Have you ever wondered how your superannuation money is performing? Do you remember the last time you have checked your superannuation account balance? Would you like to control your investments and have more investment options? Can you buy property with super money? The reason I have asked those questions is because we do not naturally think about our retirement until it is very near. We tend to believe it is miles away and we have all the time in the world to prepare for it. The truth is that time works in our financial favour and the earlier we start thinking about our retirement the smoother we’ll find it.

I have asked a good friend of mine Shaun Rasulov from The SMSF Club to help us understand an alternative approach to financial planning and managing your retirement.

What is SMSF?

Self Managed Super Fund or SMSF has become a buzz word nowadays with more and more Australians deciding to take control over their super funds. SMSF has gained even more attention when the government passed the legislation that allows super funds to borrow money for purchasing a direct property. This piece of legislation has changed the superannuation landscape significantly, similar to how Uber has changed the taxi industry. Ultimately, what SMSF does is it allows you to manage your investment funds yourself. The Australian Taxation Office has a strict regulation framework with restrictions and laws that you need to adhere to.

According to the ATO, there are more than 30,000 SMSFs that are being set up in Australia every year.  One of the main reasons people I meet set up SMSFs is to acquire a residential property. This phenomenon can be explained by appreciating property values (Sydney and Melbourne) and below average performance of most super funds. Also, most people understand property and believe it to be a safer asset class that goes up in value at a greater rate compared to their assets managed by retail/industry super funds. This has resulted in SMSF sector accounting for one-third of the total superannuation pool of over 2 trillion dollars.

Benefits of SMSF

SMSF is a type of trust that combines the features and benefits of a super fund with a trust. Those benefits include (as per the rules at 07/02/2017):

• Tax benefits, such as tax-free income generated from within the super fund in retirement
• The asset is not subject to a Capital Gains Tax when sold in retirement
• Ability for up to 4 people to combine their super fund balances to increase leverage
• A greater flexibility around tailor making Estate Planning
• Assets within SMSF (super) environment is safeguarded from bankruptcy
• Much greater investment options than retail/industry super funds

Investment options

When deciding on your investment options with SMSF, the list is extensive. Some examples are:

• Direct shares
• Bonds
• Listed Investments Companies
• Exchange traded funds
• Mutual Funds
• High-yielding cash accounts, including term deposits
• Direct property
• Unlisted assets, such as shares in a private company
• International markets
• Collectables
• Other income investments

I recently read that one Australian has purchased a pride of lions in Africa using his superannuation funds, which is a legitimate investment. I am not convinced that it is a sound investment, but it shows you the level of flexibility that SMSF offers. Overall, SMSF opens a door to much greater investment options and flexibility around how you can invest your superannuation money.

There are responsibilities and rules around managing SMSF that anyone thinking about taking control over their super funds needs to consider. It is imperative to align yourself with a professional within the area, who can help you navigate through the complexities and regulations surrounding this space. For example, I am often asked if you can purchase a residential property within SMSF and live in it after retirement, and the answer is no. Your investment always has to serve for the sole purposes of providing an income in your retirement.

How much money do I need my SMSF to have to buy a property?

I also get questions on the funds required to be able to purchase a residential property within SMSF. The answer depends on the value of a property one is looking to buy. For instance – if you intended to purchase a $500,000 property, as a bare minimum, you would need to have funds for a 20% deposit (provided a bank borrows you 80%) and all the relevant fees. Those fees include legal, stamp duty, solicitor fees, Bare Trust fees, bank establishment fees, etc. Given the example, you would need to have around $140-150,000 within your super fund to make a purchase. As previously mentioned, many people choose to combine their super funds, thus giving a greater economies of scale.

Managing your investments through SMSF can make a great difference when you retire. As good as it sounds, this approach is not for everyone and before you decide I encourage you to seek financial advise from a qualified professional. You need to make sure that setting up SMSF would work for your financial and personal circumstances. Employing an investment strategy and having it tailored for your personal needs is paramount.

I wish you a very successful and happy investing!

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