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?
Top answer provided by:
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:
- 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.
- 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.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.