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I’m disappointed with my super – what should I do?

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I am really fed up with the stock market and it has really hurt my super fund balances as well as its annual returns. At the moment I would have been better in cash and so I am thinking about reducing my commitment to super to buy an investment property.

I am 45 years of age and want to retire around 60. I am on about $90,000 a year and my wife is on $65,000. We have about $350,000 in super and both get nine per cent paid in by our bosses. We could afford to buy an investment property of around $500,000 via borrowing. I want to hang onto the property and sell it when I retire and I would like a million bucks eventually in our super. What do you think?

If you buy well and the property goes up by around eight per cent per annum on average over the next 15 years, then you should be on par with a good super fund, as opposed to an average or below-average one.

Let’s do some numbers to see how you will go for the million bucks. You have $350,000 in super and if this averages eight per cent for fifteen years, you will double your money every nine years. I have used the rule of 72, which says divide the rate of return – eight per cent – into 72 and it gives you the years for your money to double. So, $350,000 goes to $700,000 by the time you are 54 and by 63 it could be $1,400,000.

Taking away taxes but adding in 18 years of nine per cent contributions and you will definitely be over a million dollars by 60, provided your super fund averages eight per cent.

Your property play is OK-thinking provided you buy a place where tenants want to live. And if you get capital gain, it should be a bonus.

Go to the real estate websites that show you average price gains for suburbs and try to get a return around seven to eight per cent to match super funds. Some smarties buy a rental property they are prepared to live in when they retire and they sell their capital gains tax-free home and roll that into their super fund.

I reckon as long as the average returns work out, you’re sitting in the box seat for a comfortable retirement.

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: Thursday, October 20, 2011

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