Investment inside and outside Superannuation is a good mix.
Retirement income should be inside and outside superannuation. We commonly see a mismatch of this and between the income for a husband and wife leading up to retirement. This common mistake is not taking full advantage of the need to diversify the source of your income and it is not taking advantage of the $18,200tax free threshold to which every Australian adult is entitled. A sum of $400,000-$500,000 would need to be invested to generate the 18,200 tax free threshold. This investment outside of super provides good flexibility to the level of income that can be taken, when the income could be generated, control over the capital growth that could be accumulated and the rate at which the capital could be spent. Superannuation offers less flexibility but good tax advantages.
Superannuation can provide a tax free pension in retirement once the recipient is 60 years of age. This can be very convenient and beneficial but there are some disadvantages. The disadvantages are that the level of pension that is required based on ones’ age increases with the increasing age of the pension account owner. The result of this is the reduction of capital over time because the pension amount after the first few years will need to be greater than the income earned. This may not be a disadvantage to some people but where the individual is required to take a minimum pension that is more than they require funds are being pulled out of the tax free earning environment and being pushed into investment outside of superannuation.
It is for this reason/s that we believe it is beneficial to have investment funds outside of super together with some funds invested inside the superannuation/pension system. Politicians and legislation have been regularly altering the superannuation rules. Super is still a very good tax environment to invest for your retirement and to receive a regular pension in retirement but you never know what changes lie around the corner. One comfort that investors can take is that superannuation is in the national interest of Australia to continue to encourage participation in the super system to prevent a larger drain on the Centrelink system. Investors can therefore take some comfort that it will need to continue to be a beneficial investment opportunity.
Australia remains one of the most progressive counties in the world for super /retirement investment advantages. Hedging your bets is a good alternative to have funds invested outside and inside superannuation.