What is a SMSF and why are you doing yourself a dis service by not having one?
Unfortunately its a cold hard fact that the majority of Australians will not have sufficient funds in their super to live the life they deserve when they retire. Personally, i dont want to give 40+ years of my life to the working system to be broke during my golden years. I’ll employ this alongside other strategies I’ve posted about in this blog section to mitigate the risk of being broke and struggling financially when i get to the point of retiring. If you have been contemplating establishing a SMSF, read below…
So what is a SMSF and why are you doing yourself a dis service by not having one?
Self Managed Super Funds are an entity that is created through the ATO so that you can manage your own money that is paid into your superannuation. Creating and managing your own SMSF is a way to gain back some clear transparency surrounding how your money is managed.
If increased transparency isn’t a good enough reason for you to look into establishing a SMSF then lets look at another angle, its the ONLY way to leverage your money. When your funds are with a general provider they are put into an asset pool and they gain on average 7% a year on your funds only. Based on $200,000 super balance by age 40, with a 7% average yearly return you will end up with approximately $680,000 by the time you are 65.
Based on a lifespan of 85 years this gives you $34,000 a year until your flat broke. However with and SMSF you have the ability to leverage the banks money to make money and change this scenario dramatically.
As a general rule of thumb with most lenders that do SMSF loans they allow a maximum of 70% LVR (Loan to Value Ratio) loan. This means that if you have $200,000, you could potentially borrow $466,500 to purchase a property. As a conservative estimate based on the national average of capital growth of 5% a year, you could potentially be making $33,325 a year in growth over $14,000 a year in a regular fund without leverage (based on a $200,000 fund balance with 7% growth).
If we look at the returns comparatively one a single property purchased for $650,000, with 20 years of 5% growth the property would be worth $1,720,000 and based on a conservative 5% yield this would net $58,600 a year whilst still owning the asset.
Now as a final point to note, purchasing a property in your SMSF, not only do you get the compounded capital growth over the term, but you also get an income producing asset which will pay you in your retirement. Also as a final final point to note, there isn’t any reason you cant get multiple properties in your SMSF over the term, keep your money being leveraged and working for you so you can really reap the rewards when it comes to your retirement.