Superannuation is not a product.
It is not a fund manager.
And believe it or not, superannuation has nothing to do with financial markets.
Superannuation is simply a taxation structure.
I know it’s probably not as fancy or pretty as what you were expecting to hear.
However, the superannuation structure is the lowest taxation environment that our country legally allows, and encourages, you to contribute funds into.
Many Australians maintain a negative view of their superannuation and choose to build their retirement assets in their personal name. This is likely to result in unnecessary tax payable.
Louise is 65 years of age. She currently holds $1,000,000 in term deposits and cash. At retirement Louise withdrew all her superannuation assets and contributed the funds to her bank account because her neighbour advised that superannuation was too unstable.
Louise lives off the investment income from her investments, all of which she owns in her personal name. Louise’s $1,000,000 of investments generates income of $75,000 per annum. As these funds are held in her personal name – they are taxed at marginal tax rates.
Given her age Louise is entitled to various taxation offsets, however she still must pay approx. $14,000 per annum in tax to the ATO. Based on current life expectancy tables, we estimate Louise will live at least another 21 years.
21 years x $14,000 annual tax liability = $294,000 tax payable.
Let’s assume the same $1,000,000 was held in the exact same bank account & term deposits, however it was structured within superannuation. Given her age, Louise could receive the same income of $75,000 and would pay $0 tax. Not a cent. She would not even need to submit a tax return.
The key concern for investors is the misconception that they have little or no control over their superannuation investments. This is definitely not the case.
As highlighted above, investment choice is the simplest part of managing your retirement assets. It’s the structure that remains critical.
Of course there are a variety of things to consider such as preservation, superannuation fees and diversification of investment assets. However from a very simple taxation perspective. Had Louise received appropriate advice prior to retirement, her personal tax liability could have been minimised considerably. The $294,000 would be for the benefit of her own retirement and not payable in tax.
Regardless of what you believe or have been led to believe about Superannuation, it is simply a taxation structure.
A vehicle to build retirement assets.
Nothing more, nothing less.
Disclaimer: Information contained within this article is of a general nature. Do not be rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.