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Do we have enough super to retire at 60?

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I have about $180,000 in my super fund and my wife has about $40,000 and I am really disappointed with my super fund returns and my wife’s results have been terrible. Also I realised that we are both paying around 1.3 per cent for these hopeless performances.

I am thinking about exploring starting a self-managed super fund. Also I would like to buy a property inside the fund as I am sick of shares. Do we have enough money to setup a SMSF and how do we go about it?

By the way, we are both in our late-30s and would like to know what we are on track to retire on by the time we are 60 or so?

Let’s start with what you guys are on track to have in your super fund by the time you are 60. I will assume that you are 40 and have 20 years to retire but if you go to 65, then it will be cream on the super cake.

Now you have $220,000 and if you can average an eight per cent return with your super fund, then it doubles every nine years. I get that number by dividing the eight per cent into 72, which gives me nine years.

That means your $220,000 doubles to $440,000 by the time you are 49 and when you are 58, it will be $880,000. Then you will have two more years plus the contributions of at least nine per cent from compulsory super for 20 years plus earnings on that money and so you’re going to be way over $1 million.

In fact, if you worked until you were 67, the money could be $1.76 million plus the contributions as well as the earnings. So you’re in the box seat to be really comfortable in retirement.

Now on setting up a self-managed super fund, you can go to an accountant or an administrator, and accountants charge about $2000-$3000, which will give you a setup plus auditing which has to be done each year. Right now if the cost was $2000 and you have $220,000 in your combined fund then your cost is less than one per cent, which compares well to industry fund costs.

I think administrators are really getting good being online and offering great administration and investment services support as well as investment progress reports. Some people start with an accountant or a financial advisor and then move to an administrator when they feel they are confident about the SMSF, while others find a good administrator and just do a lot of homework to raise competence levels. It’s pretty easy if you commit to understanding what you’re doing.

On putting a home in your SMSF, I think it’s an OK idea, but don’t just do property. Maybe set a goal such as a third of your super in property, a third in shares and a third in fixed deposits or a similar interest-bearing asset.

Also make sure you buy a property that is easy to rent out and where there is a history of capital gain. Remember, you want a rental plus capital gain return that can bring you eight per cent or better per annum.

Do plenty of homework and look at publications like my website that is designed to help people like you. Good luck with it.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, November 29, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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