Investment - Frequently Asked Questions

Why do I need to invest? My employer provides Superannuation contributions for me.

The average wage earner in Australia earns around $58,000 per annum. The 9% your employer contributes is $5,220. Over an average working life of 25 years of that contribution, your Industry Super account will have just over $320,000 given average returns and average account fees. Given an average living expenditure of $40,000 per annum in retirement, this will last just 8 years.

If you invested the $320,000 and lived off the interest income, you would have to live off $19,200 per annum, a severe restriction to your lifestyle.

The amount you require as living expenditure is a personal choice, however spending a career working only to be restricted to less than you are used to by a long margin is not a great choice. So choosing to live in a comfortable lifestyle with personal choices available is really how we all want to retire.

Superannuation alone will not make the grade when it comes to personal choices in retirement. It will only lead to personal restrictions.

How much income do I need for living expenses on retirement?

As stated above, the average couple should strive for a minimum income of $40,000 per annum, with no debt in retirement. To have this income in retirement, you will need roughly $750,000 invested in your Super account, returning you a minimum of 6% per annum, and you will need to own your principle place of residence with no debt. This means you will be able make personal choices as to where you live, and what you do. You will also be in a position to live as long as you can completely independently with no financial barriers holding you back.

The only way average Australians can build the asset base required to live an independent retirement is to invest. You cannot save this money from after tax income.

Do I have to pay tax on income after retirement?

Recent changes to the Superannuation system in Australia means that any income or withdrawals from your Super fund after you have attained the age of 60 are tax free. In fact, you are not required to declare any income from Super on your Tax Return, so any other income you have will attract the tax free threshold. This is really a major enhancement to Super, and perfect for property investors.

Another positive change for property investors is that you can now have concessional contributions into Super. Any property you sell can have up to $450,000 after CGT net proceeds over a three year period untaxed into your Super fund. The goal of property investing is to accumulate a portfolio that will give you choices as to which property/ies to sell as you approach retirement.

How can I possibly save enough money in my Superannuation account to provide enough to live on when I retire?

The problem with paying additional contributions into Super is that you have no leverage available to you on these funds. Superannuation virtually quarantines the cash in your Super account and you cannot access the funds before age 60. You cannot borrow against it to purchase appreciating income generating assets.

So making additional contributions to Super may not necessarily be the right strategy if you are looking to build appreciating assets. The younger you are currently, the more likely directing discretionary spending towards the accumulation of appreciating assets like real estate is the most appropriate strategy.

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