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Retirement Funds
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By A.P.Durai
On return from vacation, young children in a school were asked to write down their experiences. A bright girl started her essay like this: ” Every year, we used to go and live with our grandparents during the holidays. They used to live in a huge house, but Grandpa got retarded and they moved to Florida and now they live in a house with many other retarded people…”
You and I have to plan our retirement more imaginatively if we do not want our grandchildren to write such essays! Through sensible spending, saving and investing, one can look forward to a relaxed and fulfilling retired life.
The wise employee does not allow his money to lie in savings accounts in banks. He will invest it in superannuation funds, property, managed funds, stocks, bonds and insurance. His lifestyle will determine how much he would spend and how much he would have to save to maintain the lifestyle after retirement.
The working years are years of wealth creation in addition to meeting one’s lifestyle expenses like education of children, house, travel, festivals, holidays, gifts, medical expenses and so on. In retired life, man (or woman) has to manage his accumulated wealth or savings in such a way that it generates sufficient income for his life and provides adequately for his dependents in the event of his demise.
Joining a Superannuation fund
· You can join a fund when you take up a job as your employer is expected to pay contributions into a fund on your behalf.
· The self-employed can decide for themselves if they want to join and contribute to a fund.
· Even those who are unemployed at present or never have been employed before can still join and contribute to a fund up to sixty-five years of age.
Choice of superannuation funds
After introduction of compulsory contributions during the past decade, Australian workers are estimated to own $913 billion in superannuation assets. The per capita money invested in managed funds is more than than in any other economy.
Australian employees have now been empowered to choose the fund into which their employer will pay their future superannuation guarantee contributions (around 9% of the earnings) . They can exercise their option in the following ways-
· change funds when their current fund is not available with a new employer;
· consolidate superannuation accounts to cut costs and paperwork;
· select a lower-fee and/or better service superannuation fund;
· change over to a superannuation fund that shows better performance .
There are six main types of superannuation funds:
· Industry Funds are multiemployer funds run by employer associations and unions.
· Wholesale Master Trusts are multiemployer funds run by financial institutions for groups of employees. These are also classified as Retail funds by Australian Prudential Regulation Authority.
· Retail Master Trusts/Wrap platforms are funds run by financial institutions for individuals.
· Employer Stand-alone Funds are funds established by employers for their employees.
· Self- Managed Superannuation Funds are funds established for a small number of individuals (usually fewer than 5).
· Public Sector Employees Funds are funds established by governments for their employees.
Withdrawal of Funds
Workers may withdraw superannuation savings in a lump sum or as an annuity the latter being least preferred by retirees. There are no governmental restrictions on the amount of withdrawal by individuals and , therefore, subscribers who reach the preservation age (currently 55) may withdraw the entire balance in their accounts.
Tips for Investors in Retirement Funds
Today Australia is called as a ‘shareholder society’ thanks to compulsory superannuation in combination with buoyant economic growth. Most workers have become indirect investors in the stock market. Consequently, many Australians have started evincing a lively interest in the investment market.
The intelligent investor may consider the following factors while planning/investing
their retirement funds -
· While Superannuation and self-managed superannuation funds are preferred options in planning for retirement, fixed interest mortgage funds and cash investments are also good alternatives.
· Choose a fund which has a favourable fee structure
· Self-managed funds have flexibility and lower operating cost but demand time and skill to manage them. Otherwise, you have to seek advice from finance professionals.
· Managed funds like mortgage and cash funds are as good as superannuation funds if you choose schemes, which are secure and pose little risk to your money. The managers invest your money across a range of portfolios thus reducing the risks for the investor.
· You can also reinvest your super funds in managed funds and live in style off the interest income.
Happy Retirement
In a farewell party, a corporate boss who was retiring asked his colleagues to tell him frankly how they viewed his retirement. Promptly came a stage whisper from the back of the crowd,” The best news in twenty years!”
Jokes apart, it is certainly the best news for us when we call it a day and hang up our boots - no more deadlines, targets, late hours, nagging bosses and tensions. We are now free to pursue all that we had wanted to but had not had the time to do.
How we save and invest during our productive years is going to crucially affect our contentment, sense of security and happiness in the sunset years of our lives. Truly, these years open up another era of self-growth and discoveries in dimensions we least suspected we had in us.
For further information about Retirement Funds please go to http://www.momentuminvest.com.au
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