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You Don't Have to be Well-Off to Give Up Work on a Guaranteed Income for Life

July 17th, 2009 at 10:12 am

The majority of us dream of the day we pack in work for good - especially if that retirement also means we have a guaranteed income for life. To some this is an unattainable dream, but it can happen if we take the proper steps beforehand. What do we have to do to make the dream a reality?

Investing in managed funds can be the answer. You don't need a lot of money to invest in a managed fund. Some let you start with as little as $1000, others prefer twice that amount. In today's economic climate, nearly everyone can save that. Even those who have no job can find ways to save a little at a time until they have the necessary amount. So what if it takes a whole year - or even two?

With a managed fund, investors pool their money and the fund manager invests it for them. This is the easiest and simplest way anyone can start to save for their retirement. The profits from the initial investment must be ploughed back into the fund of course, otherwise it will all be spent on present needs or wants. But after a lifetime of re-investing the profits there will be a significant amount to retire on. And those who are wise enough to see the benefits will continue to save for investment purposes so that the initial deposit will swell a great deal over time.

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Self-managed superannuation is another option for making the dream come true. This option should not be taken up lightly as there is a lot of work involved with running a
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self-managed superannuation fund will have to be the trustee and you are directly accountable for everything that happens to the SMSF.

The responsibilities of a trustee are many. There are strict guidelines that you must comply with and failure will bring down the wrath of the tax office upon your head. You must lodge both an income tax return and a superannuation fund return on an annual basis. As well, there must be superannuation member contribution statements lodged every year. An approved auditor must be appointed to do an audit annually. And records must be kept for ten years. There are also restrictions on investments that must be complied with.

In fact, many people feel that the amount of work involved is not worth the benefit and so go with managed funds. Unless you have experience and plenty of time, this is a good decision.

Pros and Cons of Self Managed Superannuation

July 10th, 2008 at 03:49 am

Pros of Self-Managed Superannuation


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self-managed superannuation will not suit everyone, there are some people who will find it is just what he or she wants. These are people who have had some experience in buying shares, or at least know how it is done. One of the main advantages is that you can choose what shares to invest in. This may be very important to those who have strong beliefs about say, not gambling. If this were the case, then you would not want your money invested into something like casinos.

The manager of an SMSF will not be afraid of a whole bunch of figures staring at them from their computer screen, and keeping records of everything will not faze them in the slightest. In fact they will be able to keep the most intricate records without worrying. And they will be able to keep up with the regular reporting that is necessary.

Of course, all of the above will take a great deal of time, so the person who is suited to run an SMSF will have plenty of time up his or her sleeve. They will also be smart enough to avoid any shady schemes to access their money early, and they will understand that the Tax Office will be onto their case quick smart if any illegal scheming is suspected. While they may need more financial advice than they thought, they also will realise that any financial advisor needs to be licensed to give advice. Who would want to take advice from someone not qualified to give it?

The person who can successfully set up his or her own
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SMSF will have at least $200,000 to invest. They will be able to make sure that they don't miss out on all those benefits available with a super fund that is managed by a third party such as life and other kinds of insurances. So if you think you have these skills and the time, then an SMSF may be just the thing for you.

Cons of Self-Managed Superannuation

Many people think that they will gain by switching to a
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self-managed superannuation fund (SMSF), but there are several disadvantages. One of these is the sheer time it takes to administer the trust in the way the law dictates it should be managed. There is a great deal more in running your own super fund than first meets the eye. Not only do you have to find good investments, but you must be sure that they are going to perform in a way that enhances your investment and meets your goals.

Finding investments may seem easy, but to make your investment as safe as possible, there needs to be diversity in the type on investment. Another disadvantage is that being a single investor, you don�t have the funds to purchase shares, benefits or insurance at a wholesale price like a managed fund has. And depending on your area of knowledge, your running costs will be more than with a managed fund, because you will have to hire both an auditor and a financial advisor. Experts suggest that an SMSF can cost up to $1700 per annum to run.

They also believe that a DIY investor needs at least $200,000 to make doing it himself worthwhile. And if fact, if the Australian tax office finds an SMSF of less than this, they will look into it very closely, as they have found that many such investments are simply schemes to get at those super funds before retirement - and that is illegal.

Finally, when you have an SMSF, the buck stops with you. That means if you lose money, there is no one to sue and no one to blame but yourself. And if you have done anything illegal - even inadvertently - then you must pay the penalty, which is likely to be a hefty fine, at the least. All this means that those people considering an SMSF should look at their options very closely before deciding to go ahead.

This post is intented for Australian Readers only.