Do you think about what retirement will look like? - MPC

Do you think about what retirement will look like?

I love to imagine retirement, don’t you?

Maybe it’s because I am in the trenches with young kids at the moment so I dream of beach swims in the mornings, long lunches and travel! With my visions of what retirement will be like, saving up enough is always a concern.

Superannuation is just one of the many places to look at, to see how it can be working better for you. Understanding how much you currently have, how much you can earn in your working life and working out what you will need in retirement. I have always tried to find ways to make sure my super works hard for me to reap the capital gains for my future.

Some specialists say that if you are under 45, your superannuation should be in a high-growth allocation. Essentially, your super, should be sitting in a higher risk allocation because you are still young and you have time to ride the highs and lows, so to speak. That said, if you have not touched your super allocation, it would be in a balanced strategy which is less risky but also has less growth opportunities.

For the women out there, there is more bad news. More than 80 per cent of women currently retire with insufficient superannuation savings to fund a comfortable lifestyle. There are a number of reasons why the superannuation gap is so large, so this is even more of a reason to take control of your finances, and look at your super options and this goes, for both men and women.

There are significant advantages to owning a property through a Self-Managed Super Fund (SMSF).

  1. First, your super fund will be taxed at 15 per cent, which is significantly lower than personal tax rates.
  2. Second, your capital gains tax will also be discounted. Plus, if you sell the property during the accumulation phase, the capital gains tax will be discounted. If the asset is sold while the super fund is in its pension phase, you do not have to pay any tax on the sale.
  3. Third, it is important to note that you cannot buy a residential property through your SMSF if you intend to live in it, or for any family member to live in.

Using your super to invest in property, is clearly not for everyone, and we highly recommend speaking to your accountant before investing your super, however for some, this is a way to diversify their portfolios. In recent years there has been a jump in people using their SMSFs to buy investment properties. If you are thinking about using SMSF for investment properties, you should weigh up your financial situation and decide if investing in property through your SMSF is right for you.

To start that process, here are some things to consider:

  • How much can you borrow?

Loan to value ratios (LVRs) are typically lower for SMSF property investments, so you will need the funds to cover the deposit and upfront purchase costs.

  • Do you have enough cash flow? Will the property make a profit or loss?

SMSFs generally pay 15% tax on net income, which is great if the property earns a profit. But you cannot transfer those losses to your personal income to save on tax if it makes a loss.

  • Read the fine print – Be sure to choose the right loan and property from the start.

SMSF loans cannot be used to pay for renovations that increase the property’s value, these works can be funded by money already in the fund and not borrowed money.

  • If you use your SMSF to buy property, what sort of property should it be?
  • What do you do if you do not have an SMSF?
  • Is it worthwhile setting up an SMSF to purchase property?

Using your SMSF can be complex. So, it is essential to use all your available resources and experts such as, mortgage brokers, accountants, a financial planner and solicitor or conveyancer who understand SMSF property purchases

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