It’s the year 2047. The Australian population is fast approaching 40 million, most of the world’s superpowers have reached their net-zero emissions targets and President of Mars Elon Musk is celebrating his 76th birthday. Born at the dawn of the 1980s, you’re looking forward to finally retiring and accessing the wealth you created through superannuation. What a time to be alive!
Believe it or not, the most unlikely occurrence from the above scenario is your comfortable retirement. According to a 2014 survey conducted by the Centre for International Finance and Regulation, just 6.4 percent of young Australians had made a plan for their retirement. This doesn’t come as too much of a surprise. As we discussed a few weeks ago, Australians are among the most short-term thinkers in the world. The average super balance at retirement is hundreds of thousands of dollars below what is needed to fund your twilight years comfortably.
Some of those who are more proactive about their retirement opt for a self-managed superannuation fund (SMSF). According to the Australian Taxation Office, the number of SMSF members grew from 387,000 to 1.125 million in the two decades to June 2019. In total, they now contain $748 billion worth of assets. About $35 billion of that is invested in residential property, but there are particular rules you need to be familiar with before following that route yourself. This is where your financial advisor comes in.
If you’re the type of person who doesn’t pay too much attention to your super, there could be a bright side. Most Australians sell their real estate assets way earlier than is recommended. Having one, two, three or four in your super that you’ve effectively forgotten about might just be what’s needed to hold them long enough to make the most of them. As a 40-something, this could mean a holding period upwards of 20 years. As a 30-something, you can add an extra decade. Over this long period of time, it is possible you have minimised the loan-to-value ratio enough to live off the rent rather than killing the goose that laid the golden egg. On the other hand, if you’d rather spend the kids’ inheritance by accessing the capital by selling, then all the power to you!