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Self-Funded Superannuation For More Australians
    • 17 Jun, 2022

    Self-Funded Superannuation For More Australians

    In 2022 it appears that Australia is facing several growing problems. Most retirees cannot provide themselves with an adequate income while the availability of proper housing for people in many communities is usually seen as a significant ongoing problem.

    When the superannuation system was set up so that employers contributed to all employees' superannuation funds, it was intended that all retirees would have their super. The government would no longer have to pay pensions to all retirees. To avoid paying any aged pensions to seniors, the Australian government introduced an ambitious plan where all employers paid a required percentage of their employees' earnings into their superannuation schemes. Then when all of those employees retire, they should become 'self-funded' retirees. Although this scheme was introduced in 1992, after 30 years with all employers having paid into their superannuation schemes, more than 90% of retirees are still being paid their incomes by the government. This scheme is not working as was intended.

    Another problem is a shortage of residential properties for the number of rental properties that are required. This is because there have been insufficient new residential units and houses to supply this significant and ongoing demand for accommodation.

    If it were an attractive proposition for investors to build and own rental properties, these current shortages in rental accommodation would no longer be an issue. If those investors were retirees, they would no longer be dependent on the government for their incomes. Having retirees as property investors would solve the problems of inadequate housing for the rental market by increasing the number of 'self-funded' retirees. The government could do this by adjusting the legislation required to make property investment attractive to all Australian retirees. The government could create the best answer by solving the housing shortage and increasing the total number of 'self-funded' retirees.

    An example is an older worker having their home mortgage paid off and intending to retire in 10 years. Using their home as security, they would borrow $150K for their $100K Deposit and any associated costs to buy a $500K investment property. The other $400K would be with another loan secured against this investment property. The costs associated with purchasing a property would be some 5%. Having $50K to allow these costs would see a remaining 'buffer fund' of $25K. A net annual return of only 3% from this property would be $15K against the interest-only @ 3% pa costs would be $15,750. As all of these investment properties are being used for the investor's future retirement, perhaps the 10% of all employee's earnings that are being paid into those employee's superannuation funds could be redirected into these 'superannuation properties'. On an income of $100K pa, the 10% paid into the employee's super fund would be $10K. If these funds were paid into this superannuation loan, that 'super property' would only be negatively geared by $750. That amount of negative gearing would then be paid from that well-planned $25K buffer fund.

    With annual growth at 7.2% - after 10 years - the Value of this Property and the net Rental Income would be doubled - but that original 'Interest Only' Cost would remain the same. Then when this investor Retires after 10 years this property is worth $1,000,000, and the net annual Income is $30K. Deduct the interest costs of $15,750, and this investment property has a net income of $14,250 that is being paid to this self-funded superannuation investor.

    Then this investor could retire on 3 of these properties. By using only the $600K equity in their home, this investor has borrowed the deposits, costs and buffer funds to retire with 3 income-producing properties. They then have $1.5M equity and have not had to pay for anything at all. After 10 years of being retired, each $500K property has doubled twice, and this investor then has 3 investment properties valued at $6M and is producing an annual net income of $180K - less than 3 x $15,750 = $47,250 loans interest cost.

    Use these figures on an investor with more equity to borrow against than this example with only $600K equity. Then look at where this could go if those investors had more than 10 years before retiring. This would be brilliant for those retirees, but the most prominent financial beneficiary would be the Australian government. They would no longer have to support the majority of Australian seniors dependent on the government for their living in retirement.

    In WA, there are less than 3 million people. 2.1 million live in the greater Perth area, and the next 4 largest towns combined have less than 200,000 people. Then there are another 50 or so towns with populations of between 1000 and 20,000 people. Most of those smaller towns have schools, hospitals and police stations with staff who generally only stay in these towns for a few years. While in these towns, all these people need to rent properties to live in. Some departments may have properties in these towns for their staff, but not all need to find rental properties. But all of these staff are living in rented properties. Perhaps these properties could be owned by 'superannuation investors'. We are now looking at lower-valued properties with state government guaranteed ongoing tenancies. These could be possibilities.

    By showing the government how much better off the Australian government and every Australian could all be. Property Club only has to convince the Australian government that providing property investors with adjustments to the rules will encourage them to take their investing seriously. Then all Australian property investors will benefit.

    With the government now paying aged pensions to almost 2 million senior Australians, there will be tremendous economic benefits for the Australian economy and all Australians. By having aged Australians become self-funded in their retirement, any improvement will dramatically affect the absolute positive side. This change would also alleviate the ongoing problem of insufficient houses being built to meet the requirements of the ever-increasing population that Australians so willingly accept to enjoy a more diverse community.