It's very important to remember that superannuation is, first and foremost, a structure. Regardless of market conditions it is important that you review your current financial circumstances to ensure you are receiving all of the benefits available to you.
The benefits of using a superannuation structure for investment include:
- Ability to make tax effective contributions, concessional and non concessional
- To commence a tax effective income stream depending on age ability
- Increased eligibility for Centrelink or healthcare cards
- Accumulation of wealth through savings
- Reduction of dependence on government benefits
- Reduction of tax on investment earnings and capital gains
- Providing asset protection from bankruptcy
- Providing Capital Gain relief on sale of business assets
Once the most beneficial structure is in place you are then able to decide where to invest the funds. It's your choice and you can choose the investments based on your own attitude and circumstances. You do not have to immediately invest in the stockmarket.
Many clients require education about investments, how they work, and why they may need certain asset classes. Remember, a person who retires at age 60 will probably live, on average, for another 20 years. So, not only do they require income but they need capital growth over their lifetime.
This needs to be taken into account when determining your circumstances. We also need to assess how much you will need to draw from your super fund to meet your income needs.
For example, if a client has $500,000 to invest and they require an income of $30,000 per annum we will recommend an asset allocation and investments that will return sufficient cashflow from investments to meet their needs ie 6%.
The recommended asset allocation may look like this:
As you can see, based on long term average income yields this asset allocation will generate sufficient income to meet the clients ongoing cashflow needs. Interestingly, in the current investment climate the income yields are actually higher as the share prices have fallen whilst the dividends and distributions have remained relatively steady.
The inherent benefit of this investment structure is that the client is not relying on asset growth to provide their income.
The investment of the funds into the recommended investments can take months as we determine the most appropriate time to enter the market.
It is also important to note that the client has $150,000 invested in defensive assets. This means that if all distributions and dividends stopped (highly unlikely) we would have sufficient available funds to continue their pensions for 3-4 years without having to sell one share.
The structure of a person's financial assets is the most important aspect to financial planning.
Every dollar of tax saved or benefit generated helps to smooth out the volatility over your 30 year plus investment time frame regardless of the asset class in which the funds are invested.
Principal, Financial Adviser
WHK Colac
Readers should not act on the basis of this information as the contents are of a general nature and do not reflect individual circumstances. Advice on these services is provided under licence of WHK Financial Planning Pty Ltd ABN 51 060 092 631 AFSL 238244.