Structured Settlement Contributions

Structured settlement contributions are payments an individual has received and contributed into their super fund. Structured settlement payment is a payment arising from a personal injury claim where two legally qualified medical practitioners have certified that it is unlikely the individual can ever be gainfully employed in a capacity for which they are reasonably qualified or trained.

Structured settlement contributions can be contributed to a super fund as non-concessional contributions (NCC). The NCC caps and $1.6 million superannuation balance restriction does not apply. Tax savings apply by having the structured settlement payment in the no (or low tax) super environment.

How to take advantage of this tax strategy

• Establish SMSF.
• Contribute the structured settlement contributions to the fund.

Your financial strategy should change as you age. Here is a general guideline for each stage of your life.

Earn, growth invest and save in your 20’s

Your twenties should be focused on:

• Earning money.
• Investing in a long-term diversified growth portfolio.

Earn, growth invest, leverage and reduce in your 30’s

Your thirties should be focused on:

• Earning money.
• Investing in a long-term diversified growth portfolio.
• Using some of your earned capital for a property deposit if buying a property is part of your financial goals.
• Paying down your mortgage.

Earn, income invest and reduce in your 40’s

Your forties should be focused on:

• Earning money.
• Weighting your investment portfolio towards income (dividend) earning shares and ETF’s whilst remaining diversified.
• Paying down your mortgage.

Earn, income invest and reduce in your 50’s

Your 50’s should be focused on:

• Earning money.
• Investing in an income earning portfolio.
• Paying off your mortgage.

Debt free income living in your 60’s

Your 60’s should be focused on:

• Earning money if you still wish to.
• Living off the income streams from your investments.
• Living debt free.

Real Cost of Buying Cheap

A decision we all must make. Do I buy a 20-year-old car for $5,000 or a new car for $25,000 with free servicing and a 7-year warranty? Do I go with a cheap do it yourself kitchen or spend the money and choose premium materials, finishes and workmanship?

To help us decide it’s important to calculate the long-term real cost of the purchase.

Using the car as an example, $5,000 looks like the better choice upfront. However, looking long term, the old car is likely to cost around $4,000 per year in maintenance and servicing and may only last another 5 years. So, if the car needs replacing in every 5 years, your 20-year cost is $5,000 x 4 (replacements) + $80,000 (maintenance + servicing) = $100,000.

The new car is likely to cost around $1,000 per year in maintenance and servicing for the first 7 years and then around $3,000 per year after that. The new car should last for at least 20 years. The real cost of the new car is ($1,000 x 7) + ($3,000 x 13) = $46,000.

Clearly, the new car is the right choice when we consider the real long-term cost. Over 20 years, the new car will save you $29,000.

Similarly, you are less likely to want to replace a premium kitchen 5 years from now and in addition, the property resale value will be higher than a cheap do it yourself kitchen. Spending a few extra thousand dollars on a kitchen may seem excessive now but buying quality vs cheap is often the right choice for wealth generation.

Disclaimer: It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.

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