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Few things in this life are absolute, however you can be certain of one thing – the relentless march of time will leave you facing retirement at some point in your life, whether you’re ready for it or not. The choices you make right now will definitely impact the choices available to you later.
Are you ready for retirement – or better yet – will your funds be ready for you to retire? If market volatility has eaten away at your retirement you may be wondering if your remaining funds will be enough to support the lifestyle you’re looking forward to.
Perhaps you know it’s not nearly the amount you’ll need and you’re feeling fearful – frustrated at having done everything right yet you’re still facing uncertainty about your future.
While you cannot control some things about your retirement, there are some things you can do, right now, to control the options available to you, and isn’t that what retirement is about – options?
Right now, the combined super funds of Australians is approximately $1.18 trillion dollars. The fate of these funds used to be entirely in the hands of investment banks and companies, whom were believed by many to be capable of investing the funds adequately, as it was assumed they had the expertise and knowledge to oversee everyone’s retirement.
One problem with managed superannuation, however, is that despite the performance of the fund, managers still receive their payment, which means that in many cases their fees wipe out much if not all of the revenues gained, subsequently eating into the retirement funds available to beneficiaries.
Many individuals have begun to realize that leaving their future in someone else’s hands doesn’t always provide the most desirable outcome. For this reason, self managed superannuation funds (SMSF) are gaining in popularity.
When you take charge of your own retirement funds you have the power to increase revenues available to you – you don’t need to rely on someone else who is, let’s face it, not as keenly focused on your successful future as you are.
Are You Setting Aside $40 to $55 Thousand Dollars EACH YEAR?
Yes, you read that right. According to the most recent report from the Association of Super Fund Research, a single person who desires to maintain a comfortable lifestyle will need to sock away approximately $40,000 per year – for a couple that number rises to about $55,000 annually.
These figures don’t represent the total sum, but rather the amount which needs to be set aside PER YEAR! In total, experts caution that you will need about half a million saved if you’re entitled to full retirement pension. If you’re self-funded, you will need about twice as much ($1 million) in your super fund to create this amount of money!
If you’re among the large number of Australians who are facing retirement in a few short years and you realize there’s no way your current savings plan will bring you even close to this figure, take heart, Positive Real Estate’s professionals will empower you with the tools and resources you need to take charge of your own future.
Which Is Better – Share Market Or Property Investment?
The following examples will highlight the possible results of investing into direct property as opposed to the share market or an international property fund:
A. Superannuation balance of $100,000 – invested in share market or international property fund. With a fund performance of 10% your investment totals $110,000.00
B. Superannuation balance of $100,000 – invested into a property valued at approximately $320,000.00. The market performs at 10% putting your investment value at $132,000.00
Why the difference? Starting with a bigger asset allows you to let the investment work for you, not have you work on building it up.
Self-Managed Superannuation Fund (SMSF)
As a rule, retirement portfolios which include real property are more stable and better able to retain their value. A self-managed super can include:
- Business real property
- Residential investment property
- Unlisted funds (Property/Shares)
- Listed shares
Generally speaking, individuals or couples who are quickly coming up on retirement (50 to 60 years old) should purchase properties with income growth potential rather than capital growth capacity.
Younger individuals (20 to 48 years old) are in an ‘acquisition period’ and should seek out capital growth opportunities which will help them grow their portfolio.
Benefits of Buying Property Through Your SMSF
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Capital gains tax will not apply if you sell the property after you’ve reached the age of 60. If you decide to sell it before reaching 60 you will pay a substantially smaller rate – 10% as opposed to 37%, representing a generous savings of more than 25%.
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Rental income is taxed at a lower rate as well – 15% rather than 37%.
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You won’t be out of pocket for stamp duty, as it is paid from your super.
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Business owners will pay from zero to $50 stamp duty for commercial property purchased through their super, depending upon the location.
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Use both rental income and employer SG 9% contributions to pay for both the purchase and ongoing costs of investment property in your super.
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Accounting and mentoring costs are tax deductible.
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Property investments don’t count toward your concessional contribution caps
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Your assets will be protected from creditors.
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Interest paid on purchase money loans is tax deductible – you can deduct taxes paid by the highest taxed entity (personal, trust or company)
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Your lifestyle can continue as it has been since fees are paid through your super.
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Pay no stamp duty on property purchased entirely with your super.
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Avoid contribution limits. Property purchased through your SMSF are not subject to either concessional or non concessional contribution limits.
How Long Does It Take Before I Start Making A Profit?
It takes 2 to 3 months to set up a SMSF, but once it’s finalized, banks can lend to it and you can search for a suitable property. Some things to discuss with your accountant about investing in direct property include:
- The best option in your case – to purchase the property entirely or leverage other funds towards its purchase.
- Using the resources of other investors by opting in with a joint venture of other SMSF funds.
- Pay down your loans further by having employer super payments applied against them.
- Contribute salary sacrifice towards your property loan(s).
- Re-invest gains from the investment.
- Apply rental returns towards the loan.
- Installment warrants.
- Bare trusts.
The chart below depicts the impact that buying property can have on a retirement fund. Frank and Betty are aged 48 when they add property to their portfolio:
As you can see, purchasing investment property through your super can boost your fund significantly, however before purchasing any properties through your fund it’s important that your SMSF is set up correctly. This is where a consultation with a professional is well advised, as he can answer all of your questions and help you establish a portfolio which is designed to meet your needs during retirement.
If you’re concerned about the state of your retirement, we’d love the opportunity to help you design a strategy that will put your retirement plans on the fast track to growth and stability into your golden years.
To learn the other strategies and techniques come to our next complimentary Property Investor Night and find out:
- How to find and create profitable deals,
- How to know which markets to invest in,
- How to keep investing through interest rate rises,
- How to minimise your risk as an investor,
- How the property cycle works and how you can make the most of each stage
- What is positive cashflow and where to find these elusive properties
- How to use your equity to invest and not endanger your home
- And so much more
All states have our hand-picked Investment Coaches who are incredible investors and know the markets inside out.
