Smart Retirement Plan: Discover the Inner Workings of an SMSF

By Ava Brown, February 8, 2017

We have the power to determine how our future will look like simply by making smart and timely decisions. Leaving everything to fortune is not always the smartest thing to do, so play it smart and take matters in your hands. Case in point – the golden retirement days. Make no mistake, it’s never too early to start thinking about your retirement plan. After all, the retirement age should be all about relaxing, enjoying your days and not stressing over a messed up financial situation. So think in advance and choose a smart retirement plan.

Superannuation Pension Phase

Sticking to a retirement plan early on can seem like a risky undertaking. However, a self-managed super fund can give you certain freedom to modify it according to your own wishes and under minimal government regulation. For example, you can choose the amount of contributions made, but they must not be less than the minimum standard established by the government.

The laws regarding this fund say that there has to be a minimum of two trustees and all of them are equally responsible and will be made accountable for every decision made. Another important requirement is that each year an audit has to be carried out by an approved SMSF auditor. The money in this fund can be used for retirement purposes only, and at no point earlier than that. After setting up an SMSF, you’ll go through two phases accumulation and superannuation pension phase (also called account based pension), and an optional phase in between called transition to retirement.

The accumulation phase is the active phase of an SMSF. It begins when you start working and lasts until you’re in your 50’s. In this phase try to earn as much as possible and make contributions to the super without spending any of it. Your account based pension depends completely on this phase, and the key to making the most out of it is to save and invest smart. To get some kind of help with it, you can hire an SMSF investment expert.

When you get through the first phase you get to reap its incredible benefits in the form of a superannuation pension phase. This phase kicks in after you meet at least one of the several conditions of release:

  • retiring from work at or after the preservation age
  • reach age 65
  • be permanently incapacitated

The pension comes in the form of regular income stream on a yearly, monthly, quarterly or other basis. However, in order for it to keep its tax-free status, you need to draw a certain minimum amount each year. Alternatively, you can take a lump sum payment, meaning you’ll withdraw your super contributions in a single payment.

Like I said, the transition to the retirement phase is optional, but it is a good option for everyone who wants to remain active in the workforce even after reaching preservation age. Choosing this retirement form will allow you to reduce your working hours without reducing your total income. The payment cut from your employer will be replaced with a regular income stream from your super fund.

As you can see, an SMSF will allow you to have a number of options for activating the benefits of your savings. That’s what makes it superior to other super funds. For a happy retirement, contact an SMSF expert today and reap the benefits of this amazing super fund!