With a financial planning background, I am used to asking people to reassess their needs and objectives as they encounter the major milestones throughout life, like marriage, taking on a mortgage, having children, funding education and funding their living costs while they set up their own business.
So, reaching retirement is another milestone when I encourage all SMSF trustees to review their own personal needs and objectives and ask themselves – and any partner – a few specific questions:
1. Why did we set up the SMSF in the first place?
2. Does an SMSF still suit our needs going forward?
3. What are our options and the costs for delivering on our needs?
Now, many of the people currently reaching retirement used an SMSF as part of their business strategy and tax planning. Often they used the super fund to purchase their business premises or warehouse when expanding the business. Well, if that was your main reason for having an SMSF and if retirement means that property will be sold, you need to consider whether an SMSF is still required and is right for you.
However, if that property is being retained then it is a matter of ensuring the overall investment portfolio can deliver on your income as well as lump sum future needs. Many family groups have the retired parents owning the business premises via their SMSF and receiving a very decent commercial rent from the younger generation to whom they have passed the business.
For some, retirement finally gives them ample time to really take an interest in their fund, read the financials, watch the investment programs, consider property, bullion, direct shares or other investments. They may wish to have more control of the investment and management decisions now and keeping or starting an SMSF can be an ideal vehicle for them to achieve those objectives. They should still explore their options to ensure an SMSF is right for them.
Others want a care-free retirement and have managed their fund, contributions, investments and tax planning to maximise their nest egg; now they want to enjoy it without having the ongoing administration or trustee responsibilities. It may be time for such people to consider an alternative option, such as a Pension Wrap, income stream from an industry fund, annuity or combination of these.
Some others will retain the SMSF but begin delegating more of the decision-making and administration. This is especially important if they wish to travel for extended periods or spend long periods away from home.
Some may be surprised that I have not mentioned age as a consideration, but in truth, 65, 70 or 75 really are no longer seen as old age and many people are still managing their funds well into their 80s and 90s. Health is a more important issue and if running the fund is becoming a burden or stressful or there is even a hint of the onset of dementia or similar health issues in one of the trustees then you need to consider alternative options and the suitability of your fund now rather than later.
So as you can see, it is not a one size fits all approach to retirement and your SMSF. You do need to explore your needs to consider what is right for you now that you are entering a phase where you are not tied to your work or home but require a reliable replacement income stream from your superannuation and confidence in the investments underpinning that income.
Liam Shorte, director, Verante
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