The new year and resolutions go hand-in-hand and yet, the maintenance of our retirement savings are often overlooked for more glamorous goals. Making a resolution to review your superannuation is not only worthwhile but crucial, as regular assessments are necessary to guarantee that your fund is fit for the end purpose: to ensure you can retire when you wish and live the lifestyle you desire to when you do so.
A review of your super is also critical in remaining compliant, both with your overall superannuation strategy and the relevant laws governing Australian superannuation.
This article will outline three key factors to think about in your super new year’s resolution including your retirement vision, investment strategy and compliance.
Determine your retirement vision
Here are four key questions that can help you convert your retirement vision into a reality.
- When will you retire and what lifestyle will you live?
Consider how long you can and are willing to work – you may need to account for unforeseen changes to your health, your current standard of living, interests, location and circumstances of your family and general life aspirations.
- What income/annuity is required to fund this lifestyle?
How much is your desired retirement lifestyle likely to cost? Make allowances for inflation – your like for like living costs between now and your retirement will likely change.
- How much capital is required to meet this income requirement?
Take a conservative approach – forecasting returns on capital at a minimum will ensure that your target balance is realistic and will comfortably generate the required annuity to fund your lifestyle.
- Have any of the above factors changed since your last retirement planning?
If any of the above have changed since your last super review, your strategy may need adjustment to keep you on track to achieving your retirement objectives. For example, you may need to increase your super contributions or target a higher return.
Set your super strategy
Ask yourself three questions when assessing your super strategy.
- Have you diversified your investments?
A diversified portfolio has a range of investments of varying types, markets and industries. Diversification can help prevent market volatility from devastating or damaging your savings and returns. Reviewing the extent of diversification of investments can help manage risk, especially for self-managed funds.
In your diversification strategy, consider the increasing importance of corporate social responsibility and sustainability in the contemporary business environment and the value and returns of different investments.
- Is the level of risk appropriate?
Your risk profile must be reviewed as the level of risk your willingness to accept risk will fluctuate according to your proximity to retirement and changes to your own risk appetite. Generally, people closer to retirement are more risk averse as they lack time to recover losses.
- Are the generated returns enough to achieve your retirement objectives?
Assess whether you are likely to meet your targeted capital balance in the anticipated timeframe by using the returns your retirement assets are currently generating as a guide. If there is a shortfall you may have to adjust your strategy or the timing of your retirement vision. You should have an achievable targeted capital balance that will provide the necessary income or annuity to fund the retirement you desire.
- Is your fund managed in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act)?
The SIS Act imposes strict requirements on the governance of superannuation. Of particular importance are the rules of SMSFs which cover:
- The purpose of the fund (sole purpose, core purpose, ancillary purposes),
- Membership and trustee rules,
- Contributions to the fund (what can be accepted and the different types of contribution) and
- Annual returns, record keeping, audit and actuary requirements.
The trustees of SMSFs must ensure that the fund complies with these requirements or risk substantial penalties and adverse tax outcomes. Engage a specialist in the provisions of the SIS act to ensure compliance with time consuming and complex legal obligations.
- Is your fund managed in accordance with the provisions of the trust deed and is this deed current?
An SMSF is governed by its deed, which is why the deed must be current and the operation of the fund is conducted in accordance with the deed. A review of the deed should be undertaken as part of your retirement review to avoid all-too-common breaches such as investment in assets excluded by the trust deed.
- Is all documentation complete?
Successful superannuation fund management includes the maintenance of complete and accurate records. Beyond the obligatory financial and tax records, documentation should be prepared to record all meetings, resolutions and decisions made by members and all dealings the members have with external parties.
If your record-keeping is incomplete, getting this up to date should be a high priority in your New Year resolutions.
All advice or recommendations for superannuation products must be provided by an AFSL holder. ESV holds this licence and can assist you in ticking this superannuation resolution off your list. Please contact us on 02 9283 1666.