Setting up a super fund serves purpose-afuture so you know where you're headed. You cannot put a price tag on your future. With a concrete objective in mind, you can undertake the essential task of estimating what your goal of setting up a super fund for the future will do for you. And if your goal is affording a comfortable retirement, then this article will point you in the right direction.
A good rule of thumb is to figure that you will need 70% to 100% of your preretirement income. Do you plan to live the life of a world traveler, a happy homebody or perhaps something in between: someone who takes occasional vacations? Will you stay in the home you've got or move to some place less expensive? Your answers to questions like these will determine your overhead and how much you need to travel, shop and enjoy your life. You may need to factor in other elements, too: By the time your retirement rolls around, the kids will probably be on their own, and other expenses such as mortgages and car payments should be in hand--but it's good to keep them in mind.
How large a nest egg you ought to have when retirement begins depends in part on how many years you can reasonably expect to live as a retiree. And how much you can amass in advance depends on how long and how much you have to invest and how successfully you do it. Other factors to consider: investments you've already made sinece you first began working.
Investments you've make in superfunds will grow in the years to come and help you live your retirement years the way you desrserve too. You worked hard all your working years, “don’t you think you’re entitled to have a taste of the good life?”
Millions of Australians can now choose the super fund that works best for them. It is your money, you should have a say in where it goes.
Three Key tips to remember:
1. Decide what you really want, and focus on your most important goals.
2. Start saving now: you can start small and increase your savings gradually (they will grow with interest, too).
3. Always check the facts: ask questions and get professional advice. If you are not comfortable or do not understand, do not go ahead.
Here are some key super tips:
STEP 1: CREATE A PLAN:
You can invest successfully, especially as an Australian, because you can find markets, products and advisers that will help you achieve your goals. The idea of superannuation (super) is to save money over your working life so that you and your family have something to live on when you retire. You might also get Government beneﬁts like the age pension. Super also offers beneﬁts such as insurance, which can help protect you and your family if you should die or fall ill when you are working. Super funds are an excellent way to invest money for your retirement.
STEP 2: THE SUPER RULES
Thanks to the new rules, it now pays to pour as much as you can into your fund, especially if you are getting close to retirement because the rules, which start officially on July 1, 2007, scrap the unpopular reasonable benefits limit laws that put a cap on how much you can save in super before your benefits stop being taxed "concession ally". Under the new rules, your super fund can grow as big as you want it to. You won't have to worry about "concessional" tax treatment, because all super benefits will be tax-free, as long as you are over 60 and wait until after July next year.
STEP 3: THERE IS NO BETTER TIME THAN NOW
If you are going to throw large sums of money at your super fund, now is the time to do it. Do not hesitate, because although the Government says it is now OK for your super fund to grow to whatever size, it will not allow you to make personal, undeducted contributions of more than $150,000 a year from July 1 next year. There is always a catch. The good thing is that, as a transitional arrangement, you are allowed to contribute up to $1 million to super before the new rules come in next July. That gives anyone thinking about selling assets to prop up their super the chance to do it. However, it is an once-in-a-lifetime offer.
STEP 3: BORROW IF YOU NEED TO:
As a wealth creation strategy, borrowing a lot of money just before you retire would normally be frowned on. However, that changed when the Government said it would allow anyone to contribute up to $1 million to their super fund by July 1, 2007, before the new $150,000 annual cap comes into force. Many experts agree that borrowing money - even as much as $1 million - to make super contributions is a worthwhile strategy, albeit for a short time for a small number of individuals.
Typically, you would be someone planning to sell assets to contribute to super anyway, but unable to get your hands on the cash before July 1. Foe example, you may need to sell property, which could take some time.
By borrowing $1 million, you could make a big lump sum super contribution and repay the loan as soon as you sold down your assets and before interest costs mounted up.
Obviously, it is not for everyone.
Do not panic if you plan to make a big, one-off contribution to super but do not think you can manage it before the deadline. There’s still one loophole that you should be able to slip through if you are under 65.While the Government is limiting personal contributions to $150,000 a year after next July 1, it will allow those under 65 to make three years' contributions at once. In other words, you can put $450,000 into super in one go, but will not be able to contribute for the next two years after that. It is a handy loophole, particularly if you are selling property and want to pump the proceeds into your super fund. In addition, remember, if you own property or other assets jointly with a spouse, you can each contribute $450,000 from their sale into your respective funds. So, that's $900,000 in contributions you can get away with in one year, even when the official limit is $150,000.If you are over 65, you won't be able to bring forward the two years' contributions. In fact, to contribute at all you will have to satisfy the "work test" by being gainfully employed for at least 40 hours over a consecutive 30-day period.
How Much Do I Need to Invest?
Your first step towards an early retirement is to make sure that you have the fundamentals in place toward paying for your retirement. For most people, this means contributing the maximum amount possible to your super funds and taking full advantage of your employer's matching contribution, if any. These steps are particularly important for financing a retirement that could last for years longer than previous generations. One of the key aspects of the new super rules is that they no longer discriminate between pensions and lump sums. Under the old rules, there were tax penalties for cashing out super benefits as a lump sum rather than a pension. With the new laws, there is no tax on super benefits, regardless of whether they are taken as a pension or lump sum, as long as you wait until after July 1, 2007, and are over 60. Therefore, you are free to take your benefits as you see fit. On the other hand, are you? If your plan is to take a lump sum out of super and then invest it, remember that any earnings from the investment will be taxed at your marginal rate. Once the money is out of the super system, it no longer gets special treatment from the Tax Office.
STEP 4: DO NOT RUSH:
If you are 60 or over (or soon to be) and about to make a withdrawal from your super fund, think about waiting. If you can, you really should be holding on until July next year, when any money you withdraw from super will be tax-free.
If you have not turned 60, remember that the new super rules, including the ability to take benefits tax-free, will not apply to you until you do.
FOR THE SELF-EMPOYED:
If you work for yourself, superannuation has never looked better.
That is good news, because a common trap for people with small businesses is to pour everything they have into their business, leaving nothing for retirement.
The Government is hoping this will change under the new super rules, which include specific measures to encourage those who have their own business to save through super.
These measures include:
· For the first time, self-employed people will be able to claim a full tax deduction for all contributions to their fund from July 1, 2007, up to the maximum limit for employer contributions of $50,000. The existing rules allow only the first $5000 to be fully deductible, and 75 per cent beyond that.
· Under the new rules, self-employed people will be able to access the Government's co-contribution scheme from July 1. Previously, only employees had access to the scheme.
To top it off, the new rules allow the self-employed to contribute $1 million to super over their lifetime from the sale of business assets, which will not be included in the $150,000 annual limit for contributions.
THE NEW RULES
· All super benefits will be tax-free from July 1, 2007, for people over the age of 60.
· Reasonable benefit limit rules, which impose tax penalties if you save too much in super, will be scrapped from July 1.
· Undeducted, or personal, after-tax super contributions will be capped at $150,000 a year from July 1. As a transitional measure, $1 million can be contributed before July next year. Deductible contributions will be limited to $50,000 from July 1. Better incentives for the self-employed.
Super funds are the way to go and what more can you ask for than a guarantee to having a stable financial foundation that you know will be there for you when you retire.