When I first moved to Sydney, I always assumed it was the renter’s life for me. House prices were well out of my league, so the great Aussie dream died when I decided to plant roots in the greatest city in the world. After getting a job at Blue Wealth (back in 2013), I was blown away by what I learned at one of our educational events. As a 25-year-old, I was gobsmacked that they didn’t teach you this stuff at school, and I distinctly remember walking out of the Blue Wealth office and going ‘why don’t more people know about this’!? It felt like some big secret, but I loved learning that there was a Rentvesting solution for me, which I would implement. Eventually, this helped me own my home.
Fast forward a couple of years, and learning about buying a property using your super fund also elicits the same feelings – why don’t more people know about this option?!
To be fair, setting up a self-managed super fund (SMSF) takes work and can seem overwhelming. There’s a mountain of paperwork and a few fees involved to get things moving, but the alternative of sticking to my industry super fund with average returns and volatile results was enough to shake me into action.
Generally, most Aussies know what superannuation is, but aren’t sure about the finer details. They know it’s like a retirement savings deal where your employer puts a chunk of your earnings into a fund. But they don’t know that many folks still won’t have enough to retire comfortably… this hits hard when you consider how long you’ll be working!
Let’s take a closer look. If you start your career with an average 9-5 job with a starting salary of $50,000 and get a few pay rises and promotions as you progress, then end your career earning $148,000, you will have saved up roughly $448,339 over 45 years. Since the introduction of compulsory super in July 1992, the median return for growth funds has averaged 7.9% per annum. Assuming your super fund returns this over the course of your career, the eventual number you’re now sitting on (knitting your favourite grandchild a sweater) is $2,809,000. Sounds pretty good, right? Back when mandatory super was first brought in, that amount only had to last us 12 years. Now, 31 years later, our life expectancy has increased, and we must stretch that out to last another 18 years. Crazy!
On top of this, if we assume that the average inflation rate over the 45 years is 2.5%, $2.8m is only the equivalent of $1.45m in today’s money in purchasing power terms. After sending myself down a bit of a rabbit hole writing this blog, the general consensus for the amount needed to retire comfortably with your chosen lifestyle is 70% of your wage per year. That’s assuming you’ve paid off your home and any other debt. So, if I live for 18 years after retirement and don’t contribute more to my super, I will fall short. The system is flawed, but a game changer is out there if you know where to look.
So, what’s the alternative? It’s called buying a property in your super fund (SMSF). Something I thought was just for the rich or people with fancy financial advisors. Maybe someone out of Succession or Empire! With an SMSF, you take charge of your superannuation and have more control. And guess what? You can use your existing super to invest in property, too!
This concept isn’t just for high-income earners; it’s an excellent option for average-income earners like me. Investing in property through an SMSF comes with quite a few advantages.
Here are some of the perks in order of what enticed me:
- When you sell your SMSF property in retirement, you don’t pay capital gains tax (potentially saving you 22.5%).
- The government in Australia is pretty chill about it. They’ve set up rules that let you borrow money within your SMSF to buy property, which means you have a bigger asset to leverage into more money.
- Your SMSF is treated like a separate entity, so if you’ve maxed out your personal borrowing capacity (on your home loan or other assets), it doesn’t affect your ability to borrow in your SMSF.
- The rental income from your tenants and the tax benefits pay off your mortgage; anything extra is counted as extra super contributions.
Our modelling shows that adding a property using an SMSF can boost the returns by more than 20% over 30 years. So, with all these factors combined, it’s no wonder that property in super is a big topic right now. We actually hold an educational event on the best ways to get started, as more and more people want to make the most of their retirement savings, get in on the property game, and enjoy those advantages. Plus, Aussie property (bought at the right time and location) kicks arse – it’s no surprise that Aussies are eyeing property as a way to boost their retirement savings. Can’t blame ’em, right?