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Q&A Superannuation, Savings & Investments 13 Oct 2017

I am 46 and plan to retire at 60. I would like to plan my finances so that I can retire with adequate income. I currently have around $165K in an industry super fund and my salary is $125K. I own a house which is paid off and have an investment property which is 100% loan funded. I am married with 2 teenage children. Should I look at SMSF’s? Is investing into super better than making further investment into property or shares?

1 Answers

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Hi Rajesh, 

At the heart of your question is the classic ‘Super versus Property/Shares’ dilemma that many investors struggle with.

It’s important to recognise that you can invest in property and shares both inside and outside a super fund, so we generally split this problem into two parts:

  1. Should you invest in the superannuation environment, or in your own name?

By investing inside super, you get some really valuable tax concessions – most notably the ability to claim contributions as a tax deduction (subject to caps), a low tax rate on investment earnings of 15% pre-retirement, and no tax on investment earnings and withdrawals post-retirement. One big limitation is that you lock your money away until retirement - but this can also be viewed as a positive as it removes temptation to dip in to your nest egg too soon.

Alternatively, you can invest in your own name, where you retain greater access to your money – but you won’t get the same tax breaks.

  1. Should you invest in property, shares, or something else?

It’s important to invest in assets that are consistent with your risk tolerance, time frame and performance expectation. For investors with an average risk tolerance and a long time horizon, we would typically recommend that they split their investment across all major asset classes (property, shares, fixed interest, etc) to help manage risk and smooth returns. Most people achieve this in their super by investing in diversified funds.

By investing in direct assets (eg by buying another property) it’s much harder to spread your money around, and hence you’re subject to greater risk if your particular investment choice performs poorly.

Most super funds give you the option to invest in single sector funds (eg Australian shares), and some super funds allow you to buy individual shares as well as managed funds.

An SMSF will allow you greater flexibility to invest into direct assets like property, but adds greater complexity, responsibility, and potentially greater cost. A simpler option would be to contribute more into your existing industry super fund (or similar). 

A professional financial planner can model the likely impact of your options and recommend a tailored strategy that’s right for you. 

Regards,

Sam Wallis-Smith

General Advice Disclaimer
Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
Sam Wallis-Smith
Sam Wallis-Smith Wallis-Smith Financial Planning

Adv Rating 100% Cust Rating 98.44% Reviews 16

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4 comments

"Thanks Sam. Appreciate your response. Great Advice that I can take to assess my options."

Raj 12:25 on 16 Oct 17

"Long Term Investment in Growth Assets like Property & Shares are the key to a long term wealth generation strategy. i compare the two of them like this: normal rent for most residential properties is around $1pw per $1K e.g. A $400,000 property should rent for $400 pw the numbers vary at the high and low values eg an 800,000 property may rent for less than $800 pw and a $250,000 property for more pw. if you get $1 per $1K that is a 5.2% gross return and remember every property is not rented every week of the year! The ongoing costs of agent, rates, R&M etc excluding interest & depreciation (depreciation is a timing difference only as it comes back into the calculation for CGT on sale) repayments usually run between 2.2%-3.2% of the property value, so you are left with net rent (before Int & Deprecn) of 2-3% pa plus Capital growth over the longer term generally between CPI + 1.5%-2.5%. Both shares and property go up and down in value but in the long term they usually go up in excess of inflation. The costs to acquire a property or multiples of 2-3x the costs of an SoA and establishment costs of a share portfolio due to government s/d on purchase and then there are agents fees on disposal so once again property is more expensive than share to buy and to sell. in the meantime the growth is similar but the shares have can have greater net dividend (vrs net rent) income especially once franking credit are added. The other consideration is liquidity, I can give my clients access to a portion of their invested funds so if they need say $50,000 they can get it in 1 week, you can't sell a property & get paid every time in 1 week, and you can't sell the front porch or the back verandah, its all or nothing with the sale of a property. "

David Robertson 14:54 on 14 Oct 17

"So sick of armchair experts like Andrew hoping for a property crash. No idea how much heartache it would cause. But yes. Diversify."

Damian Smith 14:09 on 13 Oct 17

"Great advice Sam. The most important thing to do, especially with time on your side is to diversify your portfolio as this adviser says. Don't put all your eggs in one basket! It's common sense but everyone thinks property is the way to secure their future. We need a property crash for people to open their eyes to other possibilities."

Andrew T 13:54 on 13 Oct 17

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