Case Study – When super alone is not enough

Superannuation can be a tax effective way to invest for retirement. With changes to superannuation that came into effect on 1 July 2017, there may be some limits and constraints with superannuation and some investors and financial advisers may be looking for an alternative tax effective structure like an investment bond. 

What next when superannuation contributions have been maximised

Anthony is 45 years old and has invested wisely in the property market. He believes property returns have plateaued and has sold his inner-city investment property, realising a healthy capital gain. He has paid off his mortgage and maximised his concessional and non–concessional contributions to superannuation.

Anthony is considering options to invest the surplus proceeds of $200,000 in a tax effective manner. Because he earns a good income and does not need access to his funds, Anthony can adopt a long-term investment time horizon of 10 years plus.

He first considers investing in Australian shares, either directly or through a managed fund. Franking credits are important to him as they can help him reduce the tax paid, given he is on the highest marginal tax rate.

Anthony’s adviser suggests investing in an investment bond because he can benefit from franking credits from Australian shares within the investment bond. The investment bond pays tax at a maximum rate of 30% per annum.

Anthony can also afford to invest additional amounts of $20,000 per annum into the investment bond for the first three years; he is unable to direct any surplus funds into superannuation without exceeding his contribution cap. In 3 years’ time, he plans to reduce the contribution he invests to $5,000 per year.

His adviser confirms he can redeem his investment bond and pay no additional tax after 10 years.

When Anthony reaches age 55, the investment bond has accumulated to approximately $551,646 (tax paid). This is estimated to be $ 35,763 higher than the alternative of investing at his personal marginal tax rate.

Portfolio balance (after tax) over 10 years ($35.7K higher than investing at his personal marginal tax rate)

Provided for illustrative example only based on the basic income and growth assumptions described above. This illustrative example does not purport to represent the actual return possible in any of Centuria Investment Bonds. An investment is subject to risk, the degree of which depends on the assets in which the bond invests. Assumptions: Total returns of 8.5% p.a.(4.5% p.a. income (80% franked), 4% p.a. capital growth), 100% annual turnover of the portfolio, 50% CGT discount applies for managed fund.

When looking at long term investments to supplement your super, it’s important to ensure the investment your needs, your investment timeframe, has the flexibility to deal with unforeseen circumstances and where possible, is tax effective. When compared to other investments, investment bonds are the ideal vehicle through which you can supplement your retirement savings.

Disclaimer: Centuria’s Investment Bonds offer a tax effective investment vehicle outside of superannuation. They have features that investors should consider if they wish to invest outside of superannuation. Suitability of an investment in a Centuria Investment Bond will depend on a person’s circumstances, financial objectives and needs, none of which have been taken into consideration in this advertisement. Prospective investors should obtain and read a copy of the Product Disclosure Statement (PDS) and consider the information in the PDS in light of their circumstances, objectives and needs before making a decision to invest. We recommend that prospective investors consult with their financial adviser.  This document is not an offer to invest in any of Centuria’s Investment Bonds. Investment in Centuria’s Investment Bonds are subject to risk as detailed in the PDS. Centuria will receive fees in relation to an investment in its Investment Bonds. Issued by Centuria Life Limited ABN 79 087 649 054 AFSL 230867.