Self Managed Super Fund (SMSF) and Property Investment
The biggest advantage in having a Self Managed Super Fund (SMSF) is that you have the opportunity to purchase a *direct property investment. Buying a property through your Superannuation has not been an option until relatively recently.
Most people in Australia have money in and contribute to a superannuation fund - but that money is nearly all invested in bonds and (highly) volatile stock markets.
In recent years Australians’ have watched in horror as their retirement funds have plummeted in value along with dreams of a happy retirement.
Managed Super Funds have now grown in a grand way and all fund managers can do is ride the markets up and then down. They simply cannot sell enough shares required to quickly change the balance of their portfolios. All you can do as a fund member is watch, hold on tight and cross your fingers that the market is ‘up’ when you retire.
Property has long been the number one source of wealth for many Australians. Donald Trump once said that understanding property investment is essential for all individuals to attain real financial independence.
Until recently it was almost impossible to get a property based portfolio in a Managed Super Fund so for many years investors in Australia were denied the benefits of property in Super Funds. But things have changed.
Purchasing property through your Superannuation is now achievable through the creation of Self Managed Super Funds. An MRD Property Mentor will guide you through the process of:
- Creating a self managed super fund
- Ensuring the SMSF is structured correctly for property
- Rolling over your Super into your SMSF
- Locating the best Super property investments
- Ensuring that the above meets ATO regulations and rulings.
It’s important to note that you don't have to have sufficient funds in your Superannuation fund to buy an investment property outright. It’s now possible for your SMSF to borrow the funds for property investment. This must be structured in accordance with the ATO's requirements.
You should talk to an MRD Property Mentor about the correct way to structure your SMSF before you do anything else. The MRD Property Mentor will ensure that you maximise the complete retirement benefits allowed.
Incorrect Information That Can Threaten Your Retirement
If you fall for any of the 5 points below then your retirement plans will suffer.
Superannuation in Australia is extremely complex and hard to understand.
Fact: It takes 2,500 pages of legislation and another 1,000 pages of ATO rulings to explain Superannuation!
It is no wonder that many of us look for a more simplistic way of understanding our Superannuation. The risk is that this over-simplification has given rise to misunderstanding and in some cases a firm belief in incorrect information that undermines and can potentially destroy many retirement dreams.
The 5 Myths of Superannuation
Here are 5 samples of incorrect (complicated) information that needs to be dispelled (Please drop down each + to read more detail).
1. Super Won't Guarantee A Comfortable Retirement
The 9% Superannuation guarantee contributions will provide you with a comfortable retirement
When Paul Keating introduced compulsory Superannuation it was designed to replace the government pension, not to provide you with a better retirement lifestyle. In order for the Superannuation guarantee contributions to achieve this certain criteria had to be met. Firstly, the low starting contribution would need to grow to 12%. Later changes to legislation stopped the increases from the initial 3% contributions at 9%. So, as you can see, this criteria has not been met.
It was calculated at the time that if you worked from age 21 to age 65, never had any periods of unemployment, got 12% contributions (made by your employer) for that whole period, and investment returns remained at the high average levels experienced in the mid 1980's you would retire on a private pension that would replace the old age pension. Are you following this criteria? If not, then you need to contact MRD and reassess your Superannuation now.
2. Managed Super Funds Providing The Best Investment
Managed super funds provide the best investment
This "economies of scale" theory is one of the most damaging myths for Australian retirees. Fund managers would have you believe that big is better because they can "spread the risk" and "diversify investments". The stark reality is that managed funds are now so large that all they can do is reflect the performance of stock markets. It is not possible for a managed super fund to withdraw from the stock market when falls are expected because they are so large that no-one can buy all of their shares in a short or medium term. All these fund managers can do is ride the markets up and down.
3. Low Fees Equal Better Returns
Low fees are the key to better returns
Low fees are indeed the key to better returns if you are comparing returns of large managed funds. Investment returns of managed funds before fees will be similar for the reasons as explained above. Note: One such fund manager has been incredibly successful in growing membership by spending hundreds of thousands of dollars promoting this ‘untruth’ in media advertising.
The problem with ‘low fees are the key to better returns’ is that it completely discounts the investment options available to a SMSF that don't exist for managed funds. You can leave your super in a managed fund by all means but if you want a better than mediocre return you need to look to alternatives to managed investments.
4. Funding For An Average Life Expectancy
I need to fund for the average life expectancy
Statistics show us that the average life expectancy of a male in Australia is 81 years (rounded off). What that statistic hides is the fact that if you are old enough to have superannuation then your life expectancy is already above average because you have not succumbed to any childhood mortality risks. As you get older, the higher your life expectancy becomes. If you are a 65 year old male your life expectancy is now closer to 86 years. To compound this problem, the life expectancy of an Australian Male has increased by 2.5 years in the last 10 years because of medical advances.
If you want a worry free retirement you need to have good plan in place. Let MRD show you how!
5. You Need $200,000 In Super To Start A SMSF
You need $200,000 in super to start a SMSF
This incorrect information is based on the same flawed logic as the Low Fees information above. Yes, if you plan on making the same investments that have failed the managed funds you would need to have $200,000 in super to have a lower fee structure in your SMSF than a managed fund. But the main point of having a SMSF is to take advantage of the ability to choose other investments such as a property that will outperform managed funds, not to get lower fees.
A SMSF can borrow to leverage property investments so that returns can be expected to be significantly better than managed funds. If you have a super fund then you should talk to an MRD Property Mentor about the potential benefits of using your super to invest in property.
*Your Super Fund owns the property directly.
For More Information on Self Managed Super Funds, please contact MRD Partners below:
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Disclaimer: This information has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, MRD did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances.