How Much Super Do You Really Need? - with Dawn Fouhy & Todd Sloan

Have we been lied to about superanuation?

>> People with their supras, the only thing that's growing is regret and body corporate fees.

>> This episode we're talking minimum amounts you need in your super to start growing a property portfolio with your SMSF.

>> You want the super fund to be able to maintain the costs of the asset, not get yourself into a pickle.

>> Together with property investor and founder of future proof property advisory, Dawn Fuh, >> there's nothing worse than buying the wrong property in your super. You would

have been better off not doing it. But I

think the thing that bothers me most about this is that >> if you've been wanting to understand more about how to build a property portfolio in your SMSF, but just don't

know where to start, this is a perfect foundation to understand the minimum amounts you need in your super fund. My

name is Todd Sloan. This is the Pizza and Property Podcast, and this episode is powered by Property Strats, Future Proof, and Investor Kit. More about our show sponsors in the show notes below.

Right now, let's jump straight into the episode with Dawn Fooy. Dawn Fooy, how you going >> Todd? What's cracker lacking?

>> Todd? What's cracker lacking?

>> There is a lot cracker lacking at the moment.

>> You're back or >> uh actually me back's not best, but anyway, that's another story. Let's talk

about super because we're going to have an amazing episode lined up for you guys right now. Dawn has put so much into

right now. Dawn has put so much into this. We're going to be talking minimum

this. We're going to be talking minimum super balances, but also a little bit more facts and figures on really what your super is potentially going to do for you in retirement if you don't do anything. And then also a little bit

anything. And then also a little bit more about borrowing for buying property in your SMSF. Do you now you've done this personally both personally professionally like this is a talk that you very much walk as well, isn't it?

>> 100%.

>> Okay. And I know there is so much more like you and I could probably make an entire podcast just on buying in your super, let alone a slice.

>> We could probably have 100 episodes just on super.

>> It's so intense, but it's also something that is so good to understand because I haven't done it yet. And Bianca and I are now setting up to do this because the more I learned about it, the more I was like, this is almost like a little

clone of yourself that has this extra borrowing power that I'm just wasting.

So, let's dive into it. But is there anything you wanted to actually set the stage with before we start talking about superfax borrowing and the minimum amounts?

>> You need to talk to a really good accountant and financial advisor. So,

this is not financial advice. This is

based on personal experience and talking to some of the best brokers and accountants in the country. And because

I'm kind of sick of seeing people with their supers, the only thing that's growing in their super is regret and, you know, body corporate fees. So yeah,

I just see people making so many mistakes. So I really want to help like

mistakes. So I really want to help like them.

>> What a recipe. Regret and body corporate fees growing. They're the two things you

fees growing. They're the two things you don't want to grow.

>> Absolutely. And AMP had released statistics recently that at 65, men in Australia when they retire have a super balance on average of 400,000 and women have 300,000. the women's balance is

have 300,000. the women's balance is lower because they have more time off the workforce with maternity leave and and staying at home. But the real takeaway is so if their supers are

combined at 700K when they retire 65, they're like, "Yay, we've got 700k." You

will only get you have to withdraw a minimum of 5% on that 700k a year in the pension phase of your super.

>> So you have to draw down >> you have to draw down a minimum of 5%.

Okay.

>> So that is 35k a year >> for both of them. Yeah.

>> Yeah. See, this is the thing that gets me because I was playing around with some numbers recently on this as well.

And that's similar to what an 18-year-old makes at McDonald's working full-time. That's what you are living

full-time. That's what you are living on. It's actually not that much more

on. It's actually not that much more than the doll. Like being being on unemployment benefits or a study or whatever it's called now. That's

atrocious. And this is if you're a couple.

>> If you're a couple, >> if you're single, >> well, it's half of that.

>> You're not living.

>> You're not doing much. And then there was data that came out that 40% of people when they retire still have a PPO loan.

>> So I don't want this to come across as fearongering.

>> No, absolutely not. But this is just >> this is the fact. Yeah.

>> Yeah.

>> And right now if you're a single person retiring, female on average 300 grand, male on average 400 grand. Even if

you're combined and you've got 7 800 grand, whatever it is, you're still not going to to have the most amazing retirement as far as your options are concerned. Is there anything else?

concerned. Is there anything else?

Because like I said, I don't want this to be into >> No. And I I think it's just that the

>> No. And I I think it's just that the government, you know, forces your employer to pay you 12%. So it's like force savings. They don't trust you with

force savings. They don't trust you with that money. It's like here's your money

that money. It's like here's your money for retirement locked away. But the

government hasn't actually thought about how are folks supposed to live like where's the financial literacy and education for people around their retirement? Because let's face it, we're

retirement? Because let's face it, we're all going to be living longer with advances in, you know, medical technology and just everything that's happening. So the average age a person

happening. So the average age a person lives to in Australia is 85 and that's how they've calculated that you have to draw down 5%. So that 35 grand lasts you 20 years. That actually reminds me of uh

20 years. That actually reminds me of uh Japan. This was years ago and an older

Japan. This was years ago and an older man put his hand up one day when they were talking. And this was talking to I

were talking. And this was talking to I can't remember who it was, some kind of government official or president, prime minister or whatever. And he was like, "What can I do to to help the aging population crisis?" And the guy's answer

population crisis?" And the guy's answer was, "You can die." Because the the expected the life expectancy of people in Japan increased that drastically that their social welfare system didn't

actually plan on people living that long and couldn't actually afford for people to live that long. And listening to what you're saying now with a minimum requirement of 5% draw down on 700,000 combined 3 to 400,000 single if we do

end up living longer like hooray that's what we want but not if we can't afford it >> but statistically because we're going to have an aging population as you know birth rates decrease but anyway that's a whole other thing we can dive into >> again this is why it can be a whole

podcast itself uh yes but for you to look after yourself and your family here's what you need to know so it can be very confusing but I've tried to make this as simple as possible so the main things you need to know is the

differences between buying in your super and outside of it. And what that means, >> okay, >> number one, you can't access equity.

Properties stand alone within there. And

there's only certain non-bank lenders that will lend to you for their super and their interest rates are higher. And

the borrowing occurs through a limited recourse. So what that means is if your

recourse. So what that means is if your super can't repay the loan, the lender can only take the asset bought with the loan. They can't come over your after

loan. They can't come over your after your super.

>> So you're talking about a limited recourse borrowing arrangement. Correct.

>> Okay. And this is something that people need to understand. Again, going down the financial advice path, this is not something that you just randomly do yourself. But you're saying that there's

yourself. But you're saying that there's a different level of protection though when you are buying in your super when it's done correctly.

>> Correct. Got

>> absolutely. And so non-bank lenders, you know, there's Liberty, LRO, Granite.

Talk to your broker about which one suits you best. The LTV requirement is higher. So most of those lenders,

higher. So most of those lenders, depending on how much is, you know, being paid into your super, will need 20 to 30% deposit. 20% is common and you need a liquidity requirement. You can't

use your whole balance just to buy property. You should get that advice off

property. You should get that advice off a really good accountant. Um because you want the super fund to be able to maintain the costs of the asset, not get yourself into a pickle.

>> Can we open this up a little bit more?

Because this is now taking us to answering the question of minimum requirements here because some people might have 100 grand in their super and like, well, cool. I I've got enough for a deposit. This is where having

a deposit. This is where having liquidity requirements really can actually affect that >> 100%. So it was really interesting to me

>> 100%. So it was really interesting to me that you don't there's no such thing as a minimum balance that you need to buy property in your super, right? But you

need >> there's a butt coming there, isn't there?

>> But yeah, well you need practical common sense. You need to talk to an accountant

sense. You need to talk to an accountant just because you can use your whole amount to buy a property like that's not really sound advice at all. You need to have a buffer there. So, and this comes

back to what people don't understand is how borrowing capacity is calculated within your super. So, it's not a fixed number. It's constrained by your

number. It's constrained by your contributions, the lender's criteria, and your super's ability to service the loan.

>> Can we attack those one by one?

>> Of course.

>> So, contributions at the top.

>> Yeah. So, in super you've got concessional and non-consessional contributions. So, your employer has to

contributions. So, your employer has to pay you 12%. Okay. So, if you're on, let's make it easy, 100 grand a year, your employer has to put in 12K a year into your super.

>> Makes sense.

>> You can top that up up to a value of 30K.

>> And this is a recent change. It used to be 25 or something.

>> Used to be 27,500. 27500. That's right.

>> They've increased it, I suppose, as the with the debasement of our currency, they've had to do something. Now, you

can salary, again, not financial advice.

This is just talking off my own experience. So, you can uh salary

experience. So, you can uh salary package uh that and that be taxed at the super rate. So when you say salary

super rate. So when you say salary package is like salary sacrifice >> pre yes so pre-tax that'll go into your super and you'll only pay the super tax on that which you

know is about 15% about but just check with your accountant on that.

>> I feel like we need a constant lower third over this episode that just says this is not financial advice check with your accountant because there is just so many variables to this but again for you're speaking from your own personal experience this is what you did.

>> Yeah absolutely. So the more you put in the more you can borrow. So, let's say you're somebody with 200k. You and your partner have 200k in your super.

>> Mhm. Combined.

>> Combined. You want to put down a 20% deposit on a property at 160,000. So,

you're putting down that deposit and let's say you don't put in any extra contributions and you and your partner are both on 100k. So, there's 22,000 going into the super.

>> Mhm.

>> A year.

>> Yep. And you're putting down $120,000 deposit you.

>> Uh, sorry. 160 out of 160 out of the 200. We're going to leave 40 for

200. We're going to leave 40 for liquidity and also we need to take into account you know stamp duty veance those costs have to be paid as well from the super fund.

>> Of course >> different lenders will give you different borrowing for 160.

>> Again depending on your contributions and your ability to top up if needed.

>> When you say depending on your contributions so how much does your wage play a part in this versus your contributions? cuz like

contributions? cuz like >> everything.

>> So if you're you're on 100 grand a year, you're putting in the $12,000.

>> Your employer is putting in the 12 grand.

>> Employees putting in the $12,000 and then the $30,000. So that's how does that work? That's

that work? That's >> so 12US 30, you can put in pre-tax up to $18 grand extra.

>> $18,000 extra. Got it. So, what I think what I'm getting at then is if there was someone that was on $200,000 a year, right, and they were just putting in the minimum, so in that case it would be

what is it? 20 $24,000.

>> Would they have >> on their own they would have 560 to 625 they could spend.

>> Got it. But it's the contributions though extra and the standard that is actually what really determines the borrowing power.

>> No, like just not just Yeah. So, it's

it's all variable depending on how much you can service within the super. So,

what's your concessional contributions, but you can also make non-consessional contributions. So,

contributions. So, >> this is talked about with your accountant because this is post tax money you can put in and there's a limit on that. But basically, in a nutshell,

on that. But basically, in a nutshell, your borrowing capacity and your super is determined by the contributions that are going into it because that's your servicing.

>> Mhm. So, even if someone's on a higher wage, if they're not putting extra contributions in, whether they're non-t taxed or taxed versus someone that's on a lower wage, but is putting extra contributions in, >> doesn't matter. The person on the lower

wage will still be able to borrow as much. Yeah. Yeah.

much. Yeah. Yeah.

>> Which is really good.

>> Yeah. Okay. And this is what's bringing me to the point that I'm trying to actually like sculpt this into is if you are putting in those extra contributions to be able to actually purchase and increase that borrowing power, do you know is there any kind of minimum time

frame? Do you have to have done it for

frame? Do you have to have done it for for 3 years, for two years, or is it just you can do it one year and then you don't have to do it forever or so if you were to put in an extra 20 grand in one year and go, "Cool, I'm going to do this or 18,000."

or 18,000." >> Yeah. You can decide yourself on, you

>> Yeah. You can decide yourself on, you know, >> and then that's what the lender assesses that on. They don't look at it and go,

that on. They don't look at it and go, "Oh, you didn't put that in for the past 5 years."

5 years." >> They will look at your income and see whether you can continue to service putting in the extras.

>> Gotcha.

>> So, you can't like, you know, con the system. You can increase your deposit in

system. You can increase your deposit in your super by popping in extra.

>> But if they look at it and go, we can see that you've actually just got a gift from mom and dad or whatever it is.

>> Yeah. Like they're going to look at it and different lenders are different. So

I know Granite have a product where you can, you know, borrow with just 10%.

However, there'll be risk fees. Nothing

is for free when it comes to lending.

>> They don't do it cuz they're nice people.

>> No. And you know, there's a setup cost with super. So there's compliance,

with super. So there's compliance, auditing, accounting fees. It costs

about 8K to set up a super. So, people

need to know that. But aside from all the doom and gloom and you know it is a headache to set up a super to do a rollover. Like it's painful.

rollover. Like it's painful.

>> I don't want this to come across doom and gloom. This is just drilling down

and gloom. This is just drilling down into the detail like and like you're about to say >> it's annoying to set it up. It is.

>> Yeah. Well, it's like doing you refs.

Like they're annoying.

>> It's painful. But when we get to the kicker of like what it's worth. So you

can be on 35k when you're retired. you

know, which your, you know, your bricks and beans, not pizza and property or Yeah. But kicker is the tax you pay in

Yeah. But kicker is the tax you pay in SMSF.

>> Okay, let's expand on this.

>> So, you can't take out equity, remember?

>> But you can sell the thing.

>> Mhm.

>> So, if you time markets really well, you only pay 10% tax, 10% capital gains tax after 12 months on your property. And

for anyone that's newer to property investing right now, just so you understand, capital gains tax normally is taxed against your marginal tax rate.

So if you're already at the highest income level and you're paying the highest tax and then if you sell a property within 12 months or before 12 months, then you are taxed on that whole amount. Even if you've held it for

amount. Even if you've held it for longer than 12 months, you do get the 50% CGT discount, but you're still going to be paying 20 30 like again depending on where you are with your own personal tax rate. So this isn't just a little

tax rate. So this isn't just a little bit less tax. This is a lot less tax.

>> It's huge because for example like one of our properties buying in Perth at 500,000 worth $850 after you know 4 years or 5 years in that cycle that's a

profit of 350,000 taxed at 10%.

>> It's 35 grand.

>> Exactly. But kicker

>> when you sell that property you've made you know that 320 or whatever it is. You

get your deposit back out. So you've put in you know 100k. So then you end up with 460. You go divide that 460 into

with 460. You go divide that 460 into two more deposits, buy two more houses.

Now, can hear everyone screaming already, but shares are better. You

know, property doesn't grow at 6% yearon year. Come on, Todd. Let's break it

year. Come on, Todd. Let's break it down.

>> Okay, so the big thing with this, and you and I were having this discussion just before we pushed record. I remember

speaking to a lady about this and she was talking about buying a property outright in her super.

>> Oh, jeepers. And for me it was just a question of like and she was like super proud that the the super fund was in a position to do this and and that is incredible that she was in a position to do that. But leverage really is the key

do that. But leverage really is the key here because for anyone that's on the the shares side of things which I don't even want it to be a shares versus property. It's it's what's the best

property. It's it's what's the best outcome for you. And if you're not going to use any leverage, yeah, 100% you should be selecting a really good share portfolio, whether a managed super fund,

whatever it is. But when you start buying something with 80% leverage, so your $200,000 turns into a million dollar property, excluding any kind of borrowing requirements here, just to

make this easy numbers, it doesn't take long to drastically outperform the slightly better returns that shares are going to give. I'm assuming you're going to echo exactly this >> 100%. And you know, you look years ago,

>> 100%. And you know, you look years ago, people that were about to retire and there was such volatility in the share market, whether it was a 20% drop or 30% drop. If that's that, you know, poor

drop. If that's that, you know, poor person with 400k or 300k in their super, that's devastating for their retirement, >> you can't retire really. Like if that happened, if you were 65, 67, whatever

it is, and you're like, "Okay, cool.

It's time." And then you remember, what was it just recently when Trump was doing all of the tariff stuff 6 8 months ago and all of a sudden the the share market just went kaput?

>> Yeah.

>> Like and it just comes off of Yeah. one

person. Well, I said one person. He's

pretty powerful president, but [laughter] the president >> of America.

>> Yeah.

>> Just all met down at the shops.

>> Yeah. Just Keith down the road. But but

either way, that the whole point of it is if you were set to retire, I mean, that that actually bounced back pretty quickly. But otherwise, you look around

quickly. But otherwise, you look around back 2020 when everything just went kaput. Like you're not retiring.

kaput. Like you're not retiring.

>> Correct. But I think the thing that bothers me most about this is that sounds terrible, but that people are allowed to self-manage it. So the

government doesn't trust you in the first place, right? So they're making their employer pay into you, but all of a sudden you can go off and buy a property. The amount of people I see

property. The amount of people I see buying at the top of cycles, talking to people who've bought in Brisbane just now or Gold Coast just now or they've bought some off the plan thing. Like I

know for people out there they've had off the plans that have worked, but some of the stuff I'm seeing is like, you know, town houses in paddocks like for 600k like disasters.

>> Is paddock the name of the suburb?

>> Paddocks. Yeah, [laughter]

they should probably call us Paddocks.

Yeah. or people get sold on depreciation and this and that. Look, you don't want a property in super that's going to cost you too much because you can't use your super balance for, you know, you can use it for paint and carpet and other things. Talk to your accountant about

things. Talk to your accountant about what you can and can't use it for.

>> If you're negative by $1,000 a week, this isn't going to work.

>> No, not at all. You just want again our style of investing, ordinary home for ordinary people. Let the market lift the

ordinary people. Let the market lift the thing, sell it, and move on. But you

need to be active and you need to be an active participant for you know a property like trading and super to work.

Otherwise if you're like oh jeers I can't be bothered. I just want to buy Jeepers a good property in a good location. Let it sit there. Sure buy

location. Let it sit there. Sure buy

600k property after 20 years average of 6% growth going well.

>> It's a $2 million asset compared to your 700K taxfree.

>> Yeah. All of a sudden now you have life choices.

>> Yeah. But just make the right decision because there's nothing worse than buying the wrong property in your super.

You would have been better off not doing it because you've spent a lot to set it up with >> and you would be better off not doing it in a lot of >> 100%.

>> When it comes to especially the off the plan thing, there's very few things that I will kick in the guts, but when it comes to buying high-rise apartments off the plan and and again, you you right every now and then there is an exception to the rule of sometimes it works.

However, the main rule and I'm seeing it more and more in the comments and people actually like asking why is it so bad? I

feel like we need to do a whole episode on explaining. So, it's not a an opinion

on explaining. So, it's not a an opinion based don't do it. It's a these are the facts about it.

>> Correct. And I can say as a, you know, a professional in the industry. I've

gotten like a couple of emails from uh companies that sell off the plan houses offering us, you know, >> so much money, >> ridiculous amount of money to sell this product.

>> You know how much money I could make on this show if I started letting off the plan? you've gotten requests for them to

plan? you've gotten requests for them to come on and they've been request but yeah so this is there's a dark side as well to every industry but I just think it's important uh you know buyer beware >> absolutely so when it comes to the

minimum I feel like this is like the crux of it all realistically there's not like a set 100% minimum >> but the minimums come down to the amount of liquidity that you need to leave into the fund

>> it's also going to come back to how much you've got in there for the deposit based on what contributions have gone in so the lender can actually go well this is what we'll give you as far as your servicing allows.

>> Correct?

>> So, this comes back to talk to your accountant. But if anyone has told you

accountant. But if anyone has told you you have to have 200 grand, you have to have 300. It's not correct.

have 300. It's not correct.

>> That's not true. And this is why you need to talk to the right accountant because the wrong accountant could be an opportunity cost of 400K for you in a property cycle. If they're saying you

property cycle. If they're saying you need to save more in your super, >> no one talks about that, but that's actually something else that I often think about when there's the doomsdayers that always say everything's going to implode and the market will go down one

day. Like it's it's not it doesn't just

day. Like it's it's not it doesn't just keep going to the moon forever. There

will always >> a supply constraint. If you buy in a suburb with a supply constraint where people want to live, odds are you'll be right.

>> I'm I'm always left I'm going to use the word flabbergasted just because you're using flabbergast. Well, you're using

using flabbergast. Well, you're using cheapers. So let's let's expand our

cheapers. So let's let's expand our vocabulary.

>> Cheaper is a flabbergasted [laughter] old sport.

>> But they're never held to account that the opportunity cost of the millions of dollars that people miss out on.

>> They won't bias and they're not always fossils. you know, they just might be

fossils. you know, they just might be uneducated or, you know, but it's costing people money.

>> And this is why I say this because like Dorne's saying, if you talk to the wrong accountant or the wrong financial adviser that tells you actually you need X amount of dollars, just dig deeper, talk to another person because it's not

just about talking to someone that then all of a sudden you start talking to dodgy Dave that will just tell you what you want to hear. You obviously want the right person in your corner that's got the runs on the board, >> correct?

>> But it's about making sure that you're actually getting the correct information, not a biased opinion.

>> No. and and question everything like question me, Todd, whoever. Like, you

know, you need to ask questions of of everyone and not every strategy is going to suit everybody. And yeah, but just remember, make mistakes with your SMSF.

>> All right, Don, are there any final words of wisdom or anything you'd like to leave everyone with today in regards to minimum amounts buying in your SMSF?

>> I would say knowing what I know now, you know, 200k is like a safe amount on your own or or with a partner. However,

depends on your risk appetite. If you

have 100k, talk to a property accountant and a property really good broker because there is products out there that can help you.

>> Love it. Don Fu here from Future Proof.

Thank you so much for jumping on the show. Angstart.

show. Angstart.