peace of mind because any queries or compliance issues, could simply be directed to the SuperBenefit administrator, who would CONNECT them to the right advisors as required (Connect/Assist Service).

They now had the components in place:

Strategy – To take control of the retirement plan, and build super;

Structure Use an SMSF using SuperBenefit administration service where ALL is taken care of;

Support With resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals that the SMSF Connect/Assist service provides, working with the client advisors in unison.

NoteThis is a simplified summary of one client – we recommend asking for a FREE consultation and/or seeking further professional advice with our recommended advisors or your own.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also!

No obligation. 0407 361 596, Paul.

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MASTERCLASS Investment – Market Capitalisation – What is it and what does it tell you?

Masterclass MASTERCLASS Investment - Market Capitalisation – What is it and what does it tell you?– What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

Investment – Market Capitalisation – What is it and what does it tell you?

Today we look at Market Capitalisation which is also known as Market Value.

What is it? – Market Capitalisation is a measure or indication of the value and size in dollars of a company, and we calculate it by –

Market Capitalisation = number of either the outstanding shares or the floating (public) shares x the current price per share.

Outstanding shares include all the stock held by shareholders, while floating shares are those outstanding shares that actually are available to trade, ie “publicly” available.

Note: This means the capital value changes as the share price changes.

What it tells you – is a basic measure of a company – a way of determining a value of the company.

As example, a company with 100 million shares with a current market value of $22 a share would have a market capitalization of $2.2 billion.

Market capitalization, or market cap, is one of the criteria investors can use to choose a portfolio of stocks of certain sized companies  – often categorized as small-, mid-, and large-cap. Generally, large-cap stocks are considered the least volatile, and small caps the most volatile.

Market capitalization is sometimes used interchangeably with Market Value, in explaining, for example, how a particular index is weighted or where a company stands in comparison to other companies.

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

If you have any questions, why not give us a call – it’s FREE also! No obligation.

0407 361 596, Paul.

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NEWS – Do you agree to have the proposed $25,000 cap on concessional contributions? Some agree and some disagree

NEWS – Do you agree to have the proposed $25,000 cap on concessional contributions? Some agree and some disagree

Do you agree to have the proposed $25,000 cap on concessional contributions? Some agree and some disagree

The May budget proposed several changes to the super system – one is that all workers will come under a $25,000 cap on concessional contributions (mainly those are the employer contributions for workers).

A report at SMSF Advisor states –

Challenger’s Jeremy Cooper has defended the proposed $25,000 cap on concessional contributions – a budget measure that has been met with significant opposition in the SMSF sector.

Treasurer Scott Morrison announced plans to lower the concessional contribution caps for superannuation to $25,000 in this year’s federal budget. Key industry bodies, including the SMSF Association, have criticised the measure, saying it will have an “enormous impact” on those who are aiming to be self-sufficient in retirement.

Speaking at the Tax Institute’s Superannuation Conference, Mr Cooper said while some might regard the measure as “draconian”, it will not be a significant roadblock to accumulating retirement savings.

It is only a tax measure, not a savings cap as some commentators assert,” Mr he said.

“It will not prevent most people saving for retirement, either in or out of the super system. It will merely dictate how much of a leg-up certain savers will get from the tax system.”… MORE HERE

At the Financial Observer, findings by the founder of SuperRatings, Jeff Bresnahan reported –

the $25,000 annual concessional contribution limit was “the least thought out” of the super changes in Bresnahan’s opinion, as it limited pre-retirees’ ability to contribute to their super when they most needed to. “The last 15 years of work are for many the only time they are able to fast-track contributions to build up their nest egg and should be encouraged, not restricted,” he said. “This is particularly relevant for those currently aged over 50, most of whom haven’t enjoyed the benefit of full superannuation throughout their working lives and are only now reaching a time in their lives when they can afford to make additional contributions.” MORE HERE

While research by The Grattan Institute, reported at The Conversation, finds –

Parts of the budget package may make the system even more generous to high-income earners – and more expensive for the government.

Under the plan, people will be able contribute more to their super when they have not reached their pre-tax contributions cap in previous years. Taxpayers with a super balance of less than A$500,000 will be able to draw on unused caps from the previous four years to make “catch-up” contributions.

These caps are currently $35,000 a year in pre-tax contributions for a taxpayer over 50, $30,000 for one under 50. The budget will create one cap of $25,000 a year. Being able to make these payments is excellent for one’s tax bill, as they attract only 15% tax for those with incomes of under $250,000, and 30% for higher earners – rates far lower than most people’s marginal tax rate.

The budget papers trumpet the ability to bring forward unused caps as helping women and carers and anyone with a broken work history. But as Grattan’s submission to the recent Senate Inquiry into Economic Security for Women in Retirement demonstrates, all the evidence shows that few middle-income earners – and even fewer women – make large catch-up contributions to their super fund. Women aged below 50 make up only 12% of people that age with balances less than $500,000 who contribute more than $25,000 a year to super. Most women simply can’t afford to make large catch-up contributions. A mere 2% of women with superannuation balances of less than $500,000 – 130,000 people – made pre-tax contributions of $25,000 or more in 2013-14. And 80% of them are among the top 20% of income earners.” MORE HERE        

What are your thoughts?

How will the proposals affect your retirement plan?

Leave a comment!/

Interested to know what self-managed super (SMSF) is all about, and if it is for you?

If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assist finding the right expert to answer your question – it’s FREE also! No obligation. 0407 361 596, Paul.

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Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

What happens with an SMSF member  with a Non-Commutable Pension (cannot take out lump sums or withdraw the full amount) who has recently re-married, and on her death wants to have the income distributed to her spouse, but on the death of the spouse, would like the capital to go to her son of previous marriage. She has a single-member SMSF, and the new husband as the other Trustee. How can these events be achieved?

The Trust Deed (SMSF governing rules) will need to be checked to see if we can do the above – rarely can this sort of detail be noted in a trust deed. Then we vary the deed to specify this specific situation, so that on her death, her pension benefits are paid to the dependent spouse, as a non-commutable death benefit pension ( ie it cannot have a lump sum or the full amount withdrawn), and that on his death, the son will get the final capital.

What are the Potential Problems?

One potential problem is that on the death of the lady, the new spouse will become a member (Section 10(3) of the Superannuation Industry (Supervision) Act 1993 (Cth), or SIS Act). As a member he must become trustee (or director if there is a corporate trustee). This really means he now has FULL control of the SMSF and consequently, FULL control of all the assets! If he doesn’t get on with the son he could override the Trust Deed and possibly take all the money and put that in his own member account or other manoeuvres. When he dies, his account becomes his death benefit which can ONLY be paid to his dependants or legal personal representatives. Hence the son would miss out. The benefits would need to be paid to the spouse’s estate and the son would need to be specified in the spouse’s will as a beneficiary. Wills can be changed, so the payment to the estate could be halted there. A Mutual Wills agreement may assist to mitigate such risk. The son, also, as a third party could challenge the husband’s estate under a testator’s family maintenance claim.

As always, many costs and heartache can be saved by getting advice!

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and Youtop right hand side above.

See our next seminar/webinars above.

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NEWS – Government and the Labor party may come to an agreement on superannuation changes 2016 budget

NEWS – Government and the Labor party may come to an agreement on superannuation changes 2016 budget

Government and the Labor party may come to an agreement on superannuation changes 2016 budget

The Government and the Labor party may come to an agreement on the superannuation changes announced in the 2016 Budget.

Speaking about the superannuation changes with The Guardian, Shadow Minister for Finance, Jim Chalmers, said: “There is some prospect of agreement with the Government”.

‘We’ve flagged what we’re concerned about, which is really the retrospective elements of the package.”

The ALP have been critical some of the 2016 Budget superannuation measures, in particular the lifetime $500,000 non-concessional contributions cap – which, if enacted as announced, would count contributions since 1 July 2007 and could apply penalties for excess contributions made after 7.30pm on the 3rd of May 2016. “But for some time now we’ve been saying, lets deal with those tax concessions largely at the top end,” Dr Chalmers said.

“So we’ve been as constructive as we can about the Government’s package.”

Dr Chalmers said the Opposition had been critical of the policies, as part of the political process and during the election, along with the “mess” and confusion caused in the community.

“But at the end of the day our task is to come at it constructively, to have an open mind, to try and iron out the bits we think aren’t great, but at the end of the day this might be best opportunity to get some sort of resolution on those very expensive tax breaks at the top end of the superannuation system.”

“So we’ll do what we can. The way we normally describe it is we’ll agree where we can and disagree where we must. But at the end of the day it’s not really about the contest between us and the Government, it’s about getting a good outcome, and I’ve always been relatively confident that we can get a good outcome.”

READ MORE HERE

What are your thoughts? Start or continue the conversation here!

Call for FREE education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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MASTERCLASS Investment – What is Return on Assets – What does it mean and how to calculate?

MASTERCLASS – What is Return on Assets – What does it mean and how to calculate?

What is Return on Assets – What does it mean and how to calculate?

Return on Assets (ROA), is a ratio (one figure divided by another) measuring the profitability, expressed as a percentage of the operating assets – it means we are comparing profit to assets. ROA is an indication of a firm’s efficiency to allocate and manage its resources and return a profit, but unlike Return on Equity, ROA ignores the firm’s liabilities. It is also be called Return on Total Investment (ROTI). The formula for how to calculate ROA is:

ROA = Profit (Net Operating income) ÷ Total (Operating) Assets

ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”. Sometimes interest expenses are added back into net income when calculating because they’d like to use operating returns (operating profit) before cost of borrowing is taken into account.

ROA reveals what earnings were generated from invested ASSET capital. ROA for public companies can vary substantially and is very dependent on the industry of the business, so it is best to compare it against a company’s previous ROA numbers or the ROA of a similar company in that industry.
The assets of the company can be expressed as containing both debt and equity. Both of these are types of financing and are used by business managers to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to generate into profit/net income return. The higher ROA is, the better, because the company is earning more money on the assets (investment).

To give an example,

  • one company A has a net income of $0.5 million and total assets of $2.5 million,  hence 0.5/2.5 and its ROA is 20%;
  • another company B earns the same income amount $0.5 million, but has total assets of $10 million, it has an ROA of 5%.

Comparing these examples in the same industry, company A is better at converting its investment into profit.

One would also look at the ROA of each company over the last 3-4 years to see what the trend is – the aim is for managers to excel at making better profits with little investment. That can indicate a good company that is worth investing our money in.

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NEWS – Burden of Age Pension is still set to rise – Actuaries Institute Report

NEWS – Burden of Age Pension is still set to rise – Actuaries Institute Report

Burden of Age Pension is still set to rise – Actuaries Institute Report

A study shows the burden of Age Pension is still set to rise, finding that half of Australian retirees tend to be very conservative with drawing on superannuation their savings, but a growing minority exhaust their balances completely before death, according to the Actuaries Institute of Australia research.

Killian Plastow at Investor Daily  writes –

New research commissioned by the Actuaries Institute has found nearly 50 per cent of retirees only draw down the regulated minimum from their superannuation balances. However, the number of retirees who will exhaust their balances entirely is set to grow in coming years, according to the research.

The research data was taken from two sources: an Actuaries Institute-commissioned Plan For Life analysis of data from 15 large super funds, and ATO data provided to the CSIRO.

Anthony Asher, convenor of the Actuaries Institute’s Retirement Incomes Working Group, says the key finding – that half of Australian retirees are conservative – contradicts “some views” that retirees tend to draw down their balances very quickly.

The current number of retirees that completely exhaust their superannuation balances is relatively small, at 5 per cent of SMSFs – but that number is expected to increase in coming years as the population ages, said the report.

The Actuaries Institute notes that approximately 20 per cent of superannuation balances held by retirees aged between 75 and 85 are being drawn down at more than 10 per cent, a level that the institute says is unsustainable.

Mr Asher said more research must be conducted to understand why an increasing number of Australians are using up the entirety of their superannuation balances.

“It could be intentional and a natural step as their income needs decline, such that the age pension is sufficient at older ages. On the other hand, they may have lost money due to dementia, financial abuse of some kind, or poor decision making,” he said.

The data also highlighted that drawdown patterns were “remarkably similar” across retail, industry, corporate and SMSFs, despite industry funds having “significantly lower” average account sizes.

What are your thoughts? Start or continue the conversation here!

Call for FREE education, or to speak to an advisor about your specific situation. SuperBenefit works with SMSF trustees to CONNECT them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE!

No obligation. 0407 361 596, Paul.

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