How to manage your wealth through super at any age

The new super environment that came into effect on 1 July this year presents both challenges and opportunities, but no matter what stage of the super journey you’re in, we have tips to help you make the most of your wealth under the new super rules.

If you’re in retirement, keep a close eye on your balance

When you hit the retirement pension phase, you are now subject to a transfer balance cap of $1.6 million. This means you need to keep a close eye on your transfer balance account to optimise the tax-free amount you invest – both now and into the future.

The tax office keeps track of this via a ‘debits and credits’ system. Common credits include your retirement pension balance at 30 June 2017 and any future monies moved into the pension phase. Common debits—which increase your available cap space—are super fund rollovers or lump sum withdrawals. There are several events that may impact your transfer balance account, so if you’re unsure or your balance is hovering near $1.6 million, talk to your financial advisor.

Any future withdrawals you make in excess of the mandatory age-based minimum will need to be carefully allocated to take into consideration your transfer balance account, taxation and social security. While lump sum and pension withdrawals are both possible, failing to determine the most suitable option may adversely impact your transfer balance account.

Careful planning is important, especially in regard to succession planning to maximise the tax-free amount of your pension that may be inherited by your spouse.

If you’re still working or earning any income, look for avenues to add to super

Even in this new super world, it remains highly attractive to build wealth through super where a maximum tax rate of 15 per cent applies to your earnings. With lower contribution limits and the inability to make non-concessional contributions once your balance reaches $1.6 million, if you’re still accumulating your wealth, you will need to be more strategic in your approach to build a strong level of super over the longer term.  Consider speaking to your advisor about ways to:

  • Understand your cash flow, savings capacity and strategies to allocate the excess

For example, this could be to grow super, reduce debt or work towards achieving another financial goal. Excess cash flow is the base for wealth creation and the sooner you start, the greater your super may grow.

  • Get your structure right from the start

Whether it is investing through a self managed super fund (SMSF), family trust or in your personal name; making an investment in the most suitable structure can set you up for the long term and may provide significant tax, asset protection and succession planning advantages.

  • Equalise your super balances with your spouse

We often encourage couples to consider evenly splitting their super, and new rules, such as the $1.6 million cap on tax-free pensions that apply on an individual basis are a great example of why. There are complexities in achieving equal balances due to several factors including age, retirement status, tax and family considerations. Working through these with your financial advisor will help you to structure your investments tax-effectively for the long term.

Encourage your children to consider their financial future now

It’s important for younger savers to start their planning now. The challenge is finding the right balance between existing commitments, achieving goals such as home ownership and planning earlier for long-term financial freedom. The super reforms afford less flexibility to ‘top-up’ super savings later in life, which may lead to hard-earned savings accumulating in a less concessional tax environment.

If your family has a goal to seamlessly transfer wealth over time to the next generation, you may benefit from strategies that help your adult children grow their own super, while they support ongoing commitments from income. This can save your children some tax immediately and ensure assets accumulate in super’s tax-effective environment.

It’s also vital to help them establish the right structures from the start – this may be as simple as consolidating super to avoid multiple sets of fees, or helping your children build a good level of super where they can take control through their own supported SMSF.

An effective intergenerational plan should also promote financial literacy and engagement with personal finances. Helping your children to develop their financial knowledge as well as having an open discussion around effective strategies (such as your SMSF and estate planning arrangements) sets the foundation to protect your family wealth in the long term.

This insight may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct.

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Daniel Gumley

Associate Director

As a member of the Melbourne Family Wealth Management team, Daniel provides tailored, strategic financial advice to his clients and assists Executive Chairman Daryl Dixon with his Melbourne based clients. He has expertise in superannuation (including SMSFs and defined benefit funds), tax-effective wealth accumulation, retirement planning and redundancy advice.

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