Author: Jason Roccasalvo, Partner, TAG Financial Services
If your fund has a large portion of its investments held in cash or term deposits – beware! Unless you can justify this is for a strategic short term purpose, your fund is likely to attract the attention of the tax office. The ATO will be assessing whether you are actively managing the investments of the fund with the objective of providing for the long term interests of members and their beneficiaries.
The ATO’s recent focus has been around SMSFs having a well-rounded, considered investment strategy, and they are asking: “Can the trustees show a considered and formed strategy designed to reach the retirement needs of the fund’s members?”. It will be in very limited circumstances that funds with over 90% of their asset held in cash and term deposits are able to justify their decisions in truly satisfying the core objectives of providing for the retirement needs of its members.
In addition, simply providing investment ranges of 0 – 100% on various asset classes is not appropriate in the ATO eyes. The reality is it implies the trustees have not given any consideration to how the strategy will help achieve retirement goals for the fund’s members.
Consider this example
- 61 year old – retired
- $1.2M in super
- Drawing $90,000 p.a for living expenses
- Inflation of 3% p.a
- Investments earning 2%
The following graph shows that the money runs out in 13 years. It clearly demonstrates that the cash investment strategy is not in the long term interests of members (and the ATO would not be happy!)
In the next graph, the investment earnings increase to 6.4% and money lasts a further 11 years which roughly aligns with the life expectancy of the member (and the ATO would be much happier!)
As a SMSF Trustee, you need to be able to identify:
- What are the retirement goals of the SMSF members?
- What is the role super will play and how will it help you achieve your goals?
- What do you need to consider now to give yourself the best chance of meeting your objectives?
If you cannot articulate the answers to these questions, then you haven’t given it enough thought.
You can’t control the markets, but ensuring we are making the most of what we can control and influence, is crucial to meeting your retirement needs.
What should you do now?
Meet With Us
If you would like to discuss your investing options, we offer a 1 hour no obligation, complimentary consultation with one of our advisers to discuss your situation. Contact us to arrange a time.
Wealth Projections
Our most powerful tool for wealth creation, TAG’s Wealth Projection Tool will show you how long your money will last, is easy to understand, provides clarity and helps create targets and goals. Contact us to arrange a time.
If you have any other questions, please contact us on 03 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.