tweaking your super nick bruining cfp, b com, dip fp, cpl(h), ffpa, faicd, apmesa authorised...
TRANSCRIPT
InvoCareTweaking Your Super
Nick BruiningCFP, B Com, Dip FP, CPL(H), FFPA, FAICD, APMESA
Authorised RepresentativeN.C. Bruining & Associates Pty Ltd
AFSL 245514
Slides download from :www.ncba.com.au/downloads
The information provided in today is of a general nature only. It is not personal specific financial advice.
You should not:Take any action
Dispose of any investment or assetPurchase any investment or asset
Rely on the information contained in this presentation without first seeking professional advice based on your own specific situation.
The information may contain errors or omissions whichcould significantly impact your position.
WARNING
SUPERand account
based pensions
$1,800,000,000,000
What is super ?A series of rules which, if followed,
provide relative tax and Centrelink benefits
Rules set out in a Trust DeedComply with the SIS Act (and others)
Two ComponentsThe “Box” that holds the investments
The underlying investments in the fund
Super and account based pensions
Dealing with relatively simple structures
Extra Complexity usually means extra costsExtra Complexity often equals extra risk
Your Super invests into these areas
DepositsCash, Term Deposits, Bonds
Real EstateResidentialCommercial
Business InvestmentsDirectShares
Investments and how they “work”
Measuring Return
The componentsIncome - where a payment is received in the year
InterestSometimes expressed as yield
Growth – where the value of the asset grows Gold
Vacant Land+ 1 Year, expressed as compound return Most investments combine both
PropertyShares
Deposits
Online AccountsCost Savings §
SecurityIntroductory Rates ∆
Getting the best dealswww.canstar.com.au
DebenturesLoans from the general public
Rates generally higherMuch higher risk
Need to understand where the money ends upIs the loss of every last cent of your money worth an
extra percent or two?
Spread the risk
Investments and how they work
BondsLoans to governments and
corporationsPrimary and Secondary Markets
More Bonds than shares
More developed market in the USDeterminants
Coupon ratePrevailing Rates
DurationRisk
Investments and how they work
Real EstateDirect
ResidentialLarger Market – more customers
On costs carried by ownerYield typically 3 – 5 %
CommercialSmaller Market – fewer customers
On costs passed onto tenantsLonger term leases
Yield typically 7 – 9 %
Investments and how they work
Real Estate
ProsTangible
Easily understoodSet and forget
Highly developed support industryHas shown good growth over time
ConsLarge Capital OutlayConcentration Risk
IlliquidInefficient Market
Growth is not consistent
Investments and how they work
Business Investing/SharesWhat is a share?
Pays out profits as dividends ∆ Value of share moves up and down with value of company
Many, many influencesAustralian
InternationalSpecific and Systemic Risk
Managed through diversificationMinimum 8 stocks in portfolio
Investments and how they work
Shares
ProsSmall holdings possible
Generally liquidEfficient market
ConsIntangible
RisksEfficient Market
It IS a business with assets
Investments and how they work
Alternate Vehicles to invest
Trusts (or how your super invests your money)
Significant DiversificationBut can have specialisation
Trustee/ManagerOpen Ended ie: they issue more units
Flow through of benefits §
Active or Passive ManagementCosts of Trusts
RetailWholesale
Investments and how they work
Cost of Trusts / Managed Investments
Equally applies to superannuation fundsAsset allocation, Fees,
Then competence determines returnsAll transaction costs are immediately recoverable
Trustee Fee0.1% – 0.3% (Usually in Invest Mgt Fee)
Investment Management fee
0.25 % (cash) – 2.5% per annum ∆ 1.8% Retail 1.0% Wholesale
Investments and how they work
Cost of Super / Managed Funds
Platform Fee
Typically 0.3% - 1.5% (1.0%) ∆ Adviser Fee (can be inc above)
Typically between 0.2% - 1.0% (0.55%)So what’s it costing ?
Platform Cost 1.0%Investment Fee 0.8%
Adviser fee 1.0%Total Cost 2.8%
Australian Super ? ~ 1.2 % per annum
Investments and how they work
Asset Allocation
The amount you allocate to each investment sector
Varies as your priorities and life expectancy changes
Investments and how they work
Time Frame v RisksShort Term 0 – 2 yearsCash & TDs
Medium term0 – 5 years
Blend of deposits and growthLonger Term5 years plus
Growth, shares property
Investments and how they work
Diversified FundsLook at the underlying asset allocations
One person’s balanced is not another’s
Strategic and Tactical Asset AllocationsStrategic: Benchmark
Tactical: Ability to deviate from benchmarkCan shift your exposure dramatically
Investments and how they work
The biggest mistake....Basing an investment decision on what’s just
happenedYou must assess the current and future
conditions not what’s happened. It may have an influence, but won’t define
Markets Up? Inflow significant
Markets down? Out it goes!
Investments and how they work
Tricks of reporting
Measuring Returns
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Tax explanationsThe two phases of operation
AccumulationMoney goes in
Money is ParkedEarnings taxed at 15%
Pension Money comes outEarnings tax - nil
Super and account based pensions
Putting Money InContribution Rules
Eligibility
Age up to 65Breathing
Over 65-74 40 hours in a consecutive 30 day period
Over 75 No
Super and account based pensions
Concessional Someone’s getting a tax deduction
= 15% tax on contributionsCompulsory 9.50%, Super Guarantee
Salary SacrificeRedirecting pre-tax to super
eg.earning $70,000 paRedirect $20,000 to superBoss calculates tax on $50,000
Not compulsory to be offeredBeware of contributions under $18,200
Super and account based pensions
Non Concessional
No Tax deduction claimed= No Contributions taxAge Still Limits apply
Contribution Caps
Under 50 = $30,000 concessional #
Over 50 = $35,000 concessional
Excess returned less marginal tax rates
Non Concessional $180,000Bring forward 3 years if under 65
Super and account based pensions
Other Contribution Incentives
Co Contribution § $34,448 for each $1, max $500
Reducing at 3.33c per dollar $49,448 – must be non concessional
Links up with Tax Return
Spouse Offset18% up to $3,000 =
Reduces over $10,800 to $13,800
Super and account based pensions
GETTING IT OUTConditions of release
DeathTPD
Severe Financial HardshipReaching Preservation Age
55 if born before 1/7/1960 – TaxableExempt – Exempt
Lifetime $185,000 #
Super and account based pensions
60 if job ceases - Exempt65 if fund permits
No compulsory cashingTransition to retirement Account Based Pension
Super and account based pensions
GETTING IT OUT (cor)
Account Based Pensions
Reverse of Super- What we do at retirement
Frequency, what you want Take out rate + earnings determines
how long it lasts.Tax Free on EarningsTax Free if over 60
Tax under 60 Exempt/Taxable X Payment (at start date)
Super and account based pensions
eg. $200,000 fund, $50,000 exemptPayment of $1,000
50/200 X $1,000 = $250 exempt150/200 X $1,000 = $750 taxable
But 15% tax credit
Super and account based pensions
ABP DrawdownMust Take out minimum amount
< 65 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9%
90-94 11% 95 or more 14%
Super and account based pensions
Transition to Retirement Max 10% of Account Balance
Restriction relaxed on Condition Of Release Income from ABP effectively funds
increased Salary Sacrifice to super.Pros
Nil Tax on ABP’s EarningsCons
Requires you to draw-down ABP
ABP Drawdown
In RetirementHow much do you need?
Example John and Mary, both 65
Need $45,000 paHave $260,000 in super, $7,000 savings
$130,000 car and contentsUse Account Based Pension
$250,000 x 5% = $12,500Under Centrelink Income test
= $250,000/18.54 (life expectancy) = $13,484 deducted from actual payment received.
$12,500 - $13,484 = NIL
Below $284 per fortnight allowedIncome Test – Nil
Asset test, Under threshold of $284,000 ?ABP = $250,000
+ Money in the Bank $7,000+ Car and Contents $20,000 (Use Scrap value Not
replacement)Total Centrelink Assets $277,000
Asset Test - NilFull Pension of $33,035.60 per annum
Add ABP Payment of $12,500 per annumTotal = $1,751.37 pfn or $45,535 pa & No tax! ($55,940)
Or same as $1,138,375 @ 4%
How much do you need?