for doctors and dentists
Superannuation can be a great wealth creation vehicle
in your journey towards financial freedom.
In essence, superannuation is a long-term, tax-effective investment structure to help you accumulate savings for retirement. In our opinion, it is still the cornerstone of every doctor and dentist’s financial plan. However, many medical professionals are skeptical about contributing to super, in particular due to the constant legislative changes, which create uncertainty about the future of the superannuation system.
The ability to contribute to superannuation later in life has been greatly restricted, with the concessional contribution cap now having reduced to $25,000 p.a. – it is hard to believe that only a few years ago the limit was $100,000 p.a. After-tax contributions have also been reduced to $100,000 p.a. down from $180,000.
As a result, we believe there is a greater incentive to start contributing to superannuation from a younger age. Many of our clients consciously make extra contributions, as they understand the benefits of compounding.
As part of your contribution strategy, we also review whether spouse contributions or contribution splitting are suitable strategies, in particular where one spouse is not working and may not receive any contributions for a number of years.
Two ways in which your super may be optimised
We often see two very expensive mistakes many doctors and dentists make when it comes to their superannuation:
1. Running multiple superannuation accounts
Many medical professionals and their spouses accumulate various super accounts throughout their career. Each one of those will have their own set of fees and insurance premiums. When you have 5-6 accounts this starts to add up. For example, we recently saved a client couple over $8,500 p.a. by consolidating various super accounts.
Please note, you should always get professional advice to consolidate your super, as you may lose valuable insurance or other benefits in the process.
2. Inappropriate investment strategy
Superannuation is a long-term investment vehicle, and will form a significant part of our retirement assets. Hence, it is critical that you choose the right investment option: it needs to be in line with your risk profile and timeframe to retirement, have reasonable fees and good long-term performance.
Yet, we often see young clients who hold the majority of their super benefits in cash, which would typically not be appropriate. If you are not sure what is right for you, then seek professional advice.
Self Managed Super Funds for doctors and dentists
Over the last decade in particular, we have seen an explosion in the number of self managed super funds being established. And yes, many doctors and dentists have followed that trend.
Yet, does it make sense for medical professionals to have an SMSF? The administrative requirements relating to self managed super funds are onerous, and managing all of this can be very time-consuming.
Quite often we will also see SMSFs where the investment strategy has not been properly considered. It is not uncommon for an SMSF to be solely invested in cash and term deposits, Australian shares or property. In many cases, diversification is lacking, which increases risk but can also detrimentally affect long-term returns.
We believe that SMSFs are over-used and over-promoted, sometimes by service providers who are set to derive and ongoing benefit from the establishment and running of a fund.
In our opinion, there are very limited circumstances in which a self managed super fund may be the most suitable structure for a medical professional. The most obvious example of this is where you would like to own your rooms. This can be a very powerful wealth creation strategy for those medical professionals who are in private practice.
If you would like to discuss any of these superannuation strategies, please contact us for your free meeting.
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~ Dr Green
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