CASE STUDY – Taking control of her super with SMSF and a team she could trust

CASE STUDY – Taking control of her super with SMSF and a team she could trust

Taking control of her super with SMSF and a team she could trust

WHERE she was at – Coming from public service, then self-employment with her husband, Antonia was working on her passion with a community cause, in a voluntary capacity, as well as building a new business and awareness of available facilities and support. She had several super funds and wanted to simplify them, try to learn to invest for knowledge and seek better returns. Her voluntary work would not be forever, so she could focus on her passion as both a community service and her own business – educating government and the public.

What she WANTED to have – Having no children, and finding it was easier to be friends rather than live with her husband because they wanted to live different lives, Antonia sought a comfortable living, and to pay off the last amount on her mortgage as soon as possible before retiring at her goal in her late 50’s.

What it will COST Since there was no immediate family or children, she roughly calculated that $45,000 would be comfortable for the living standard she required.

What she would NEEDTo be safe, if a conservative investment return of 5% is used, (one 20th of 100%) this meant requiring at least 20 times the income goal – that rounded to approx. $900,000 in assets. Knowing her own current home is not an income-producing asset, she did keep in mind that down-sizing may be an option later – she should get a good price in a popular suburb which would be a fallback position to keep in mind. Her super totalled $200,000, and she had a half-share in another property worth $650,000, so we had $525k. She needed to revise her goals – could she make up the shortfall with the business, or would down-sizing the home be the main way after-all?

She decided building her business would provide the cash-flow to pay down the last of the $120,000 mortgage, living leaner for a few years. Then to be able to sell it – $200k would be nice – now we had $725k – maybe the last $375k would have to come from selling the current home after-all, and buying a nice smaller one-bedroom unit near the coast. This all seemed achievable.

What to do NOW She missed our seminar on SMSF, so we had a meeting for a personal plan of advice to be drawn up, as well as a explain the administration and compliance requirements relating to SMSF, including how SMSF was set up, compliance responsibilities and what we would do – obtain the Trust Deed, AND, TFN and have a bank account papers set up ready for her to sign, then applications to her super funds. Her former husband would be co-trustee, but she would be the only member.

We now had the components in place –

StrategyTo take control of the retirement plan, build a business and pay-down mortgage

Structure An SMSF using SuperBenefit administration

Support With resources and all compliance taken care of by SuperBenefit, as well as a team of specialist professionals to call on.

Note – This 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 Investing – Interest Cover – What does it tell investors?

MASTERCLASS Investing – Interest Cover – What does it tell investors?

Investing – Interest Cover – What does it tell investors?

The interest cover ratio, (also known as interest coverage or times interest earned) tells us  how many times the profit of a  company covers its total interest-payment expense bill. The formula is calculated by dividing EBIT (earnings before interest and taxes) by the total Interest Expense. Note – some consider using profit after tax is taken, instead of using BEFORE, is a better indication.

See a detailed working calculation example.

Interest coverage is the equivalent of a person taking the total of their interest costs on mortgage, credit cards, car loans, etc and dividing that into their annual after-tax salary/income. Because the interest cover ratio uses current earnings and current expenses, it indicates a company’s short-term ability to meet interest obligations.

Comparing the result between companies is ONE indication of management, short-term financial health/strength and another view on the company debt situation. The lower the interest coverage result, the higher the company’s debt burden and the greater the possibility of bankruptcy or default especially if low over time. Generally, 1 or below is NOT desired, 1.5 is OK, but over 2 is seen as COMFORTABLE, and desired.

For legendary investor Benjamin Graham, the interest cover was an indication of  the margin of safety available in the investment – he related it to investing in bonds. He borrowed the term from engineering, for example when a bridge was constructed, it may say it is built for 10,000 pounds, while the actual maximum weight limit might be 30,000 pounds, representing a 20,000 pound margin of safety to allow for any unexpected situations.

Interest Cover is also important when interest rates are rising – especially if re-financing is required soon. A higher interest bill will reduce the interest ratio – and can be an important indicator if changing over time.

Some industries tend to have higher interest cover ratios than others, and cyclical companies in particular can experience significant swings in their interest cover ratios (especially during recessions). As such, comparison of interest cover ratios is generally most meaningful comparing companies within the same industry, and the definition of a “high” or “low” ratio should be made in this context.

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Pensions – Truths and Myths about Super, Govt Burden and Tax Concessions

Pensions – Truths and Myths about Super, Govt Burden and Tax Concessions

Pensions – Truths and Myths about Super, Govt Burden and Tax Concessions

Is the tax system burdened by rising pensions as the population ages, loss of tax revenue due to concessions, or supporting high-income earners?

According to Ms Pauline Vamos CEO of Association of Superannuation Funds of Australia (ASFA), “For some time now, we have expressed concern that a number of the claims made about the cost and allocation of superannuation tax concessions are incorrect or misleading. However, they have been repeated so often that they have almost become folklore. Correct information is the first step in good decision making, which is why it is so important that we get the facts right before we start these discussions.”

The Association of Superannuation Funds of Australia (ASFA) has released a report that busts some of the most common myths cited when it comes to superannuation tax concessions.

As reported in Professional Planner here are some of the myths –

MYTH: Superannuation is not helping reduce the government’s spending on the Age Pension
FACT: Super saves the government $7 billion in Age Pension expenditure annually, and these savings will only increase as the system matures
Superannuation is boosting incomes and providing a lifestyle in retirement that is better than that which can be sustained on the Age Pension alone. Around 32 per cent of those aged 65 in 2013 were fully self-funded in retirement, up from 22 per cent in 2000. We project this number will rise to 40 per cent by 2023.

MYTH: Superannuation tax concessions cost the budget $30 billion annually – more than the total spending on the Age Pension
FACT: The actual cost of tax concessions is around $16 billion a year
When you take into account the savings the government makes on the Age Pension as a result of super, and the impact of behavioural change (people shifting money from one tax-effective vehicle to another) that would occur if super tax concessions were removed, a more accurate estimate would be around $16 billion a year.

MYTH: The majority of government support for retirement goes to high-income earners
FACT: Financial assistance for retirement provided by the government is broadly comparable across the personal income tax brackets
When both the Age Pension and tax assistance are added up across a lifetime, the average taxpayer benefit is around $300,000 across all tax brackets as a contribution by the government to their retirement. The main difference between is the timing and vehicle through which it is delivered. For example, the full Age Pension for a single person currently is $22,365 a year, while tax concessions for super are for smaller annual amounts but accrue to individuals prior to age 65.

MYTH: The bulk of tax concessions for superannuation contributions go to high-income earners
FACT: The bulk of tax concessions for superannuation concessional contributions go to middle-income earners
Tax concessions applied to superannuation concessional contributions are not significantly skewed towards high-income earners, and, in fact, support the bulk of the working community to save for their retirement. ASFA analysis of data from 2011/12 found that around 75 per cent of the tax concessions applied to contributions went to those paying either of the (then) middle income marginal tax rates of 30 per cent or 38 per cent: those earning between $37,000 and $180,000 a year.

MYTH: The most important tax concessions received by high-income earners relate to superannuation
FACT: High-income earners get the most benefit from concessional capital gains tax treatment, negative gearing and exemptions for the family home
The bulk of the wealth of high-net-worth individuals is in the form of shareholdings or property, both residential investment properties and commercial real estate. Around $360 billion is held in superannuation by those with more than $1 million in super. This is just over 20 per cent of the $1.6 trillion investable assets held by high-net-worth individuals.
For most high-net-worth individuals, tax arrangements relating to capital gains, negative gearing and the family home are likely to have more impact on the achievement and maintenance of wealth than superannuation tax concessions

MYTH: Only high-income earners make salary sacrifice contributions
FACT: Many middle-income individuals make salary sacrifice contributions
Only around 35 per cent of employees with incomes above $150,000 a year make salary sacrifice contributions. Around 85 per cent of salary sacrifice contributions relate to employees with incomes below $150,000 a year. Over half a million Australians earning between $40,000 and $80,000 a year make salary sacrifice contributions.

For more myths, see the full article.

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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SMSF Basics – Overview of SMSF from ATO statistics

Overview of SMSF from ATO statistics

Overview of SMSF from ATO statistics

The popularity of Self-Managed Super continues to grow – is it suitable for you?
ATO Statistics December 2014
– 545,000+ SMSF’s in Australia
– 1,034,000+ members
– $568+ billion in SMSFs (Total Aust & Overseas assets)
– Number of Members per fund
   • 70% have 2
   • 23% have 1
   • 4% have 3
   • 3% have 4
– Member Demographic
   • 26% >64
   • 32% 55-64 Years Old
   • 24% 45-54
   • 13% 35-44 and is the fastest growing group of new entrants (ATO)
   • 5% 34 and under
– Member Income
   • 42% <$40,000
   • 32% $40,000 to $100,000
   • 25% $100,000 plus
Source https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Statistics/Quarterly-reports/

Interested to know what self-managed super (SMSF) is all about, and if it is for you? Come to a FREE seminar with bonuses NEXT month Self Managed Super Fund Roadmap (all you need to know) for the next monthly event, see SMSF – FREE Seminar  or call us 0407 361 596.

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 SMSF – How Super Death Benefit Nominations work for complex estate plans

Masterclass SMSF – How Super Death Benefit Nominations work for complex estate plans

SMSF – How Super Death Benefit Nominations work for complex estate plans

Our previous post talked about the basics of super death benefit nominations, how tax applies and how they work in general. However better self-managed super (SMSF) trust deeds should allow more complex estate planning strategies that include death nominations to multiple beneficiaries or specific asset allocations especially with prior and mixed marriage situations.

As discussed in the previous post, most common SMSF deeds allow simple binding death benefit nominations (BDBN) as a default document that allows little more than nominating one or more individuals to receive a benefit. And a basic nomination is usually the ONLY option available for members of large public offer funds. But these don’t allow for a beneficiary pre-deceasing a member, or leaving specific assets to certain beneficiaries.

For more complex situations, as part of estate planning (remember super does NOT form part of your estate and is NOT controlled by your will directly) a greater range of possibilities should be sought. This would seek to cater for situations such as –

  • Benefits to multiple beneficiaries
  • Allocation of benefits to alternative beneficiaries where one or more pre-decease a member
  • Allocation of specified assets to specified beneficiaries

Some examples to illustrate the possibilities –

A.     Margaret holds collectable assets in her SMSF, and constructs a BDBN that directs specific assets to certain beneficiaries, and the remainder to another beneficiary, as follows –

  1. A Monet to son Peter
  2. A Ming Dynasty vase to daughter Heather
  3. Remainder to husband Phil with a condition that should he pre-decease her, or is no-longer her husband, all remaining benefits will pass to Peter and Heather in equal proportions

B.    Matt and Marsha, with Marsha’s son from prior marriage, Steve, who may not be a dependent of Matt’s at Matt’s death, so Matt prepares a BDBN as follows, that in event of his death, benefits pass as follows –

  1. First to Marsha
  2. Secondly to Steve, if Marsha pre-deceases Matt, with a condition that it is paid ONLY if Steve is a SIS Act dependent at the time
  3. Thirdly to Matt’s legal personal representative (LPR or estate) – here they can then pass to Steve under provisions of Matt’s will.

As each situation is different, speaking to an advisor is recommended.

If you require an advisor, call us to arrange a no-obligation discussion.

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 – Renewed debate on lifting Govt. Age Pension to 70, following Intergenerational Report (IGR)

Renewed debate on lifting Govt. Age Pension to 70, following Intergenerational Report (IGR)

Renewed debate on lifting Govt. Age Pension to 70, following Intergenerational Report (IGR)

How will the government have enough revenue in years to come if the continued trend of less workers (from 4.5 presently, to 2.7 by 2055 of workers per retiree over 65)? Is ASIT CEO correct that raising Age Pension eligibility to 67 is adequate, or is the FSC CEO’s call to consider facing reality, the best way forward?

Tim Stewart of Investor Daily details these views –
The release of the federal government’s Intergenerational Report (IGR) has reignited debate about the government’s proposal to lift the age pension eligibility to 70 by 2035. The report, released yesterday by Treasurer Joe Hockey, projected that the number of Australians aged 65 and over will double by 2055 from the number today. Male life expectancy is projected to increase from 91.5 today to 95.1 in 2055, while female life expectancy will increase from 93.6 today to 96.6 in 40 years’ time, according to the IGR.

The number of people aged 100 or older is projected to hit 40,000 by 2055 – compared to the 122 Australian centenarians alive today.

Commenting on the report, Financial Services Council chief executive Sally Loane said it was time to “face the reality” that Australians are living longer and will need to work longer to achieve a comfortable retirement.

“By 2055, there will be [only] 2.7 working Australians for every Australian over 65 compared with [the] 4.5 at present,” Ms Loane said.

“Seventy per cent of retirees currently receive a pension. This level of social welfare cannot be sustained.”

Ms Loane reiterated calls she made in her recent maiden speech as chief executive of the FSC for a rethink about the relationship between superannuation and the age pension.

“The expectation should be that super is a replacement for the pension, not a top-up, and the age pension needs to be considered as a safety net for those who cannot provide for their own retirement,” she said.

“Good policy decisions now will ensure that future generations are not paying for an overly generous pension system which we can no longer afford.”

But the Australian Institute of Superannuation Trustees’ (AIST’s) chief executive Tom Garcia opposed any increase to the age pension eligibility age, arguing that previous moves to increase the age to 67 were an adequate response to Australia’s changing demographics.

“Raising the retirement age is a very blunt tool that will hurt a lot of involuntary retirees who – for all sorts of legitimate reasons – cannot work longer,” Mr Garcia said.

“The IGR shows that there is no need to panic. Increasingly productivity, higher labour-force participation, a maturing superannuation system and a sustainable age pension system will all contribute to building a stronger Australia,” he said.

The existing envisaged increase in the eligibility age from 65 to 67 over time will see government expenditure on age and service pensions rise from 2.9 per cent of GDP to 3.6 per cent of GDP in 2055, AIST said.

“This is much lower than almost every other OECD economy,” the institute said.

What about comments by Ross Gittins at The Age

“The message we should take away from it, as with its three predecessors, is one no politician on either side is prepared to admit: as our demands on the government for more and better services continue to grow, we will have pay for them with higher taxes. Since our real incomes are projected to rise by almost 80 per cent, this won’t be so terrible.”

What are your thoughts? Make your comments below!

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MASTERCLASS Investing – Agriculture as an investment in your SMSF for yield?

MASTERCLASS Investing – Agriculture as an investment in your SMSF for yield?

Investing – Agriculture as an investment in your SMSF for yield?

(Selected extracts from Investor Update 2015-02 of the Australian Investors Association)

The Australian commercial property sector is well serviced with fund managers and investment funds designed to meet the needs of tenants and investors. In contrast the agricultural sector, though of comparable scale, has only one fund designed for this purpose: the Rural Funds Group (ASX: RFF)…

Australian agriculture utilises 405 million hectares of land, which is 53% of the country’s total land area. The industry is relatively fragmented with 120,000 businesses reporting that farming is their principle business. Rural Funds Management (RFM) has estimated that the total value of the land and improvements of these businesses is just over $200 billion3.

Added to this are substantial processing and infrastructure assets, typically owned by food processors and agricultural commodity marketers, whose total assets add tens of billions to the value of the agricultural property sector. RFM estimates the total value of investment grade assets in Australian agriculture is of the order of $150 billion, making it a larger sector than the office, retail or industrial property sectors detailed…

Despite the scale of the agricultural sector, it is estimated that only 4% of agricultural property in Australia is leased compared to around 40% for the US and many European countries. Why is Australia’s leasing rate so low, and why has there been no equivalent emergence of property fund managers facilitating property leasing?

The main reason is the relatively low lease rentals paid by broadacre4 farm enterprises. Broadacre farms can be leased at a rental yield of 5% of the capital value of the farm. This compares with an office building in the centre of our cities that would lease on a yield of 6-7%, and industrial warehouses on the fringe of our cities that lease for around 9%. On the surface then, leasing commercial property would appear more attractive.

However, higher lease rentals on commercial property may be due to the depreciation occurring on the structure or building that makes up the majority of a commercial property’s asset value. In contrast to commercial property, broadacre farms have much lower levels of depreciating infrastructure installed on them. In fact, modern cropping properties often have no fences, no buildings and just a few dirt access roads.

As a consequence the asset is an almost pure natural resource with no wasting infrastructure detracting from long term returns. While broadacre lease rentals may not be diminished by depreciation, the fact remains that the net yield generated by these assets is too low to compete with the investment yields historically generated by fund managers of commercial property. The Rural Funds Group (ASX: RFF) has addressed this dilemma by accumulating a mix of agricultural assets, that include the natural resources of land and water, but also substantial infrastructure capable of generating higher yields. As a consequence of this asset mix, RFF is able to distribute investment yields that exceed the majority of REITs.

RFF then is uniquely placed. Just as commercial property fund managers have provided a service that assists Australian business, while meeting the expectations of their investors, RFF has become Australia’s first agricultural REIT to serve Australian farm businesses and meet the expectation of its owner – the RFF unitholders.

David Bryant is the Managing Director Rural Funds Management.

(Note – SuperBenefit has no connection and is NOT giving advice or any recommendation for any specific investments on this website or other means – seek your own research and advice, or ask to be recommended to an advisor)

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.

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