Saving funds for retirement is a necessity, regardless of your age, lifestyle and personal goals. There is no better demonstration of responsibility to oneself than to ensure that you have the means to look after yourself and your own interests in the future, and that you will not need to rely on someone else for financial assistance.
As such, as early as you can during your professional life, it pays to begin exploring your options and to set a portion of your hard-earned money aside for the advanced years in which you will no longer have a paycheck to look forward to.
Consider an SMSF
One of the financial vehicles you would want to consider for this purpose is the Self-Managed Super Fund or SMSF. This is an investment portfolio that allows you to save the funds you require for retirement; however, unlike a typical superannuation scheme, the SMSF takes the do-it-yourself approach.
With an SMSF, you can exercise greater control over your retirement savings and investments because the members (also known as trustees) get to decide what to invest in and how the fund will operate. Trustees are responsible for everything — the investment strategies as well as the statutory and legal requirements.
SMSFs are beneficial because they can be run in a tax-efficient manner, they offer longer-term investments, and the trustees can directly negotiate for reduced rates for the services they need as well as make good, well-informed decisions geared toward their own investments.
What’s more, a person has the option to use their SMSF to invest in property.
Property investment basics
You can purchase both residential and commercial properties through your SMSF, provided that you can justify that your investment meets the following criteria:
- It has to pass the “sole purpose test.” This means that the property investment must be made solely
to provide retirement benefits to the fund members.
- The property should not be purchased from a related party of any of the fund members.
- No related parties of any of the fund trustees should be renting or living in the property. You cannot, for example, use the SMSF property as a place for your family to holiday in, or to rent it out to relatives — these would be considered pre-retirement benefits that would be a breach of the investment conditions.
Basically, the property in question must have a reliable income stream as well as realistic expectations of potential capital growth.
Take note, however, that your SMSF cannot be used to purchase your own home.
Investing in property means that you will need to spend money from your SMSF balance. The money will cover a range of fees: bank, legal, upfront, advice and ongoing property management fees, as well as stamp duty.
There is also the option of borrowing or gearing your super into property. This, however, comes with significant risks and should only be explored if the strict borrowing conditions can be met.
Your SMSF property investment is an excellent resource that will ensure your financial security during retirement. But as with any financial endeavour, there are important decisions to be made and risks to be factored in.
Contact our super fund accountant at ASV Partners at (03) 9587 9747 to get the best advice and assistance for your specific needs.