TextThis is my very first post. Just joined today! Please be gentle as I just learn and maybe ask obvious questions..
I have been told recently that contributing to Super is a better option than Investment property, as residential property is only returning 4 % ish. So taking into account my borrowing costs of 7-8%, I’d be way behind the 8-ball, even with tax mans and tenants help. I am only on 27% tax rate. Any ideas?
Is a broad question. Is like me asking which is a better vehicle …. a 4WD or a Convertible?
Of course it depends on your situation – either can be better.
I am no superannuation expert but an older person can gain a lot of benefit from Super. Younger people, who don’t invest (lets face it – that’s the majority) should use Super as much as possible too. I think it is a safety net for those who don’t act in a positive manner investment wise.
We are in our 40’s and decided that my wife (the Dr ) is going to salary sacrifice into super. We are closer to our 60’s than many forum members.
But having said all that – you really should consult an accountant.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simons analogy of the different motor vehicles is so true.
For each persons individual circumstances the answer would be different.
Certainly Superannuation has the most attractive Tax strructure and even if you buy and sell an IP within Super the CGT is less than it would be held personally is you hold for more than 1 year.
In saying this there are limited gearing opportunities and therefore many people prefer to purchase assets outside of Super as they cannot borrow in the traditional way.
Like Simon I am in my early 40’s and am lucky enough to have retired and work when i want so for me i look to maximise my Super contributions in order to both protect assets but also enjoy the Tax haven it brings.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
With low funds in Super and having seen the years of -returns, my preference is for Property.
You definetly need to factor in many more things when comparing the two though and I’d defer to an someone more experienced than me
Our last IP was purchased for $290k, rents for $300 p/wk and we put none of our own money into the deal, 13 Months later its valued at around $415-420k, the Capital Growth has been great for this property as has depreciation, with it being rented as a Fully Furnished IP.
Great Return on Investment ;o)
“Money is a currency, like electricity and it requires momentum to make it Effective”
Online Positive Cashflow and Renovating CalculatorsSummersky,
as Richard noted, remember that super is only a regulated tax structure. You can usually invest in exactly the same asset within super or outside, although super is much more restrictive, ie not borrowing.
Obviously depending on your age, income, family, risk tolerance, etc, will help determine which asset class to invest in and how to do so the most tax effectively and with appropriate asset protection.
Also, I’m not sure how you can be on the 27% tax rate as the scales are 16.5%, 31.5%, 41.5% & 46.5%, I would assume that you are on the 31.5% rate.
The reduction in marginal tax rates and increase in tax scales has also made negative gearing less attractive and effective, whether through property or shares, so you should look at what your overall investment goals are first, then do as much research yourself that you can, and then seek out personal professional investment advice.
Hello trajik
I think summersky (nice name) means that she/he pays an overall rate of 27% (i.e some at 0%, some at 16.5% and some at 31.5%).
That’s possible. [smiling]I am struggling with the question of to Super or not to Super myself. I am even closer to 60 than you Simon [thumbsdownanim and don’t have any Super at the moment..
I have residential IP’s (3), 1 commercial IP, shares and cash but really need to do something to increase my income on retirement . So what to do. Another commercial IP? Managed funds? Super?
Actually every time I read the posts about the finacial armageddon we are facing all the options seem scary. After all if both property and shares are due for a major downturn then the only “safe option” is to put all your cash into a high interest fixed deposit account within a SMSF and just live off the tax free interest (less that years inflation) at some point. The ultimate zero risk strategy?.
However, I have never been one for zero risk strategies though I do not have the temperament to live off equity. [blush2]
Yes, I will be getting professional advice (though who do you listen to?) but would appreciate any comments or suggestions.
Thanks [smiling]
ElkaI agree that the 27% is maybe the average tax rate on Summersby’s current income, but the reason that I queried the 27% tax rate is that the average tax rate is really irrelevant, because it only matters how the next dollar is going to be taxed , or how much of a tax benefit you’ll get, which is based on the marginal tax rate, 16.5%, 31.5%, 41.5% or 46.5%.
If Summersby is paying average tax of 27% then his/her income must be about $90k, which is in the 41.5% marginal tax bracket, a big difference to 27%, 14.5% difference in the tax effect of additional income or negative gearing.
Although tax should not be a basis for making an investment decision, it certainly needs to be understod how it does impact your investments so that you can take advantage or avoid any unwanted surprises.
Wow! Hey guys.. I’m not used to being on such a fast moving forum… so thanks for taking time out to answer.. I appreciate the support
I realised on reading all your reply posts.. I paid 21% tax last yr, not 27%… my mistake , must have pressed the wrong key. Sorry for that blunder…( and on my 1 st post too!.[glum])
I am on 42 k per yr. I am approx 6-8 yrs out from retirement. I think that I’d hate to miss out on the remaining earning years that I have left… in terms of getting some investment behind me. My super fund is the one at work… not my own SMF, so cant buy assets within superDependant on your income needs may certainly be a classic case of pumping money into Super through Salary sacrifice
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Do you want to retire at 35 or 65?
I read recently inb Money magazine that most Australians wont have enough super to retire on. Scary stuff.
Compare this to investing in property, using the built up equity to multiply and building up a nice little portfolio. If property doubles every 10 years, how many years would it take to own at least 6 two bedroom apartments outright, providing what will undoubtably be a nice cashflow for retirement?
My bet is property, I have more control over my future, can retire alot earlier and there will still be a superfund (that wouldnt be enough on its own)
Besides, property is a fun game to play.
[biggrin]Ask yourself “Do I have the COURAGE to be free….?”
Why would anyone in their right mind deliberately make the choice to invest in a vehicle that you have no control over and most importantly cannot leverage off???????
I replaced my income and retired at 33 using PROPERTY!, has anyone ever done that with super?
It’s more like investing in a rolls royce (always appreciates in value) or a car that may explode and not even be there in the future, it’s just a no brainer to me!
Investment Property Management
http://www.adprop.com.auDifficult to decide whether you want to retire at 36 or 65 when you only have 6 years to go prior to retirement.
Sometimes i think fellow posters should actually read the entire post before answering the question with a vague statement.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
fair play, I missed the bit about how long summer had till retirement.
Regardless of age, I was responding the the vague statement “I heard super is better than property”. Which deserved an equally vague response on why I believe property is a much better option.
Richard, I dont see the value in belittleing other peoples posts, who are just trying to contribute and often themselves are learning along the way.
Ask yourself “Do I have the COURAGE to be free….?”
I realise now that I should have given out more info… that would have helped in the 1 st place.
I am 54 y.o, have 2 IPs already. Value of them together $600-$650k. Total debt still owing on them is $408k. But I have already milked equity on them to buy shares in an unlisted company….which produce a very slightly positive income( and even slighter capital growth!) that in turn helps me meet loan and other costs on these properties.I bought my 1st IP in 1999, the other a year or so later.
Since the years are ticking… I am trying to work out if now is the time to batton down and chuck any spare cash into super, or go for broke and use the $ to save for a deposit on another IP.I find it very confusing… and have been to several FA and Planners, but get the feeling that they are trying to sell me managed funds etc
Another said that my risk profile was out there. (Does that mean I’m out on a limb and too stupid to know the danger?!)[withstupid]My concern is that me popping salary sacrifice into my Industry super,doesnt have the benefit of gearing.. but does now have tax advantages. I know that there are no guarantees with property
either though.
maybe my expectations are too high… a planner once suggested that I will be happy on an income in retirement of $40. I begged to differ, and his reply was that many people set unrealistic goals for themselves. Wondering now if I am one of themOriginally posted by summersky:I realise now that I should have given out more info… that would have helped in the 1 st place.
I am 54 y.o, have 2 IPs already. Value of them together $600-$650k. Total debt still owing on them is $408k. But I have already milked equity on them to buy shares in an unlisted company….which produce a very slightly positive income( and even slighter capital growth!) that in turn helps me meet loan and other costs on these properties.I bought my 1st IP in 1999, the other a year or so later.
Since the years are ticking… I am trying to work out if now is the time to batton down and chuck any spare cash into super, or go for broke and use the $ to save for a deposit on another IP.I find it very confusing… and have been to several FA and Planners, but get the feeling that they are trying to sell me managed funds etc
Another said that my risk profile was out there. (Does that mean I’m out on a limb and too stupid to know the danger?!)[withstupid]My concern is that me popping salary sacrifice into my Industry super,doesnt have the benefit of gearing.. but does now have tax advantages. I know that there are no guarantees with property
either though.
maybe my expectations are too high… a planner once suggested that I will be happy on an income in retirement of $40. I begged to differ, and his reply was that many people set unrealistic goals for themselves. Wondering now if I am one of themIt sounds like you are heading for ‘paralysis by analysis’ there summersky. Formulate your own plan, get educated in that direction and stick to it.
Always set your expectations high – you may just reach them.
I don’t think 54 is too old or too late. If you are planning to retire at 65 you still have 10 years left, and you are already well on the way with your 2 I.P’s – well done so far – most Aussies don’t even have one. You can achieve an enormous amount in that time.
As for super v property, I tend to favour property as I am in total control, and the returns are still good when you consider ALL the factors of property – not just the ‘median’ capital growth that the media and the various institutions quote, and many planners say to steer you towards their ‘products’ . But that’s just me. I’m with redwing on that one.
You already have both vehicles working for you so why not just keep doing what you are doing? You may want to favour one more than the other over the next few years. With many property markets near the bottom of the cycle right now it’s a good time to buy if you buy well – education, education, education.
Personally, I have super, property and a few shares. For me, the super and shares are secondary, but they are steadily going up so I’m happy.
As for the financial planners, I believe the best advice will come from those that are charging for their time; there is usually no agenda to try and flog you a ‘financial product’ that they will make a commission on.
If you think you are stupid then guess what; you’ll be correct!
Keep up the financial education and keep making informed investment decisions of your own (with the forums’ help of course!!).Cheers,
Marc.
[email protected]Thanks LA Aussie… and all you other forumites… maybe I am getting too anxious. I have been stressing about this for 6 mths now. I really wanted to be retired before or at 60, as I would love to travel, but havent had the opportunity to. Suppose if I have to stack shelves for another few more years … so what! I’ll take a deep breath and calm down![chill]
Anyone know then, the end result of 10 yrs of supers savings (with tax benefits & interest), compared to gearing the same amount over 10 yrs?Hello summersky
Here is a link to an investment calculator which may help you calculate what rate of return you need to achieve for x years to get you to the income you want to have at retirement.
http://www.landausecurities.com/calculator.asp
Maybe it will help you calculate how aggresively you need to invest to reach your goals.
I am definately NOT recommending the site and naturally they are in the business of selling you investments.
B.T.W. I also don’t agree with your investment planners suggestion that you only need $40K income in retirement. In my opinion one needs more income not less in retirement. After all you have more free time to spend it in [biggrin].
The days when retirees disappeared behind their pot plants are long gone. As you say , you want to travel and I am sure that you will find may other great activities to persue after you retire. This all takes money.
Hope this helps. [smiling]
ElkaLA Aussie is spot on, “You can achieve an enormous amount in that time.”
I recently heard of a woman in her 70s who has decided to start investing in property with success. I hear, time and time again, stories of people who have made great leaps within 5 years – often while earning very modest incomes.
The key is buying quality property in areas that will provide good Capital Growth. You will recognise good property when you have seen many, many properties within your chosen area. As LA said, Education, Education……
Read PI books, go to seminars, speak to other PInvestors.
Your fear is a great thing, because in will motivate you.
Embrace it….Heck, thanks guys… I sure am glad that I found this forum… I will get on to that calculator
… and have a play around. My hope was that one day I could live off my investments and I think I just need to see myself as having lots of time to invest.It is so true.. I DO want to travel and get out of the grind.. and see places.. and buy lunch! (how many of us have been taking a cut lunch for yrs to save $!?) I Wanna be an old grey groover one day.[upsidedown]
Seriously though.. I figure that we will actually all need MORE $ when we retire… lifestyle, outsourcing domestic chores, medical costs, prosthetic hip when we are 95 years old, so that we can climb the Swiss Alps etc….You guys have all positive geared properties? My 2 are negative. How do you get a positive geared P and get future good capital growth ?
SummerskyI think people also forget that when they do retire they may still have 20-30 years or so until they depart this world. That is a long time, so retiring may be from the fulltime workforce, but that doesn’t mean that you are retiring from life or from investing, if anything you’ll have more time to concentrate on your investments and hopefully grow them to increase your standard of retirement
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