Using Super as an investment account?

Long time reader, first time poster - i apologise if this is in the wrong forum - im 25 & am trying to drag myself out of debt - i was told bankruptcy would be my best option but chose not to & am finally getting some control on my finances - I am thinking about using my Super as an investment account, similar to a managed fund + i get the governments contributions (with the plans of opening a SMSF up the track)

i currently have an "annual expenses" (vehicle rego, insurances etc.) high interest savings account & i planned to put 10% of my savings & the difference between private health insurance plans in there (i choose the lowest possible private health option apx $10 a week for tax purposes but put the difference between the highest option, say $30 a week into this account, should i need an op, i have cash & insurance) & will soon put an additional 6% into my super, upping it to a total of 15% of my income.

I get charged $35 for every withdrawl of voluntary contributions, so i would keep them to an absolute minimum - change all insurances to annual & take out vehicle reg, RACV etc. fees at the same time each year. I understand the risk of investment but i also believe to do nothing is riskier & my current super portfolio is performing at almost 15%. My voluntary inputs a week would total apx $150 & im young enough to rebound if things turns bad again.

Does it sounds feasible to the more experienced investors in here? Are there any negatives ive overlooked?
 
You won't be able to access super for more than 30 years, and that's assuming they don't change the rules. Super has tax advantages but also lots of limitations.
 
Unless I'm missing something, once you contribute to super - voluntary or not - you can't withdraw it until you retire or reach preservation age. Or are you taklking about withdrawing from the high interest account?

Like Alex said, you won't be able to access the super funds until you turn 60. And that's the law at the moment. I'd bet that by the time you are 60, the preservation age will be at least 65.

I would be looking to invest in your own name, rather than extra super at your age.
 
what the definition of retired for super release?

If i was retired at 40 can I access the super accounts?

My understanding is no. You can't access super just because you have enough to not work anymore. There are certain circumstances like you're dying and so on, but in general, money put into super is locked in until you're 58 or whatever it is.

Which is a massive limitation for using super as a vehicle, especially if you're young. There are also other issues to consider such as super funds can't gear as easily (or as highly) as your personal name, and can't negatively gear (you'll have to contribute enough to make it neutral), which is an issue if it's more than 25k negative, and the benefit of depreciation is limited.
 
however super is protected from bankruptcy which makes it extremely attractive. the tax concessions mean you can grow it quicker than outside and it is surprising how fast the years fly by.
 
however super is protected from bankruptcy which makes it extremely attractive.

So does a family trust, if you set it up before you set up a business. Likewise assets held in a spouse's name, for example. Most salaried employees are unlikely to ever go bankrupt from the jobs.

the tax concessions mean you can grow it quicker than outside and it is surprising how fast the years fly by.

I disagree, since investments outside super can be more easily managed for tax (depreciation, franking credits, etc), and more highly geared. For a younger person just starting out, they are likely to have a higher LVR.

The years flying by also applies to assets outside super. I can't imagine how I could have built the portfolio I have now within super.

And of course the biggest issue is if you manage to build enough assets to live off, even partially, well before your late 50s, and all of your assets are in super......
 
So does a family trust, if you set it up before you set up a business. Likewise assets held in a spouse's name, for example. Most salaried employees are unlikely to ever go bankrupt from the jobs.......

interspouse loans affect your vulnerabilitly, plus any bank will require all parties and companies and trust to garuantor any mortgage they advance. It can be the case that it is the trust that brings the trustee down, not vice versa

I disagree, since investments outside super can be more easily managed for tax (depreciation, franking credits, etc), and more highly geared. For a younger person just starting out, they are likely to have a higher LVR.

And of course the biggest issue is if you manage to build enough assets to live off, even partially, well before your late 50s, and all of your assets are in super......

franking credits are still way more effective within super. also higher LVR = higher risk. With what the workd is going thru it can hardly be argued that being geared to the back teeth is a good wealth creation strategy?

last point fair enough. I am not syaing rush out and put all your eggs in one basket, but at some point super is an extremely effective way fo preparing to retire from 55 onwards. till then maybe just get a job at your local cafe or dive shop or somehting. vegging on a beach from the age of 40 could lead to premature death anyway!
 
interspouse loans affect your vulnerabilitly, plus any bank will require all parties and companies and trust to garuantor any mortgage they advance. It can be the case that it is the trust that brings the trustee down, not vice versa

I was thinking debt recycle so that the PPOR is debt free, transfer it to the spouse, then have the spouse do a 60% LVR no-doc (or whatever) and lend it back to me.

The usual way is to separate businesses (which have higher bankruptcy risk) and passive assets like IPs and shares (which have a lower risk of making you bankrupt). If I have two trusts, one to hold shares and IPs and another to hold the business, and the business tanks and drags me as a director down with it, the IP and shares trust will likely be protected. Assets in the spouse's name should also be protected, assuming you don't put the spouse on any of the business documents.

franking credits are still way more effective within super. also higher LVR = higher risk. With what the workd is going thru it can hardly be argued that being geared to the back teeth is a good wealth creation strategy?

I disagree. A non-working spouse can use franking credits more effectively than a superfund, if only because the tax refunds are outside super.

Yes, higher LVR = higher risk, but that's not a good reason to use a vehicle that limits your gearing. If you don't want to use as much gearing, fine. Don't deliberately lock yourself into super just because you don't want to gear as much.

Personally, I think a world that's just gone through a bust is arguably a better time to invest aggressively than a world that's booming right along? I bought a few shares in 2009 that have done very well. Much better than if I'd bought in 2007.

A younger person, arguably, can afford to take more risk. My opinion only, of course.

last point fair enough. I am not syaing rush out and put all your eggs in one basket, but at some point super is an extremely effective way fo preparing to retire from 55 onwards.

If you plan on only stopping 'work' after 55, I agree that super is a good vehicle. Super can be a good vehicle, but not for everyone. If I'd used super from day 1, I would have far less than what I have now.

If I invest aggressively and successfully from an early age, I won't ever be in a position where I need to set my financial independence > age 55.

till then maybe just get a job at your local cafe or dive shop or somehting. vegging on a beach from the age of 40 could lead to premature death anyway!

You let me worry about that. I plan on doing very meaningful stuff like spending more time with family and reading and learning and travelling.

Not planning to be financially independent (I don't use the word 'retire', personally, because I'll still be actively managing my assets) because you don't know how to fill up the time is hardly a good reason to deliberately use a vehicle that doesn't let you access the money until your late 50s?
 
Thanks - i was under the impression voluntary contributions were accessible failry quickly, but im sure thats just how the Super Co's want us to think. I get the papers out & run over the small print...
 
Awsome perspective by both alexee and ausprop.

Different strokes but both very valid. Cheers for the share
 
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Thanks - i was under the impression voluntary contributions were accessible failry quickly, but im sure thats just how the Super Co's want us to think. I get the papers out & run over the small print...

Nope, both employer and voluntary contributions can't be accessed until preservation age, which for you is currently 60, barring any future legislative change.
 
Nope, both employer and voluntary contributions can't be accessed until preservation age, which for you is currently 60, barring any future legislative change.

Reading through my member guide:

Unrestricted non-preserved: these benefits may be accessed at any time without a change in employment status & subject to the following rules:

- Withdrawls may be made from unrestricted non-preserved balances 4x in a 12month period
- The members account balance cannot be reduced 10% of the value as at July 1 each year or $1052 gross (whichever is greater)
- an exit fee is applicabe for every withdrawl ($35)

I just shot them an email but I guess i better find out their definition for "Unrestricted non-preserved" now...
 
Unrestricted non-preserved

These are benefits you voluntarily kept within the super system after you met a condition of release. If the super fund rules allow the payment, your fund can pay you these benefits at any time on demand, regardless of your:

  • age
  • employment situation, or
  • financial position.
http://ato.gov.au/superfunds/content.asp?doc=/content/48211.htm&page=1#P42_1533

and there is a further link with conditions of release.

http://ato.gov.au/superfunds/content.asp?doc=/content/48211.htm&page=1#P42_1533
 
SJFOU

Just rereading your original post and there is some things that seem to have more questions than answers.

You say you are in a large amount of debt, what got you into this position?
You are considering uping your contributions to your super, why would you do this and not try to minimise your debt firstly?

I myself have looked into super as a investment tool and if you do a search on SS there are some lengthy discussions on this but you would need to have from what my research says atleast 80k in your super to start, unless of course you are with a super fund that links itself to say the top 200 shares where you can decide which shares


I would as mentioned in my first paragraph look at what has got you into debt and fix that. If you declare yourself bankrupt it will still be recorded even if you walk into a bank and wish to borrow money against your super.

Jezza
 
I'm 34, and think super is basically a waste of money. I contribute the bare minimum. My circumstances are such that I expect to exit full time work in about 12 years. Currently, I wouldn't be able to touch my super for another 26 years, assuming the govt doesn't make any changes (which I'm almost certain they will).

I strongly suspect that over the next 30 years or so the goverment will:
1) Increase the age at which I can access my super. When super was introduced the 'retirement' age was within a few years of male life expectancy. Already there are substantial murmurings in government that people should be working longer, including in the Henry Report discussion papers that were released. The age 68 is already being mentioned for the age pension, with suggestions of super preservation until the same age. I expect this will increase over the next few decades.
2) Increase super taxes. At present, super tax rules are fairly generous, trying to get baby boomers to make up for lost time in super savings. Already, though, the current government has limited the amount that can be put into super tax free. As time goes by, and the majority of baby boomers are retired (in one way or another), there will be less incentive to provide these tax breaks, and the 'richer' people with super will be expected to pay more in taxes, probably from their super earnings. Further, this business of receiving super payments post retirement tax free is unlikely to last forever. When some people can make more than the average wage in retirement payments, there will be questions asked as to why these 'rich people' aren't paying their share of tax.

For someone in my situation (under 35, high income), I think super is a very poor investment vehicle. There's just way too much risk going forward that can't be effectively managed.
 
The problem is that super is designed as a vehicle for people who otherwise wouldn't save, to save for their retirement. It's designed to limit risk, because most people don't know how to manage it. It's designed to lock money in, because otherwise people would just spend it.

For someone who otherwise wouldn't save, super is a great vehicle and they should contribute the max into it.

For someone who CAN save, wants to and is willing to learn how to invest, especially if they're young, super is unlikely to be a good vehicle.

Super is a Volvo. That may not be appropriate for everyone.
 
Horses for courses!

I'm 34, and think super is basically a waste of money. I contribute the bare minimum.

Super can be a good option once you have enough in the fund to start your own SMSF and control what fund does.

My 29 years old son thinks along the same lines as you - but I am saying to him salary sacrifice $20 per week (falling on deaf ears at the moment).

Also put in $500.00 post tax (work out amount exactly on caluculator) and receive government co-contribution. (Has been doing this).

In the future we plan to bring our 2 grown children into our SMSF and buy property & shares. We will ensure they keep their work Super Fund going as it has insurance attached.

Our children have 34K & 36K in their super fund as I always considered super a part of their wealth creation.

Alone one person with 34K can't do much nor can another with 36K but if they have a clear investment strategy and join with their Mum & Dad and buy a 2x2 duplex outright with money left over for a renovation.

I have my eye on a 2x2 for 330K which is rented under market and needs a reno but I am not ready yet to go down this path as yet. Duplex is not strata'ed.

The other thing one must remember is that some people will never retire as earning to much money and are happy to pay tax.


Regards
Sheryn
 
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