$1 million retirement revisited, SMSF borrowing rules relaxed, Age Pension increase, SMSF Q&As, Age Pension Q&As and more
Welcome to the SEPTEMBER 2011 edition of SuperGuide newsletter, a free and independent source of superannuation information for consumers.
The highlights of the SEPTEMBER 2011 SuperGuide newsletter are:
- THE SOAPBOX: CAN AUSTRALIA AFFORD TO SUPPORT YOUR LIFESTYLE? Around one quarter of all Australians will be aged 65 or over by 2050. According to the 2010 Intergenerational Report, the number of people of working age to support every person aged 65 years and over is projected to decline to 2.7 people by 2050 (compared with 5 people now). What is the Government doing about this demographic revolution, and are you relying too heavily on our politicians to look after your financial security in retirement? Click on article link below to find out more.
- RETIREMENT: WHY CAN’T $1 MILLION LAST FOREVER? In the August 2011 newsletter, we published two articles outlining what $1 million can deliver you in retirement, and what $2 million can provide in retirement. The two articles have been the most popular articles on the SuperGuide website this year, and consequently I received many emails challenging the fact that $1 million could run out when earning 7% after fees in a tax-free environment, and when receiving a certain level of income. Our latest article responds to the most popular questions from readers and I tackle the prickly issue of maintaining ‘real’ living standards in retirement. Click on the article link below to find out more $1 million secrets.
- ENCORE: $1 MILLION OR $2 MILLION RETIREMENT. For your convenience and easy reference, we have republished our two popular features: ‘Crunching the numbers: a $1 million retirement’, and ‘Crunching the numbers: a $2 million retirement’. Click on the article links below.
- SEPTEMBER 2011 AGE PENSION RATES NOW AVAILABLE. Around 80% of retirees receive a part or full Age Pension, and this level of Age Pension support will continue to be the case for at least the next 40 years. It’s no surprise then that the latest Age Pension rates update is a popular page on the SuperGuide website. Click on the link below to find out more. As a bonus, we have also answered five of the most frequently asked questions that we receive about the Age Pension. Click on the links below.
- SMSF PROPERTY: ATO ‘RELAXES’ RULES ON BORROWING. On 14 September 2011, the ATO released a draft SMSF ruling expanding the interpretation of the SMSF borrowing rules. For example, the ATO has clarified that it is possible to borrow via a limited recourse borrowing arrangement (LRBA) and invest in an older investment property, and to renovate (but not ‘improve’) this property using borrowed money under the existing LRBA, under certain circumstances. Check out the article link below for more.
- FOUR REASONS TO BUY INSURANCE VIA YOUR SUPER FUND. Do you need some motivation to get your life insurance needs sorted? Click on the article link below for four motivating reasons to get serious about your life insurance cover. If you run a SMSF, you can also check out the article SMSF and INSURANCE, and two Q& As relating to SMSF and insurance.
In this month’s newsletter, we have included some popular SMSF Q&As and we remind readers about the importance of planning for what happens to your super after you leave this earth, that is, if you don’t want your children having to give some of your hard-earned savings to the Federal Government in the form of ‘death’ taxes.
For those readers who have sent emails to the SuperGuide team, we have a substantial backlog in the time taken to acknowledge emails. Although we acknowledge all emails, due to the number of emails that we receive, we cannot promise to respond to all questions.
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Thanks again for your support and interest in SuperGuide.
Trish Power
THE SOAPBOX
Retirement: Can Australia afford to support your lifestyle?
Are you planning to support yourself over a 30-year or even 40-year retirement or do you think Australia can afford to finance your retirement? The superannuation industry and the Federal Government continues to grapple with this issue, that is, whether Australia will continue to be in a position to look after its citizens or whether we will all need to modify our expectations. Read more
FEATURES
Retirement: Can $1 million last forever?
If you live off the earnings only from your invested capital then your capital can indeed last ‘forever’. The dilemma facing all investors and retirees is balancing the desired lifestyle (and maintaining that lifestyle over 20 to 30 years) with protecting capital and potentially leaving some wealth behind for your children or other dependants. Read more
Age Pension: September 2011 rates now available
The new Age Pension rates, taking effect from 20 September 2011 are set out in the tables in this article. Note that ‘pf’ stands for ‘per fortnight’. The Age Pension rates are adjusted twice-yearly – in March and September. Read more
SMSF property: ATO ‘relaxes’ borrowing rules (what’s OK and NOT OK)
Purchasing an asset using a limited recourse borrowing arrangement (LRBA) is becoming increasingly popular with SMSF trustees seeking to gear an investment portfolio without breaking super’s ‘no borrowing’ rules. A LRBA means that any recourse the lender has under the borrowing arrangement is limited to the single asset purchased using the LRBA. Read more
Four reasons to buy insurance within your super fund
Choosing the right level of insurance cover within your super fund is one of the three big decisions you make when joining a fund, along with choosing your investment options and deciding how much you want to contribute to your fund. (I explain the insurance options available within your super fund in the article Life insurance: Hey, does super have a deal for you!). Read more
Estate planning: Dear Dad, tax for everything
If you plan to leave your super to your adult children when you die, your death benefit may be hit with tax, even though you would have received that benefit tax-free (if aged 60 or over) while you were alive. Read more
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ENCORE: HOW MUCH SUPER IS ENOUGH?
Crunching the numbers: $1 million retirement
I am often asked the question ‘how much super is enough for a worry-free retirement?’, and we regularly update our special SuperGuide articles on this topic for our readers. In this article I’m answering the question: what does a $1 million retirement look like? This article forms part of a two-part feature ($1 million and $2 million retirements) for those readers who want a truly comfortable life in retirement. Read more
Crunching the numbers: $2 million retirement
I am often asked the question ‘how much super is enough for a worry-free retirement?’, and we regularly update our special SuperGuide articles on this topic for our readers. In this article however, I’m tackling the issue from a very different perspective. I’m answering the following question: what does a $2 million retirement look like? Read more
AGE PENSION
Age Pension: Does my superannuation lump sum count for income test?
Q: I’m over 65 and a member of a super fund, from which I receive an account-based pension. I need to withdraw a lump sum of $40,000 from my super, as my super is not enough to live on. I will have to apply for a part pension (Age) from the Centrelink. Will my lump sum be counted as income in the Centrelink income test? Read more
Age Pension: Is my super benefit counted towards the Centrelink Pension assets test?
Q: Can you please confirm whether the assets held in a superannuation fund count towards the Centrelink asset test/income test? Read more
Age Pension: Assets test thresholds increase up to 3 times a year
Q: Do you know how frequently the Age Pension income test thresholds are increased by the government? Read more
Age Pension: Income test thresholds increase up to 3 times a year
Q: Do you know how frequently the Age Pension income test thresholds are increased by the government? Read more
Take note: Age Pension age increasing to 67 years
More than two years ago, in the May 2009 Federal Budget, the Government announced that the Age Pension age is set to increase to 67 years of age from 2023. This major change may have disappeared from the front pages of newspapers but it should be ‘top of mind’ for most Australians thinking about retirement. Read more
DIY SUPER
SMSF: How much does a DIY super fund cost?
Q: My wife and I are considering establishing our own super fund to be overseen by a licensed adviser. I asked two advisers for a quote on the set-up costs for a self-managed super fund. The first adviser charges approximately $8000; the second considerably less — about $1500. Which do you think would be the better option? Read more
SMSF pension: How do I start one?
Q: How do you change your self-managed super fund (SMSF) from accumulation phase to pension phase (husband aged 60 not working) and transition to pension phase (myself aged 57 and still working part time)? If an accountant has to do it, what costs could be involved? Your site has been a great help in understanding things we didn’t know, thank you very much. Read more
SMSF pensions: You stick with the original components
Q: I recently read your book on DIY Super for Dummies and picked up a number of useful hints. Thanks for writing it. My wife and I have only recently established a SMSF and are on a steep learning curve. However there is one question which, to date, I have not been able to find a reliable answer. We are in the pension phase. Both of us have a large tax free component and a smaller taxable component (this has been minimised already). Could you please tell me whether the pension phase fund earnings are tax free, taxable or are split in the same taxable/tax free proportion as existed when the pension phase began? Read more
How can a SMSF live forever?
Q: It has been suggested, that a family self-managed super fund (SMSF) can become a multi-generational tax haven, which can go on into perpetuity, provided that you establish a special corporate trustee, as well as a SMSF Will. The money as I understand cannot remain in the fund indefinitely and the relevant tax has to be paid. Another limiting factor would be that you cannot have more than four members of a SMSF. Could you kindly clarify the situation? Read more
DIY SUPER AND INSURANCE
SMSFs and life insurance
Q: I am a self-employed businessman with my own DIY super fund. I would like to know if I can arrange insurance(s), for example, death, etc through my fund with the premiums paid from the fund? Could you recommend any companies that may supply these services? Read more
SMSFs: Can I transfer my life insurance to my DIY super fund?
Q: I have searched the ATO site to determine if we can have our SMSF pay life insurance for members. I am unable to find whether these things are arm’s length in regard to existing policies or not. There seems no writing to assist with a transition of these items into the fund and then the fund taking up the costs whilst being able to include the costs in the fund’s deductions. I wonder if you can help with this one? Read more
SMSF: If I die young, will my wife pay super tax on the life insurance payout?
Q: I have a life insurance policy owned by my self-managed super fund (SMSF) of approx $2 million. Currently there is only about $80,000 accumulated in the fund. I am 40 years old. If I die tomorrow is my wife able access an income stream from the fund tax-free? For instance, upon my death if this $2 million was left in the fund generating 5%, will my wife receive the entire $100k per year income without paying tax? Read more
