Liam Shorte

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All posts tagged Retirement Planning

Budget matters relevant to SMSF Trustees

Sigh of relief!

Thankfully after the reams of changes to superannuation in last years budget that we are still trying to negotiate the through the implementation minefield, the government have left SMSFs and Superannuation largely untouched this year. As the SMSF Association have said “Stability and confidence for superannuation is the good news coming out of the 2017-18 Federal Budget.” However there are a few issues and gladly opportunities you need to be aware of.

Contributing the proceeds of downsizing your home to superannuation (or just taking advantage of strategy if moving house)

Tip: If you’re over 65 self funded retiree and your marginal tax rate is more than 15% then strategy may be useful. May also help avoid the Medicare levy increase in 2 years time.

It is proposed that from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to the existing contribution caps.

Features associated with this measure include:

The property must have been the principal place of residence for a minimum of 10 years
Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap
Amounts will count towards the transfer balance cap when used to commence an income stream
Contributions will be subject to social security means testing when added to a superannuation account

Contribution eligibility requirements, such as the work test and restrictions on contributions from age 75 will not apply to these contributions. The requirement to have a total superannuation balance of less than $1.6 million to be eligible to contribute will also not apply.

Social security changes

Pensioners who lost their Pensioner Concession Card entitlement due to the assets test changes on 1 January 2017 will have their card reinstated. This card provides access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Pensioner Concession Cards will be automatically reissued over time with an ongoing income and assets test exemption.

As of 1 July 2018, there will be stricter residence requirements for the age pension and disability support pension. From that date, pension recipients will need to have at least 15 years’ residence in Australia or 10 years’ continuous residence with certain restrictions.

First home super saver scheme – talk to us about how you can use this to help your children or grandchildren

From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.

These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.

Features associated with this measure include:

Contributions will count towards existing concessional and non-concessional contribution caps
Earnings will be calculated based on the 90 day Bank Bill rate plus three percentage points.
The ATO will administer this scheme, calculate the amount that can be released and provide release instructions to superannuation funds.
The amount withdrawn (including the taxable component) will not flow through to income tests used for tax and social security purposes, such as for the calculation of HECS/HELP repayments, family tax benefit or child care benefit.

Example of how to use this strategy: Get your child or grandchild to salary sacrifice up to $15,000 each year until they max out the $30,00 limit and let them live at home or support their living costs to ensure they can still make ends meet. This way you promote a savings culture and they get a tax incentive at the same time. Boost the savings by matching what they put in to the super account dollar for dollar in to an High Interest Savings account.

If you are giving money to children then teach them a valuable life lesson on regular saving at the same time…best gift you can give to them.

Bank levy may hit dividends or term deposit rates

The Government will introduce a major bank levy which will raise $6.2 billion in the next four years. This will either be passed on to customers with lower rates on deposits or higher mortgage rates or to shareholders in the form of lower dividends. Another good reason to review your exposure to the large banks as the market cycle changes.

PROPERTY INVESTORS

Integrity of limited recourse borrowing arrangements

The Government is proceeding with amendments to the transfer balance cap and total superannuation balance rules for limited recourse borrowing arrangements (LRBAs). The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance for all new LRBAs once this legislation is passed.

Integrity of non-arm’s length arrangements

The Government will amend the non-arm’s length income rules to prevent member’s using related party transactions on non-commercial terms to increase superannuation savings by including expenses that would normally apply in a commercial transaction.

Disallow certain deductions for residential rental property

From 1 July 2017, deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.

Investors will not be prevented from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Also from 1 July 2017, plant and equipment depreciation deductions will be limited to outlays actually incurred by the SMSF in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans. Here’s the list of residential #property plant and equipment items that will go in crack down on negative gearing deductions. Here’s the list of residential property plant and equipment items that will go in crack down on negative gearing deductions.

This measure addresses concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

Other matters: Energy Assistance Payment

A one-off Energy Assistance Payment will be made in 2016-17 of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017 and who are a resident in Australia.

Qualifying payments include the Age Pension, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

1 Comment

by SMSF Coach - Liam Shorte on May 10, 2017 • Permalink

Posted in Contribution Strategies, LRBA, News & Stats, Retirement Planning, Superannuation

Posted by SMSF Coach - Liam Shorte on May 10, 2017

https://smsfcoach.com.au/2017/05/10/budget-matters-relevant-to-smsf-trustees/

Superannuation changes for Self-Managed Super Funds – useful ATO links

The changes to the superannuation system, announced by the Australian Government in the 2016–17 Budget, have now received royal assent and the finer details of how to implement them have been released. While the government claim these changes were designed to improve the sustainability, flexibility and integrity of Australia’s superannuation system, they did not work with industry or the ATO before announcing them and as such it has been a nightmare to try to get your head around what the actual changes are and how strategies need to be implemented to manage them.

As a result we are getting last-minute guidance from the ATO and software providers as well as SMSF, Industry and Retail Super providers. The government have back-flipped on some measures, amended others because of collateral damage and tightened other measures for obscure reasons. With most of these changes commencing from 1 July 2017 I have tried to put some useful links together.

A short video overview of the changes is provided below. I have provided more detailed information links and will update these as they are progressively published to help you understand the changes, how they may affect you, and what you may need to know and do now, or in the future as a trustee of a self-managed super fund (SMSF). Even more detailed information is available to help you understand the changes, including for some topics, law companion guidelines (see below) to provide certainty about how the changes will be administered.

Overview of super changes

Law Companion Guides

For those who wish to dive in to the detail please view the Law Companion Guides below. A law companion guideline is a type of public ruling. It gives the ATO view on how recently enacted law applies. It is usually developed at the same time as the drafting of the Bill.

The ATO normally release a law companion guideline in draft form for comment when the Bill is introduced into Parliament. It is finalised after the Bill receives Royal Assent. It provides early certainty in the application of the new law. Please make sure to look for updates before relying on this information.

LCG 2016/8 – Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds
LCG 2016/9 – Superannuation reform: transfer balance cap
LCG 2016/D10 – Superannuation reform: defined benefit income streams – non commutable, lifetime pensions and lifetime annuities
LCG 2016/11 – Superannuation reform: concessional contributions – defined benefit interests and constitutionally protected funds
LCG 2016/12 – Superannuation reform: total superannuation balance
LCG 2017/D1 – Superannuation reform: defined benefit income streams – pensions or annuities paid from non-commutable, life expectancy or market-linked products
LCG 2017/D3 – Superannuation reform: Transfer Balance Cap – Superannuation death benefits

Super changes Q&As

The ATO have also released access to answers to some frequently asked questions and they can be found in this document Super Changes Q & As

Example: Q. How are my pensions and annuities valued for transfer balance cap purposes?

ANSWER : You need to contact your fund about the value of your pensions and annuities.

The value of your pension or annuity will generally be the value of your pension account for an account-based pension.

Special rules apply to calculate the value of: • lifetime pensions • lifetime annuities that existed on 30 June 2017, and • life expectancy and market linked pensions and annuities where the income stream existed on 30 June 2017

Lifetime pension and annuities These are valued by multiplying the annual entitlement by a factor of 16.This provides a simple valuation rule based on general actuarial considerations. Your annual entitlement to a superannuation income stream is worked out by reference to the first payment entitlement for the year. The first payment is annualised based on the number of days in the period to which the payment refers. (I.e. the first payment divided by the number of days the payment relates to multiplied by 365).

This means that a lifetime pension that pays $100,000 per annum will have a special value of $1.6 million which counts towards your transfer balance cap in the 2017-18 financial year.

For a lifetime pension or annuity already being paid on 1 July 2017, the special value will be based on annualising the first payment in the 2017-18 financial year. This may include indexation, so may be slightly higher than your current annual lifetime pension payments.

Life expectancy and market linked pensions and annuities being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by the number of years remaining on the term of the product (rounded up to the nearest year).

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

2 Comments

by SMSF Coach - Liam Shorte on April 21, 2017 • Permalink

Posted in Checklists, Contribution Strategies, Estate Planning, News & Stats, Pension Strategies, Pensions, Retirement Planning, Salary Sacrifice, Small Business CGT, SMSF, SMSF Management, Superannuation, Superannuation Splitting, Tax Planning, Trustee

Posted by SMSF Coach - Liam Shorte on April 21, 2017

https://smsfcoach.com.au/2017/04/21/superannuation-changes-for-self-managed-super-funds-useful-ato-links/

Retirement Planning Tips for 2017 onwards

Retirement planning is vitally important and with the new rules it may be more important to start as early as possible. New limitations on contributions to super will mean you must be actively making additional contributions sooner. Then when you have been working hard to get money into the super environment, and have complied with all the rules and contribution caps, you want to ensure you are maximising your opportunities when you start to draw on your super savings for a retirement income stream.

What are the changes?

A maximum limit of $1.6 million is permitted to be transferred into retirement income stream products.
Excessive balances can remain in super in accumulation phase
Earnings on assets supporting transition to retirement income streams will be taxed within super

Limits on amounts that can be transferred into retirement income streams

There has been considerable talk in recent times about whether a limit should be placed on the amount that can be accumulated within super and afforded tax concessions. Rather than simply place an arbitrary ceiling on how much can be held inside super, the Government has instead targeted potentially excessive superannuation balances by limiting the amount that will be eligible for the nil tax on earnings concession. From 1 July 2017, the maximum amount that can be placed into retirement income streams will be $1.6 million. For anyone who has started income streams and account balances exceeding that limit, there will be a requirement to roll-back (or withdraw) amounts to bring them in line with these new maximums. The current tax free status of earnings on assets supporting superannuation income streams will only be available to the extent that the income streams are within this new limit.

Excessive balances can remain in superannuation

There is a lot of media hype and some misconceptions floating around at present. It’s important you understand that if you are in the fortunate position to have more than $1.6 million in super, you aren’t forced to withdraw the additional benefits. Amounts above the $1.6 million threshold can remain in super, but must remain in the accumulation phase. Earnings will be taxed at the standard superannuation tax rate of 15% which for many people will be better than paying their marginal tax rate on the earnings if they take the funds out of the system.

Also remember if you have $1.6m in pension then if you take the excess funds out of your SMSF then you will not have an opportunity to put the funds back in as you will be blocked form making further non-concessional (after tax) contributions.

For some, it may be worthwhile to explore taking some of the excess out in to your own names after July 2017 if you have a low level of assets outside in your personal names or through family trusts. But remember if you’re minimum pensions from the remaining money in superannuation pensions is more than you need to live on then these funds can build up quickly outside of the system and you could be come taxable now or when the first spouse passes.

Earnings on assets supporting transition to retirement income streams will be taxed within super

Despite considerable speculation, the Government has not removed the ability to commence and run transition to retirement (TTR) income streams. TTR income streams are available to you once you reach your preservation age. They allow you to access your super in the form of an income stream without the need to retire or alter your employment arrangements. However, the Government has opted to reduce the concessions available for these income streams. From 1 July 2017, instead of earnings on assets supporting these income streams being exempt from tax within the super environment (as would apply to all other income streams within the new $1.6 million threshold), earnings will instead remain subject to the standard 15% tax rate that applies to funds in accumulation phase.

So for those accessing their super via a TTR so they can salary sacrifice more of their wages back to super within the new $25,000 limit from 1 July 2017, then this is still a very valid strategy. How ever if you have the savings and can manage without accessing your super balance then it may be better to move your fund to accumulation phase.

Look for opportunities to change from a transition to retirement income streams to a full account based pension

If you retire before 60 or leave any one employer after age 60 then you can switch your TTR to a full tax free pension. So think about your situation and do you or can you do marking of exams, AEC electoral role work, stocktaking, Christmas short term employment, part-time survey work, bar work, filling in for family in a business while they go on holidays. If you can document a work arrangement and it genuinely ceases then you can meet that further condition of release which could move your fund in to tax free earnings phase again.

Summary

What hasn’t changed is the tax treatment of superannuation benefits received by individuals from their retirement savings. Payments received after reaching age 60 will continue to be received tax free. To ensure you get the right advice for your situation give us a call on 02 9984 1844 or click here to schedule an appointment

We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

5 Comments

by SMSF Coach - Liam Shorte on April 10, 2017 • Permalink

Posted in Pension Strategies, Pensions, Retirement Planning, SMSF, SMSF Management

Posted by SMSF Coach - Liam Shorte on April 10, 2017

https://smsfcoach.com.au/2017/04/10/retirement-planning-tips-for-2017-onwards/

SMSF Coaching – Best Performing Asset Class Annually for Last 20 Years

Do you know which asset sector performed best last year, the year before? Do you think those results will guide you for next year? Think again. I don’t think many SMSF Investors would have guessed Global Listed Property would have been the top performers in the last 6 years but in 2016 was a disappointing under performer. Many burnt in the property sector in the GFC had avoided it like the plague and missed some of the upside.

Franklin Templeton Austalia’s annual asset class ladder for 2018 is a great tool to visualise how each asset class/sector has performed over the last 20 years and pour water on ideas that we can reliably predict next years winners.

ANNUAL TOTAL RETURNS OF KEY ASSET CLASSES 1999–2018

Click on this picture to access the larger version in PDF pormat

What becomes glaringly obvious after scrutinising the table is that no single asset class consistently outperforms the others. Just in case you subscribe to the ‘last years greyhound is this years dog” or that cycles are predictable, the table shows no clues or discernible pattern into how the previous year’s winners or losers will perform in the following year as the pattern appears totally random.

We coach clients to build a diversified strategy with some tactical allocations when sectors or assets appear oversold or opportunities arise like when the Aussie dollar was getting USD $1.10 a few years back and the opportunity came to overweight international stocks.

I hope this information has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on March 28, 2017 • Permalink

Posted in Asset Allocation, Behavioural Finance, International Investing, News & Stats, Results Season

Posted by SMSF Coach - Liam Shorte on March 28, 2017

https://smsfcoach.com.au/2017/03/28/smsf-coaching-best-performing-asset-class-annually-for-last-20-years-2/

Using CGT Relief for your Transition to Retirement Pension

This is part of series on the necessary changes to strategies and opportunities that have resulted from the pending 1 July 2017 changes which will see earnings on transition to retirement (TTR) pensions subject to 15% tax in the fund.

I know this has created concerns with many trustees and advisers around the question of should you access the relief and if so how to actually access the CGT relief provisions. People want to know what factors they must take in to consideration.

Some of the concerns have been clarified by the ATO. One concern was that trustees would need to commute their TTR pensions and roll back into accumulation before 1 July to access the CGT relief provisions. Those relief provisions would allow the cost base of all or selected eligible assets to be reset to the current market value on a date chosen by the trustees between now and 30 June. This CGT relief allows trustees to in effect, retain the tax-free status of unrealised capital gains accumulated prior to 30 June 2017.

The newly issued ATO issued Law Companion Guideline (LCG) 2016/8 has provided some excellent clarification. If your SMSF is operating as an unsegregated fund, the LCG states that member will not need to commute back to accumulation phase to be able to elect to reset the cost base of assets the wish to elect to apply the CGT relief.

It is intended that the same basis should be available for segregated funds, but the ATO has indicated is still reviewing options for how to make this work in practice. I will try to keep this blog updated with any guidance from the ATO on this matter but please make sure you adviser/administrator is on top of these matters. An SMSF that only has TTR or account-based pensions (and no accumulation phase) is automatically classified as a segregated fund. However if you put in a new contribution, as many are, this year then that money goes in to accumulation and the fund becomes automatically unsegregated. So look at your contribution intentions.

All is not lost as the fund would still have been segregated until that contribution was made and you may elect for that date to be the new CGT cost base valuation date.

Conversations need to start with YOUR advisers and administrators to check whether:

you should to continue a TTR pension after 1 July 2017 or to commute back to accumulation phase.
you may have already or can trigger a further condition of release such as leaving any one employment position after age 60. To move from Accumulation or TTR to Account Based Pension

Why are TTR pensions still relevant and for whom

The tax advantages of a TTR pension will reduce when the earnings in the fund start to be taxed on 1 July, but advantages may still arise for members who:

Are over age 60 and can draw tax-free income from the TTR
Wish to start accessing super to top-up income or increase income to pay off debts
Want to be able to nominate an automatic reversionary for estate planning purposes
Can use salary sacrifice or personal deductions to contribute a higher net amount into super than they need to withdraw.

If the TTR pension is no longer required, care should be taken with the commutation and timing of the commutation to ensure the CGT relief provisions can be accessed on any assets they wish to claim the relief for.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

5 Comments

by SMSF Coach - Liam Shorte on March 22, 2017 • Permalink

Posted in Pension Strategies, SMSF, Tax Planning, Trustee

Posted by SMSF Coach - Liam Shorte on March 22, 2017

https://smsfcoach.com.au/2017/03/22/using-cgt-relief-for-your-transition-to-retirement-pension/

15 Reasons to update your SMSF Deed for new strategies in 2017

I knew with all the recent changes to Superannuation that many of my clients would need to update their SMSF Trust Deeds and started doing my research for a blog. Then I came across a recent blog from Dr. Brett Davies at Legal Consolidated today and I could not really improve on it. So with his permission, I am re-blogging his content here.

Self-Managed Super Fund (SMSF) Deeds previously required updates in:

– 1999 – ‘Excluded Funds’ became ‘Self-Managed Super Funds’, preservation & in-house assets

– 2007 – ‘Simpler Super’

– 2017 – Legislation passed in 2016, requires the changes below

The 15 changes to SMSF Deeds required after the 2016 Budget are to:

Internally ‘rollback’ pensions to accumulation;
Segregate assets between accumulation and pension phases;
Reject contributions;
Refund contributions;
Deal with excess transfer balance tax and excess non-concessional contributions;
Allow income streams and Account Based Pension (grandfathered);
Specify guardians for incapacity and death;
Identify the Power of Attorney when living overseas for more than 2 years;
Resettle pensions with flexible timing without mingling with accumulation account;
Allow reversionary beneficiary nominations;
Provide for CGT relief;
Deal with segregated and unsegregated assets;
Cease or keep Transition to Retirement Income Streams;
Calculate member balances, across different funds; and
Calculate internal pension rollbacks to accumulation.

These SMSF updates are all required to give maximum flexibility to your accountant and adviser.

Why does my SMSF Specialist Advisor / Accountant want to apply these SMSF updates?

Pre-2012 SMSF Deeds fail to deal with these 10 issues:

Removing clauses requiring the Trustee to do something that is no longer legal or beneficial;
Changing the sections that are ‘regimented’ with unnecessary rules vs being ‘permissive’. There is no point stating mandatory SIS requirements. In fact, it is dangerous to re-state legislation. This is because it dates your deed;
Accounting for an increased concessional contribution cap;
Removing insurance cover where the conditions are out of date;
Incorporating clauses about losing the pension at death or when the minimum payment has not been made;
Allowing for excess concessional contributions taxed at member’s marginal rate (-15% offset);
Updating the Investment Strategy to incorporate the ATO’s new Audit approach;
Changing market valuation clauses to leave the mechanism for the Accountant;
Allowing remuneration for non-trustee duties; and
Allowing non-lapsing Death Benefit Nominations.

Update your Deed to ensure your SMSF is compliant. Then you get the most out of your SMSF.

There is no risk of resettlement

‘Resettlement’ is when you create a new ‘trust estate’ out of an old trust. This applies to SMSFs and causes significant tax implications. However, there is no risk of resettlement under the High Court authority of Commercial Nominees (2010).

Updating your SMSF Deed through Legal Consolidated does not result in the resettlement of your SMSF. We retain the parts of the old Deed that are required by legislation and previous court decisions. But this does not affect a resettlement.

Make sure to check your with your own current deed provider or ask your adviser to check out Legal Consolidated’s offer.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

3 Comments

by SMSF Coach - Liam Shorte on March 10, 2017 • Permalink

Posted in SMSF Management, Trustee

Posted by SMSF Coach - Liam Shorte on March 10, 2017

https://smsfcoach.com.au/2017/03/10/15-reasons-to-update-your-smsf-deed-for-new-strategies-in-2017/

Insights in to the ATO SMSF statistical overview of 2014–15 released February 2017

The ATO have released the analysis of the SMSF sector based on the financial returns for 30 June 2015 and some 2016 figures from their records. It’s always good to understand how the sector is developing and how your SMSF compares in the overall scheme of things. In this article I cherry-pick some of the stats that may be of interest to you.

Number of new SMSFs setup each year rising again.

The SMSF sector continues to grow with another up tick in 2015-6 after a slow down in 2014 and 2015.

One of the stats that still defies the belief of most SMSF Specialist Advisors is the number of funds being set up with Individual Trustees. In all our interaction with professional advisors over 90% recommend Corporate Trustees but the ATO stats on new setups show continued preference, over 90%, for Individual Trustees. When you are finished this blog I would urge readers to look at my earlier blog Why Self Managed Super Funds Should Have A Corporate Trustee (click now an it will open in another tab for reading later)

SMSF trustee type

This table shows the trustee structure (either corporate or individual trustees) of the SMSF population as at 30 June 2016, plus new registrations for the years 30 June 2014 to 30 June 2016.

**SMSF trustee type**
Trustee type	% of all SMSFs (at 30/06/16)	2014 registrations	2015 registrations	2016 registrations
Corporate	23.23%	2,813 (7.70%)	1,781 (5.45%)	2,433 (7.24%)
Individual	76.77%	33,718 (92.30%)	30,916 (94.55%)	31,183 (92.76%)
Total	100%	36,531 (100%)	32,697 (100%)	33,616 (100%)

Size of SMSF sector

SMSFs make up 99.6% of the number of funds and 29% of the $2.1 trillion total superannuation assets as at 30 June 2016.

There were 577,000 SMSFs holding $622 billion in assets, with more than one million SMSF members.

Over the five years to 30 June 2016, growth in the number of SMSFs averaged almost 6% annually.
45% of SMSFs have been established for more than 10 years, and 17% have been established for three years or less.

Growth of SMSF assets

In 2015, the average assets of SMSFs reached $1.1 million, a growth of 20% over five years. Average assets per member were $590,000, the highest over five years.

In 2015, the average assets of SMSFs reached $1.1 million, a growth of 20% over five years.

Average assets per member were $590,000, the highest over five years.

For SMSFs established in 2015, the average fund assets were $392,000, an increase of 15% compared to average assets of funds established in 2011.

48% of SMSFs had assets between $200,000 and $1 million, accounting for 23% of all SMSF assets.

The majority of SMSF assets were held by funds with assets between $1 million and $5 million, representing 54% of total SMSF assets.

Contributions

Total contributions to SMSFs increased by 38% over the five years to 2015. This is 6% higher than the growth of total contributions to all superannuation funds (32%) over the same period.

Member contributions increased to more than $26 billion or by 54% over the five-year period.

Employer contributions made to SMSFs fell by 0.5% over the five years to 2015.

The Graph below compares contributions to SMSFs as a proportion of all super fund contributions for the years ended 30 June 2011 to 30 June 2015.

At 30 June 2015, contributions to SMSFs represented 24% of all super fund contributions. Member contributions into SMSFs, accounted for 51% of all member contributions across all super funds in 2015, an increase of 2% over the five-year period. In contrast, the proportion of employer contributions to SMSFs has dropped over the period to only 8% of all employer contributions across all super funds in 2015.

Graph 3: Contributions to SMSFs as a percentage of total Australian super contributions (for member, employer, and total) 2011–2015

SMSF benefit payments

Benefit payments have increased from $19.2 billion in 2011 to $35 billion in 2015. The proportion of SMSF members receiving a benefit payment also increased by 24% in 2015.

In 2015 the average benefit payment per fund was $126,000, and the median payment $62,900.
In 2015, 94% of all benefit payments were in the form of income stream (including transition to retirement income streams).

Transition to retirement income streams have remained steady representing 12% of total benefit payments in 2015.

SMSF payment phase

The majority of SMSFs continued to be solely in the accumulation phase (52%) with the remaining 48% making pension payments to some of or all members.

Over the five years to 2015, there was a shift of funds moving into the pension phase (7%).

Of SMSFs that started to make pension payments in 2015, 50% were more than five years old, while 23% were less than two years old.

Of funds established over the last 10 years to 2015, 69% have not started making pension payments.
SMSF member demographics

SMSF member demographics

At 30 June 2016 there were almost 1.1 million SMSF members, of whom 53% were male and 47% female

The trend continued for members of new SMSFs to be from younger age groups. With the median age of SMSF members of newly established funds in 2015 decreased to 48 years, compared to 59 years for all SMSF members as at 30 June 2016.

In 2015, SMSF members tended to be older than members of APRA funds and had both higher average balances and higher average taxable incomes.

The proportion of members receiving pension payments from an SMSF continued to trend upwards. In 2015, 41% of members were fully or partially in pension phase, compared to 34% in 2011

SMSF member balances

At 30 June 2015 the average SMSF member balance was $590,000 and the median balance was $355,000, an increase of 21% and 26% respectively over the five years to 2015.

The average member balances for female and male members were $498,000 and $633,000 respectively. The female average member balance increased by 24% over the five-year period, while the male average member balance increased by 17% over the same period.

Over the five years to 2015, the proportion of members with balances of $200,000 or less decreased to 31% of all members.

Graph : Asset size SMSF and SMSF member 2011–2015

SMSF asset allocation

SMSFs directly invested 81% of their assets, mainly in cash and term deposits and Australian-listed shares (a total of 57%).

For the third consecutive year the proportion of total assets held in cash and term deposits decreased slightly (by 2%).

As fund asset size increased, the proportion of assets held in cash and term deposits decreased significantly while the proportion of assets held in trusts and other managed investments increased.

SMSFs in the pension phase had similar assets to SMSFs in the accumulation phase. The only noticeable differences are that SMSFs in pension phase tend to slightly favour listed shares and managed investments more, while those in accumulation phase favoured property assets more.

Limited recourse borrowing arrangement (LRBA) assets

In 2015, 6% of SMSFs reported assets held under LRBAs, which is consistent with the prior year (5.7%). The majority of these funds held LRBA investments in residential real property and non-residential real property. In terms of value, real property assets held under LRBAs collectively made up 91% or $18.5 billion of all SMSF LRBA asset holdings in 2015.

SMSF borrowing

At 30 June 2015, SMSFs held total borrowings of $16.9 billion representing 2.8% of total SMSF assets. The average amount borrowed increased from $346,000 in 2011 to $378,000 in 2015.
Investment performance

Investment performance

In 2014–15, estimated average return on assets for SMSFs was positive (6.2%), a decrease from the estimated returns in 2014 (of 9.7%), but remains in positive terms and is consistent with the trend of investment performance for APRA funds of more than four members over the five years to 2015.

SMSF expenses

The estimated average total expense ratio of SMSFs in 2015 was 1.1% and the average total expenses value was $12,200.

The average ‘investment expense’ and ‘administration and operating expense’ ratios were consistent at 0.60% and 0.50% respectively.

SMSFs in pension phase incurred higher average total expenses than funds solely in accumulation phase.
The average expense ratios for SMSFs declined in direct proportion to the increased size of the fund.

SMSF auditors

In 2015, there continued to be a trend towards SMSF Auditors performing audits for a larger number of SMSFs, with most (53%) performing between five and 50 SMSF audits, and 28% of auditors performing between 51 and 250 SMSF audits.

There were 5% of SMSF auditors conducting more than 250 audits, representing 44% of total SMSF audits in 2015

To see the full report in more detail click here https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/super-statistics/smsf/self-managed-superannuation-funds–a-statistical-overview-2014-2015/?page=1#Introduction

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Services I Provide as a Professional Financial Planner and SMSF Specialist Advisor

I recently had my 17-year-old son do some work experience in the office and after a few days he asked “what do you do for your clients dad?” I rattled off my elevator speech about my core belief that “I put people back in control of their finances and empower them to plan for a brighter future.” He looked at me as if I had two heads and said “yeah but what do you actually do?” Well that hit me like a brick and I realised that many people do not know what I actually do as a Professional Financial Planner. No not just a Financial Planner but a professional who lives and breathes his work and is building a business around the clients he takes care of and not around the amount of funds under management.

When I sat down with my business partner, Michael Rambaldini, and our team and we looked at what we have done for clients over the last few decades. We split the role in to 5 parts:

The financial plan designer who deals with the big picture of your goals and dreams and strategies to achieve them from a financial perspective. As part of this we help get back control by ensuring you are more organised.
The relationship builder – someone who earns your trust, becomes your financial coach and guides you through your financial journey with confidence. We deal with many clients so understand the changes in lifestyle and monetary needs as you age.
The investment strategist who chooses how to build wealth to fund those objectives. We bring that third-party view to help you avoid emotionally driven investment.
The insurance adviser who makes sense of the options available and make an assessment of the needs of the family in terms of risk management and protecting the family’s financial future.
The tax consultant (often with an accountant) to minimise the leakage from those returns and ensure compliance.

Now to actually show how that is done and the actual services provided I have made some lists and while not exhaustive they encompass 99% of what I can do for my clients.

A Professional Financial Planner:

Guides you to think about areas of your financial life you may not have considered.
Formalises your goals and puts them in writing.
Helps you prioritise your financial objectives in the right order not what’s easy first.
Helps you determine realistic benchmarks.
Makes you accountable for your own strategies through regular reviews.
Studies possible alternatives that could meet your goals.
Helps you work out your best Salary Sacrifice strategy
Prepares a “big picture” financial plan called a Statement of Advice for you. This should be a reference document for the detailed strategy.
Suggests creative alternatives that you may not have considered including the best way to maximise Centrelink benefits.
Assists you in setting up a Superannuation plan and maybe even an SMSF when the time is right.
Reviews your children’s educational cost funding strategy.
Provides reminders about updates to key financial planning data.
Checks with you before the end of the year to identify any last-minute financial planning needs.
Guides you on ways to fund health care and other lump sum expenses in retirement.
Assists in preparing an estate plan for you.
Cares more about you and your money than anyone who doesn’t share your last name.

A PERSONAL FINANCIAL COACH:

Monitors changes in your life, career and family situation.
Proactively keeps in touch with you with news and ideas, educating you along the way.
Serves as a human glossary of financial terms such as alpha, P/E ratio, and franking credits.
Provides referrals to other professionals, such as accountants, auditors and lawyers.
Shares the experience of dozens of his clients who have also faced circumstances similar to yours. (I’m Irish so I love a story to relay a solution)
Helps with the continuity of your family’s financial plan through generations.
Keeps you on track with reviews to achieve your objectives.
Identifies your savings shortfalls and strategies to plug the gap.
Develops and monitors a strategy for debt reduction.
Is a wise sounding board for ideas you are considering.
I provide the necessary resources to facilitate your decisions, and explaining the opportunities and risks associated with each option.
Provides “the sleep factor” so you are not stressed about money
Is there for your spouse and family should anything happen to you.
Is honest with you, always, even when it means saying NO!

AN INVESTMENT STRATEGIST:

Prepares an asset allocation for you so you can achieve the best rate of return for a given level of risk tolerance.
Stays up to date on changes in the investment world.
Monitors your investments.
Reviews your investments in your company superannuation plans.
Reviews the costs of your existing plan to ensure it is value for money
Helps transition your investments from Accumulation phase to providing a retirement income.
Refers you to mortgage broker for loan and debt financing.
Suggests alternative strategies to increase your income during retirement.
Researches and keeps records of your cost basis on shares and property
Provides you with reliable investment research and often differing views from a range of sources.
Provides you with personal investment analysis.
Determines the risk level of your existing portfolio.
Helps you consolidate and simplify your superannuation and investments.
Can provide you with technical, fundamental, and quantitative investment analysis.
Provides introductions to new investment opportunities.
Shows you how to access your statements and other information online.

AN INSURANCE ADVISER:

Reviews and recommends life, TPD, Trauma and Income Protection insurance policies to protect your family.
Advises on the best structure in terms of within or outside of superannuation to hold the policies
Advises on which entity should own these policies to achieve the desired outcome in the event of a claim.
Looks at Keyman and Business Expenses Insurance for professional and small business clients.
Holding your hand or if the worst happens, your family’s hand while we process a claim with you in the event of illness, injury or death.

A TAX CONSULTANT (within the limits of my licence):

Suggests alternatives to manage income streams and lower your taxes during retirement.
Reviews your tax strategies/returns with an eye to possible savings in the future.
Stays up to-date on tax law changes.
Helps you reduce your current taxes.
Helps you determine and fund your desired income in retirement and minimum pension payments.
Re-positions investments to take full advantage of tax law provisions.
Facilitates the transfer of investments from individual names to trust(s), or from an owner through to beneficiaries.
Works with your accountant, tax agent and legal advisers to help you meet your financial goals.

I can’t live your life for you but I can smooth the way!

Are you looking to build that sort of relationship? Do you want a professional advisor that will take the time to build that trusted relationship with you. Please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

3 Comments

by SMSF Coach - Liam Shorte on February 24, 2017 • Permalink

Posted in SMSF

Posted by SMSF Coach - Liam Shorte on February 24, 2017

https://smsfcoach.com.au/2017/02/24/services-i-provide-as-a-professional-financial-planner-and-smsf-specialist-advisor/

Busting the myth that you should dispose of assets to increase Age Pension

What follows is a case study prepared by the Actuaries Institute’s Superannuation Projections and Disclosure (SPD) Subcommittee and if any one has advised you to dispose of assets to get more Centrelink/DVA Aged Pension in reaction to the reduced Assets Test in January 2017, then you should read this article. You should not act on strategies that affect short-term income unless you look at the long-term results too.

The Actuaries Institute’s Superannuation Projections and Disclosure (SPD) Subcommittee designed a projection model to estimate the income that assets would support during retirement for a number of case studies.

The Importance of Projections in Developing Retirement Strategies

Experts are thick on the ground these days, sometimes with free advice that can prove costly later on. And it seems experts are particularly fond of advising retirees and those about to soak up the sun on weekdays about how and when to spend their money. One strand of free advice at the moment involves recommending that retirees should spend a bit more, or indeed a lot more, to secure a higher pension to take into account impending changes to the asset test.

Understandably, these changes from January 1 next year have many retirees and those close to retiring thinking hard about whether they should change their financial arrangements. To be more specific, after this date the age pension reduces by $78 per year for each $1,000 of non-home assets over certain thresholds. At first glance, this looks like you’d have to earn over 7.8% on the extra $1,000 or you’d be better off without the extra $1,000 of assets.

The Actuaries Institute cautions that retirees destined to live to a ripe old age should think twice before accepting some of the advice recently aired on this topic. Indeed, this advice ignores the fact that a partial age pension entitlement generally increases throughout retirement as assets reduce. The SPD Subcommittee have designed a projection model to estimate the income that assets would support during retirement for a number of case studies.

A Case Study

The SPD considered a number of scenarios. They were based on two single females (Anne and Barbara) who own their own homes. Their only asset, other than their home, was a balance in an allocated pension. It was assumed that the allocated pension was the only source of income for both women and that they continued to live in their own homes throughout their retirement. The modelling also assumed that the required level of income each year (the combination of the age pension and income from the allocated pension) would be equal to the annual expenditure of ASFA’s comfortable lifestyle for a single person indexed to CPI.

In this case study, we examine one of the scenarios considered.

This scenario assumes the two women plan to retire at age 65 on 1 January 2017 with potentially identical superannuation assets of $450,000. To highlight the long-term impact of spending some of the superannuation assets before retirement, we assumed that Anne increases her spending before 1 July 2017 so as to reduce her retirement assets and receive a higher age pension than Barbara, who decides to save her money. The additional spending was assumed to reduce Anne’s final retirement benefit available on 1 January 2017 to $250,000.

Chart 1 below provides a year-by-year projection of the incomes of these two individuals to age 100.

Chart 1 – Total income if retiring at age 65

Note: all projected values have been discounted to Today’s Dollars at the rate of Wage Inflation.

Assumptions Net investment return on allocated pension assets – 6.5% pa compound

Wage inflation – 3.5% pa compound

Price Inflation – 2.5% pa compound

Increase in desired income – Price inflation

Increase in age pension rate – Wage inflation

Increase in age pension asset test thresholds – Price inflation

The green and purple lines show the total income received in Today’s Dollars. The blue and red lines show the annual amount of age pension received.

It can be seen that the aged pension paid to Anne in the early years is higher because the pension assets she owns do not reduce her age pension. However, because Anne has less pension assets she exhausts her assets by age 84, after which she must live on the age pension or use her home to generate additional income.

Barbara, however, at age 84 still has pension assets and therefore receives a higher level of income than Anne for the rest of her retirement. Also Barbara’s total income received is equal to or greater than her desired income level throughout retirement. She will also maintain a balance in her allocated pension throughout retirement and can continue without resorting to using her own home to generate additional income.

An examination of the projected asset values is also instructive. Chart 2 below shows the value of their pension fund assets at the end of each year during retirement.

Chart 2 – Asset Values if retiring at age 65

Note: all projected values have been discounted to Today’s Dollars at the rate of Wage Inflation.

Barbara has significantly greater pension fund assets throughout retirement. This provides added flexibility in her spending pattern. It also allows for aged care costs or bequests in later age. The additional assets also provide a buffer if the net investment earnings are less than the 6.5% we have assumed. Importantly, the fact that Anne receives a larger age pension in the early retirement years does not indicate what strategy results in the best long-term outcome.

The example and related discussion above highlight the significant challenges involved in retirement income modelling and strategy choice. Such tasks cannot be properly addressed through conclusions based upon calculations of a retiree’s first year age pension and allocated pension income entitlements.

The interaction of the many pieces of Australia’s retirement income system is complex. It includes assets and income test rules for the pension, minimum superannuation assets withdrawal requirements and the interaction of other factors such as inflation and investment returns. Any conclusions based on only considering the income generated in the first year after retirement are liable to be incorrect. Only the output of a year-by-year projection can clearly show how these factors interact throughout a person’s retirement.

Retirees must make decisions about spending capital over time. Ideally, these should allow for a sensible assessment of future cash flow. Year-by- year projections throughout retirement are vital to capture the dynamic nature of the age pension rules as asset values change. However, this is just the start. Given each retiree has an unknown lifespan and faces unknown investment returns, people have valid concerns about outliving their capital. Models like this one can be extended to assess a full distribution of likely outcomes and take into account the retiree’s asset mix and even health status. This allows people to make informed decisions that meet their required levels of certainty.

A longer article which considers all the scenarios examined by the SPD Subcommittee is also available. If a copy of the longer article is required (or if there are any questions on the material contained in this article) please contact Andrew Boal, Convenor of the Institute’s Superannuation Practice Committee. See the original article here The Importance of Projections in Developing Retirement Strategies

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on October 10, 2016 • Permalink

Posted in Age Pension, Centrelink, Pension Strategies, Retirement Planning, Superannuation

Posted by SMSF Coach - Liam Shorte on October 10, 2016

https://smsfcoach.com.au/2016/10/10/busting-the-myth-that-you-should-dispose-of-assets-to-increase-age-pension/

Explainer: how company versus personal tax cuts boost the economy

Suppose the government had about A$10 billion a year to fund lower income tax. It could reduce personal income tax by about 6%, or lower each marginal rate by about 1.5 percentage points. Alternatively it could reduce company tax by about 15%, or reduce the current 30% rate to 24%. Which option has more merit?

The government is currently making the economic case for a company tax cut, after Treasurer Scott Morrison backed away from the personal income tax cut he had been previously hinting at.

But the answer as to which is more likely to drive the “jobs and growth” the government has been promising is not that simple. And it is difficult if not impossible to comprehensively model which option is better.

Income tax affects households differently

The two lower income tax options have different implications for the distribution of the tax burden over time. They also impact changes in incentives and rewards to promote a larger economy and higher future living standards, and how much can be clawed back after the first round revenue loss.

A reduction of personal income tax rates provides a more direct and explicit increase in household income, and a quicker gain, when compared with a reduction of the corporate tax rate. Also, lower personal tax rates allow greater government discretion in the distribution of the benefits across households with different incomes, demographic and other characteristics.

Company tax cuts can impact wages and investment

Individuals benefit from lower corporate tax rates with higher market wages. But the higher wage rates will take some years to materialise, and the magnitude of increase attributed to the lower corporate tax rate, versus other factors, is open to debate.

Benefits of a lower corporate tax rate, and in time the flow of these benefits as higher wage rates, involves a chain of decision changes. Australian corporations depend on the savings of international investors for an important share of their investment funds. They use this money to invest in machinery, buildings technology and so forth. But to get it they must show investors they will get a superior return, after Australian corporate income tax is paid, compared to alternative investments in other countries.

If Australia’s company tax rate was cut, this would lower the bar on the required return to attract investment. In the end the lower corporate tax rate induces an increase in investment, resulting in a larger stock of capital and associated technology and expertise. But, this capital accumulation process takes many years.

The enlarged stock of capital, technology and expertise per worker becomes a key driver of increased worker productivity. In time, more productive workers are able to negotiate higher wages. Via this chain of decision changes, employees benefit from the lower corporate tax rate.

Personal tax cuts promote productivity

Lower personal income tax rates provide incentives for a more productive economy and higher living standards through two main mechanisms. Lower marginal income tax rates increase the incentive for, and the rewards from, joining the workforce, working more hours, and putting more into education and skill acquisition. These incentives are especially important for women with children and older workers.

Also, lower personal income tax rates reduce distortions to household decisions on how much to save and where to invest savings in owner occupied homes, other property, financial deposits, shares, superannuation and other options.

The current income tax system imposes different forms of income tax on the different options with very different effective tax rates. For example, income earned on owner occupied housing (of imputed rent and capital gains) is exempt from income tax while the nominal interest on financial deposits (associated with offsetting inflation as well as the returns for delayed consumption) faces the personal rate. Lower personal income tax rates reduce the magnitudes of the distortions caused by different effective tax rates on different saving and investment options.

The difference is in the timing

Lowering the rate of corporate or personal income tax will generate a larger and more productive economy. A larger economy means larger tax bases, and not just income tax, but also GST, payroll and excise. The enlarged tax bases generate larger tax revenues and a partial recapture over time of the first round revenue cost of the income tax rate reductions.

The revenue recapture is expected to be larger for the corporate income tax rate reduction option. With the imputation system, for domestic shareholders a reduction in corporate income tax and less franking credits would be offset by a larger direct personal income tax payment on dividend income.

The greater price sensitivity of the international supply of funds to Australia enticed by a lower corporate tax rate is expected to boost the size of the Australian economy, and tax bases, more than the labour supply response to lower personal tax rates.

Models don’t have the answer

Ultimately, quantifying the relative national productivity, distribution and revenue effects of the lower corporate tax and personal income tax options requires detailed computable general equilibrium models.

Arguably, available models, including those used by government, lack the detail of progressive personal income tax rates for different households, and details of household choices among different investment options with different effective tax rates, to confidently measure the relative effects of the two options.

John Freebairn, Professor, Department of Economics , University of Melbourne

This article was originally published on The Conversation. Read the original article.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of Sira Anamwong at FreeDigitalPhotos.net

Understanding Currency Exposure When Investing Overseas in your SMSF

Recent swings in global currencies have brought exchange-rate risk back to the forefront for investors with overseas exposure in different currencies. Currency risks are risks that arise from changes in the relative valuation of different currencies. These changes can create unpredictable gains and losses when the profits or dividends from an investment are converted from a foreign currency back into Australian dollars.

Any investor who holds stocks, ETFs with the likes of iShares, Vanguard or SPDR or managed funds such as Magellan Global Fund in their SMSF portfolio that invest outside Australia will have some exposure to foreign currency, and where the Aussie dollar exchange rate goes will have an effect on these SMSF portfolios. For instance, a strengthening dollar could negatively impact foreign stock market returns and you should consider this risk in portfolio design.

Interest rates are critical, because when a country’s rate rises, in many cases, so does its currency. Or in our case if the US interest rate rises or at the moment is being held unexpectedly lower by the Us Federal Reserve, our currency’s exchange rate can fluctuate wildly in response to another government’s actions.

Up until recently, this wasn’t much of a worry for Australian investors. Rates were low, the Aussie dollar was getting weaker coming down fro its peak near $1.10 to the US$, and people made money by investing in foreign assets.

Going forward that may not be so easy so its is important for Self Managed Super Fund investors to understand currency exchange risk.

Here is a good video from Blackrock iShares explaining how currency exposure affects returns on international investments.

Now you should note you can also find Currency Hedged ETFs and Hedged Managed funds (as opposed to a Hedge Fund which is totally different) that can help you easily manage the effect of currency on your investments and can be paired with their unhedged counterparts to tailor currency risk while maintaining consistent equity exposure. Of course there is a cost to implementing this protection but that is what good portfolio risk management is all about.

Do you want some more education on why you should consider international investments as part of your SMSF portfolio? then please check out this previous blog about investing internationally via your SMSF.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on March 31, 2016 • Permalink

Posted in International Investing, Investment Strategies

Posted by SMSF Coach - Liam Shorte on March 31, 2016

https://smsfcoach.com.au/2016/03/31/understanding-currency-exposure-when-investing-overseas-in-your-smsf/

When your Husband Retires and the Nightmare Comes True

I deal with a lot of couples where one spouse has retired well in advance of the other and has established a routine or habits they are comfortable with and enjoy. The working spouse is often totally engrossed in their career or business with little else in the way of interests or hobbies. When they do eventually retire they can not only struggle to make the most of the free time, but they can also destroy the lifestyle their parter has come to enjoy.

This letter printed in Newsweek in 2004 sums it up better than I ever could and should be a warning to you to ensure your spouse or partner regardless of gender, has interests that extend beyond their working life.

THE ‘GOLDEN YEARS’ ARE BEGINNING TO TARNISH

My worst nightmare has become reality. My husband retired. As the CEO of his own software company, he used to make important decisions daily. Now he decides when to take a nap and for how long. He does not play golf, tennis or bridge, which means he is at home for what seems like 48 hours a day. That’s a lot of togetherness.

Much has changed since he stopped working. My husband now defines “sleeping in” as staying in bed until 6 a.m. He often walks in the morning for exercise but says he can’t walk if he gets up late. Late is 5:30. His morning routine is to take out the dog, plug in the coffee and await the morning paper. (And it had better not be late!) When the paper finally arrives, his favorite section is the obits. He reads each and every one–often aloud–and becomes angry if the deceased’s age is not listed. I’d like to work on my crossword puzzle in peace. When I bring this to his attention, he stops briefly–but he soon finds another article that must be shared.

Some retirement couples enjoy this time of life together. Usually these are couples who are not dependent on their spouse for their happiness and well-being. My husband is not one of these individuals. Many wives I’ve spoken to identify with my experience and are happy to know that they’re not alone. One friend told me that when her husband retired, he grew a strip of Velcro on his side and attached himself to her. They were married 43 years and she hinted they may not make it to 44. Another woman said her husband not only takes her to the beauty shop, but goes in with her and waits! Another said her husband follows her everywhere but to the bathroom… and that’s only because she locks the bathroom door.

When I leave the house, my husband asks: “Where are you going?” followed by “When will you be back?” Even when I’m at home he needs to know where I am every moment. “Where’s Jan?” he asks the dog. This is bad enough, but at least he hasn’t Velcroed himself to me–yet.

I often see retired couples shopping together in the grocery store. Usually they are arguing. I hate it when my husband goes shopping with me. He takes charge of the cart and disappears. With my arms full of cans, I have to search the aisles until I locate him and the cart, which is now loaded with strange-smelling cheeses, high-fat snacks and greasy sausages–none of which was on the shopping list.

Putting up with annoying habits is easier when hubby is at work all day and at home only in the evening and on weekends. But little annoying habits become big annoying habits when done on a daily basis. Hearing my husband yell and curse at the TV during the evening news was bad enough when he was working, and it was just once a day. Now he has all day to get riled up watching Fox News. Sometimes leaving the house isn’t even a satisfying reprieve. When I went out of town for a week and put him in charge of the house and animals, I returned to have my parrot greet me with a mouthful of expletives and deep-bellied belches. It wasn’t hard to figure out what had been going on in my absence.

Not that my husband has any problem acting out while I’m around. He recently noticed that our cat had been climbing the palm trees, causing their leaves to bend. His solution? Buy a huge roll of barbed wire and wrap the trunks. After wrapping 10 palms, he looked like he had been in a fight with a tiger and the house took on the appearance of a high-security prison. Neighbors stopped midstride while on their daily walks to stare. I stayed out of sight. In the meantime, the cat learned to negotiate the barbed wire and climbed the palms anyway.

It is now another hot, dry summer, and the leaves on our trees are starting to fall. Yesterday my husband decided to take the dog out for some fresh air. They stood in the driveway while he counted the leaves falling from the ash tree. Aloud. Another meaningful retirement activity.

I think my husband enjoys being at home with me. I am the one with the problem. I am a person who needs a lot of “alone time,” and I get crazy when someone is following me around or wanting to know my every move. My husband is full of questions and comments when I am on the phone, working on my computer or taking time out to read. It is his way of telling me he wants to be included, wanted and needed. I love that he cares–but he still drives me up the wall.

I receive a lot of catalogs. In one there is a pillow advertised that says grow old with me. the best is yet to be. Another catalog has a different pillow. It reads screw the golden years. Right now it’s a tossup as to which pillow will best describe our retirement years together. Just don’t ask me while I’m working on my crossword puzzle.

Zeh lives in Houston.

Do you get the point I am trying to get across? Retirement takes as much planning as working years. You still have to fill all those waking hours previously filled with commuting and work. If you don’t plan ahead and ensure your partner does too then you could end up destroying both of your retirements and often your relationship. It is no surprise that their has been a rise in what is term “grey divorce as couples find themselves with an empty nest and only each other for company. We start planning the transition to retirement with clients 5-10 years out to ensure they have covered off all facets of their retirement needs. That’s what a professional planner covers rather than just an investment advisor.

retirement

For some ideas and a list of organisation for retirees to suit all interests you should visit The Seniors Information Service here . They also have some great ideas on Leisure, Lifestyle and Travel

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of stockimages at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on March 20, 2016 • Permalink

Posted in Divorce, Lifestyle, Retirement Planning

Tagged Baulkham Hills, Castle Hill, Cost of Living, couples arguing, DIY Super, Dural, empty nesters, golden years, grey divorce, income planning, living together in retirement, pension phase, protection, Retirement, retirement lifestyle, Retirement Planning, Self Managed Superannuation Fund

Posted by SMSF Coach - Liam Shorte on March 20, 2016

https://smsfcoach.com.au/2016/03/20/when-your-husband-retires-and-the-nightmare-comes-true/

SMSF Coaching – Best Performing Asset Class Annually for Last 20 Years

Do you know which asset sector performed best last year, the year before? Do you think those results will guide you for next year? Think again. I don’t think many SMSF Investors would have guessed Australian Listed Property would have been the strongest in 3 out of the last 4 years but in 2016 was a disappointing underperformer. Many burnt in the property sector in the GFC had avoided it like the plague and missed some of the upside.

Franklin Templeton Austalia’s annual asset class ladder for 2016 is a great tool to visualise how each asset class/sector has performed over the last 20 years and pour water on ideas that we can reliably predict next years winners.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on March 14, 2016 • Permalink

Posted in Asset Allocation, News & Stats

Posted by SMSF Coach - Liam Shorte on March 14, 2016

https://smsfcoach.com.au/2016/03/14/smsf-coaching-best-performing-asset-class-annually-for-last-20-years/

Are you ready for a modern retirement?

Smiles may hide underlying stress

Until recently, I tended to base retirement planning strategies for clients on a book from the late 90s titled The Prosperous Retirement: Guide to the New Reality by Michael Stein.

Stein divided retirement into 3 stages. Each of these stages affected spending patterns differently, so we could plan for clients’ needs at each stage.

Under the accepted system, the first stage is the Active stage — those first early retirement years when most people are looking to see the world (or at least Australia) and/or engage in other active pursuits. They’ve suddenly got 50-60 more hours per week of free time and are still healthy enough to get out there and make the most of life and opportunities.

The second is the Passive stage — a time when they still look forward to some travel and active pursuits but, with the onset of age-related injuries and illnesses, just not as often as when they first retired. Maybe they’d take shorter trips around parts of Australia rather than long overseas trips through three countries at a time.

Then, eventually retirees move into the last stage, the Sedentary stage, when physical or mental limitations — or setbacks like the death of a spouse or close friends — lead to a much more sedentary, home-based lifestyle. It may also involve losing independence and increasing dependency on others.

The new stage of retirement

In my experience, I’m seeing a new stage of retirement forming, that can have a major effect on people. This new stage has to be managed carefully.

It happens between just retired and the first stage, the Active stage. I call it the Family Support stage.

This is a stage where more and more newly retired people are finding themselves as almost full-time carers for their grandchildren, meaning they cannot plan to travel, undertake volunteering or pursue personal activities due to commitments they make to help struggling children.

This is not the traditional, one-day-a-week “day with nanny and pop,” but a full on five, sometimes six-days-a-week commitment. Often this commitment comes the added cost of taking care of the grandchildren. The costs may not be recovered from their parents, who are often battling a huge mortgage and/or an expensive lifestyle, so the grandparents pick up the tab and deplete their own savings in doing so. You just need to plan for these expenses that can blow out a retirement budget.

I am not saying this is a major negative, as many people cherish time with their grandchildren and would not swap it for the world. However, as a result, they need to be aware that too much time spent in the initial Family Support stage may mean they miss out completely on the most active years of retirement. Some of us may move into the Passive and Sedentary stages much sooner than expected due to illness, and in reality, some of us may not live to reach the later stages.

I usually urge clients to put limits on the commitment to family and put aside “me time” throughout the year for some personal travel and other activities. This does not mean going on holidays with the family to be the babysitters while parents relax. I often recommend that you ensure that Fridays and Mondays are free so you can go away for long weekends so make sure your children know this upfront so they can plan what days they need alternative arrangements.

It is important to put these limits in place at the outset, as kids may come to rely on the arrangements and so they are hard to reverse later. If people do not plan, then they can end up at the wrong end of their 70s with no energy left to embark on their dream retirement.

What do you think? What are your arrangements like in the family? Are child care costs bringing you down? You can comment if you scroll down further.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of photostock at FreeDigitalPhotos.net

2 Comments

by SMSF Coach - Liam Shorte on March 5, 2016 • Permalink

Posted in Lifestyle, Retirement Planning

Posted by SMSF Coach - Liam Shorte on March 5, 2016

https://smsfcoach.com.au/2016/03/05/are-you-ready-for-a-modern-retirement/

12 Triggers to Review your Legal Documents or Estate Planning Arrangements

OK I am going to be a bit morbid today but based on the lack of preparation by many new clients I think we need to talk death, mental incapacity and other things legal. Why me? Because for some reason many seem scared of lawyers so I want to give you good reasons to overcome that fear!

When did you last review your will, your enduring power of attorney (“EPOA”) and your appointment of enduring guardian (“EG”) documents and of course your SMSF Trust Deed.

As a financial planner we recommend you personally review these documents every 3 years and have a solicitor review them every 5 years. Just take them out (if you haven’t forgotten the “safe place” you put them!) and have a look through them after considering changes to you family circumstances including the following triggers.

So here is a list of the changes to your circumstances that should prompt you to review these documents as soon as possible and which may even require you to create new documents or update existing ones.

These changes include:

1. Setting up an SMSF or making a large or non-standard investment via your SMSF

Ok as a SMSF blog you know I had to deal with this first. When you first set up an SMSF you may have been told to read the deed but did anyone tell you it’s essential to appoint your Enduring Power of Attorney to ensure the SMSF can continue to run smoothly if your health deteriorates.
If you decide to make an unusual investment or loan or arrangement in your fund the you must first know that your SMSF Deed and Investment Strategy allows such a move. So read the SMSF deed and have a written SMSF investment strategy.

2. Marriage automatically revokes a will, unless the will was made in contemplation of marriage. After you marry, you should make a new will.

Your Power Of Attorney is not revoked by marriage. If your EPOA was signed before your marriage it is still effective. However, if, for example, your EPOA appointed your former spouse, you may wish to formally revoke the EPOA and make a new EPOA appointing another person as your attorney.
Your appointment of an Enduring Guardian is revoked on marriage even if you appointed your current spouse as your EG. After marriage, you need to sign a new appointment of EG document.
If you wish to bring your new spouse into your SMSF then you need to follow the rules of appointing a new trustee or director and accepting a new member. Read the deed and the company trustee constitution. Don’t forget to notify ASIC.
Check your Binding Death Nomination and any reversionary pensions.

3. Separation

Unlike marriage, separation does not affect the validity of your will. As a result, there have been several cases where a couple have separated, one spouse has died after separation but before the divorce and their former spouse has been entitled to the whole of their estate either due to their failure to update their will after separating or by not having any will in place at all and the rules of intestacy applying in favour of their former spouse.
Similarly, your EPOA and EG documents will not be affected by separation. You should consider whether you need to revoke the existing appointments and make a new EPOA and appoint a new EG after separating
There maybe some allowances for the transfer of SMSF assets in the event of a finalised property settlement and again you need to understand the exceptions that apply once the financial/property settlement has been agreed and signed off and read the deed before assuming you can move or split assets.
Check your Binding Death Nomination, insurance nominations and any reversionary pensions

4. Divorce

I know I am repeating myself but Check your Binding Death Nomination , insurance nominations and any reversionary pensions.
There are specific rules allowing the transfer of SMSF assets in the event of divorce without triggering CGT or Stamp Duties and again you need to understand the exceptions, the process and read the deed before assuming you can move or split assets.
Divorce does not revoke your EPOA or EG documents appointing your former spouse. In order to cancel these appointments, you need to sign a revocation and serve it on your former spouse.
Divorce only revokes or cancels any gift made in your will to your former spouse. It also cancels your spouse’s appointment as executor, trustee or guardian in your will. It does not cancel the appointment of your former spouse as trustee of property left on trust for beneficiaries that include the children of you and your former spouse. However this will not apply if the Court is satisfied you did not intend to revoke the gift or the appointment by the divorce. Instead of leaving these matters to the Court, if you have not made a new will after separating, it is imperative that you make a new will as soon as possible after your divorce.

5. Birth of an additional beneficiary.

This is likely to necessitate a change to an existing will unless your solicitor has catered for future arrivals. This is another care where being too specific can require frequent updates and legal fees.

6. Death of a spouse, an existing beneficiary, your executor, your attorney or your EG.

Review your will, Enduring Powers of Attorney and Enduring Guardianship, Binding Death Nomination, insurance nominations and any reversionary pensions.
Do you need to appoint a new individual SMSF trustee or director to keep your SMSF compliant?

7. A change to the needs of your children or grandchildren

Review your will and look at Testamentary Trusts or Special Disability Trusts. Last thing you want is for your beneficiary to lose their Disability Pension because of an inheritance.

8. A material change in your financial circumstances.

Have you sold or transferred assets that would have formed part of your estate? Make sure you have not mistakenly left someone with nothing.
If you have been bankrupted or considering filing for bankruptcy then you will not be able to continue as a member of your SMSF. You need to look at rolling to a Small APRA fund or a retail fund.
You also need to have your own parents if still with us to reconsider any direct inheritances to you as your creditors may grab them.

9. A breakdown in a relationship with relatives or friends who you may have appointed as:

the executors of your estate;
beneficiaries under your will;
guardians of your minor children; and/or
your attorney or your EG

10. The decline in health or some other change of circumstances

For example bankruptcy of a child (let’s face it, everyone under 30 thinks they are an entrepreneur and that’s going to lead to trouble!) so that, for example, a beneficiary under your will may no longer be able to manage their own finances,
The person you appointed as your executor, your attorney or your EG may no longer be suitable or capable of administering your estate or managing your affairs or making personal decisions for you.
If it is you or your spouse who have been diagnosed with onset of dementia or Alzheimer’s for example then you need to decide if you should have your EPOA step in now rather than later to help manage your self managed superannuation fund.

11. Retirement

Retirement often results in people restructuring their affairs. This is an ideal time to be proactive in your estate planning and possibly consider setting up tax effective arrangements through your will that you have not done previously.
Have you started a pension in your SMSF? Have you documented it properly including a reversionary pension election or Binding death nomination?
Have you sold assets like a business premises or investment property previously allotted to someone specific in your will? Are they losing that benefit!

When any of these events occur, you should review your SMSF and estate planning documents and, if necessary, create new documents taking into account the relevant change of circumstances. Don’t be afraid to ask advice but make sure you are dealing with a specialist in each area.

If you have been paying attention you will notice I said “12 Triggers”. Well I’ll leave the 12^th for you to add in the comments section below. Come on I must have missed a few and I know some really sharp minds read this blog so help us out! I will add the best one to this list after a month or add my own, so why not subscribe to the blog in the “Free email updates” section on the left hand-side of the page.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Adapted from an original article “Time for an estate planning “check-up” by BWS Lawyers

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

1 Comment

by SMSF Coach - Liam Shorte on March 2, 2016 • Permalink

Posted in Checklists, Estate Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on March 2, 2016

https://smsfcoach.com.au/2016/03/02/12-triggers-to-review-your-legal-documents-or-estate-planning-arrangements/

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Liam Shorte

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All posts tagged Retirement Planning

Contributing the proceeds of downsizing your home to superannuation (or just taking advantage of strategy if moving house)

Social security changes

First home super saver scheme – talk to us about how you can use this to help your children or grandchildren

Bank levy may hit dividends or term deposit rates

PROPERTY INVESTORS

Integrity of limited recourse borrowing arrangements

Integrity of non-arm’s length arrangements

Disallow certain deductions for residential rental property

Other matters: Energy Assistance Payment

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Overview of super changes

Law Companion Guides

Super changes Q&As

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What are the changes?

Limits on amounts that can be transferred into retirement income streams

Excessive balances can remain in superannuation

Earnings on assets supporting transition to retirement income streams will be taxed within super

Look for opportunities to change from a transition to retirement income streams to a full account based pension

Summary

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Conversations need to start with YOUR advisers and administrators to check whether:

Why are TTR pensions still relevant and for whom

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Self-Managed Super Fund (SMSF) Deeds previously required updates in:

The 15 changes to SMSF Deeds required after the 2016 Budget are to:

Why does my SMSF Specialist Advisor / Accountant want to apply these SMSF updates?

Pre-2012 SMSF Deeds fail to deal with these 10 issues:

There is no risk of resettlement

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Number of new SMSFs setup each year rising again.

SMSF trustee type

Size of SMSF sector

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The Importance of Projections in Developing Retirement Strategies

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Income tax affects households differently

Company tax cuts can impact wages and investment

Personal tax cuts promote productivity

The difference is in the timing

Models don’t have the answer

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The new stage of retirement

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