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Transition to retirement with a smart investment

Categories: Commercial, Investments, Superannuation

One minute you’re climbing the career ladder. The next, you’re wondering why you didn’t plan your transition to retirement.

The transition to retirement can come too quickly and painfully for those without a plan to generate cash flow when their working years are over. Many will rely on their regulated superannuation fund for hand-to-mouth or live off dividends from shares.

But super funds aren’t performing how they used to, and the share market has been (as per its nature) volatile. Whether or not you agree with us, it’s smart to consider all avenues if you’re about to transition to retirement.

Here’s why you should consider other investments in your transition to retirement:

You super is underperforming

Even the Australian Prudential Regulation Authority says so. In December 2019, APRA identified 19 MySuper products holding $70 billion in assets as underperformers.

The prudential regulator has rated super funds owned by Westpac’s wealth among the worst. That means $17 billion in retirement savings held in the bank’s BT funds are underperforming.

If you’re headed toward your twilight years with the reliance on a regulated super fund, APRA’s finger-pointing is something to take note of.

This is reminiscent of our coverage on 2019’s Top Performing Super Funds: Not a single fund exceeded 3 per cent returns for the year. All of them, listed by the AFR and Chant West, underperformed compared to SMSF property investment.

Poor returns and high fees

Also reported in 2019, almost 70 per cent of MySuper products offered by retail funds are underperforming when measured against returns generated by their peers. The primary reason for this, according to asset consultants Frontier Advisers, is a combination of high fees and poor returns.

Frontier anticipates that 33 per cent of products holding over $50,000 will pass the regulator’s benchmark for administration fees. The rest are charging way too much, apparently.

Fees are typical of superannuation funds, even self-managed ones.

SMSFs can costs thousands of dollars to set up and manage. However, there are investments available to combat this.

Look for high yields.

Transition to retirement with a smart investment

We’ve called it a few times, but SMSF investment into commercial property can be the way to go for those wanting strong cash flow when they transition to retirement.

Office property returns are hitting 11.6 per cent total returns according to The Property Council in August 2019 (and these returns are down from 14.7 per cent the previous year). Industrial property total returns rose to 13 per cent from 11.5 per cent.

3 reasons to choose SMSF investment into commercial property

Our SMSF investors tell us the three reasons they choose SMSF property investment are:

  1. It’s a tax effective structure
  2. It outperforms regulated super funds
  3. It’s a safe investment avenue: SMSFs can provide the necessary discretion to create a fully diversified, high yielding portfolio.

We like SMSFs because they enable investors to do it themselves. Unlike many of these regulated super funds which can be heavily weighted in shares, cash or bonds.

If transitioning to retirement, you need flexibility in your investments. And that’s what SMSF investment in commercial property can provide.

Our biggest tip: Don’t forget that diversification is key when investing well. A balanced portfolio is not only a smart investment strategy, but it’s prudent when considering your retirement.

Properties & Pathways is a commercial property investment company in Australia. For more information on how commercial property can fit into your retirement strategy, get in touch with us today.