Extra Superannuation Contributions or Invest myself

[nnls]

hi

So a question for everyone (though fellow Aussies may have a bit more of an idea) I am 28 and currently earn a little over $100k a year and am trying to work out if it would be better for me to contribute extra to my super (salary sacrifice) or to invest this money myself. I currently put about an extra $300 per month into my super, but could afford to increase this. Obviously doing it salary sacrifice would decrease the amount of tax, but has the disadvantage of not being able to access until I am 65.

For any non Aussies - superannuation is a compulsory retirement fund that all working Australians have, your employer must contribute 9.5% of your wage to super each year. But you can have up to $30k a year (including company super) at a lower tax rate of only 15% . (hopefully I explained that correctly)

I do not know a lot about shares/investing etc and am still trying to learn and am new to this MMM community so any advice would be greatly appreciated.

[urbanista]

1. Can't touch till 60, not 65.
2. Returns on investment are also taxed at 15%. This turns average 20-years returns on Oz shares from 9% outside-super into 9% in-super (before inflation) for someone with marginal tax rate of 39%.

Is 2% extra return (plus 24% extra capital straight away) worth taking future legislation risk. To me, absolutely. I am always amused that people are worried about potential future tax on super. The funny thing is, that potential extra tax may or may not eventuate in the distant future. On the other hand, if one invests outside super, then extra 24% and 2% less returns are 100% certainty. Another proof that people are not rational investors.

And therefore, it is a good thing that super is not accessible. The ease of access makes it more likely for investors to panic and sell when the sky is falling down. I sold $100,000 worth of shares (blue chips) in 2008 because I panicked. Should I hold those shares in my super, I would have never sold them.

[nnls]

1. Can't touch till 60, not 65.
2. Returns on investment are also taxed at 15%. This turns average 20-years returns on Oz shares from 9% outside-super into 9% in-super (before inflation) for someone with marginal tax rate of 39%.

Is 2% extra return (plus 24% extra capital straight away) worth taking future legislation risk. To me, absolutely. I am always amused that people are worried about potential future tax on super. The funny thing is, that potential extra tax may or may not eventuate in the distant future. On the other hand, if one invests outside super, then extra 24% and 2% less returns are 100% certainty. Another proof that people are not rational investors.

And therefore, it is a good thing that super is not accessible. The ease of access makes it more likely for investors to panic and sell when the sky is falling down. I sold $100,000 worth of shares (blue chips) in 2008 because I panicked. Should I hold those shares in my super, I would have never sold them.

I more meant not a good thing that I cant touch until 60 if I manage to FIRE before 60 (which is of course the goal)

And thanks for the correction on age. Not sure why I have 65 in my head.

But thanks for the reply I am new to all this and its good to have people who can help out with answers to what are probably obvious questions

[deborah]

You will die when you are 83 (approximately). You plan to retire when you are 38 (approximately). And you are currently 28.

So you have 10 years until you retire, the money outside super will need to last for 22 years, and super will need to last for another 33 years. Work out your investments accordingly (maybe half of your investments in super and half outside). You can always add more to your super during the 22 years.

Given that things are likely to change radically with super soon, and that it is a really good deal now and is likely to be a less good deal soon, I would put more in now hoping that what is already there will be grandfathered. I would review this when the rules change, and put less in as soon as they do.

[nnls]

You will die when you are 83 (approximately). You plan to retire when you are 38 (approximately). And you are currently 28.

So you have 10 years until you retire, the money outside super will need to last for 22 years, and super will need to last for another 33 years. Work out your investments accordingly (maybe half of your investments in super and half outside). You can always add more to your super during the 22 years.

Given that things are likely to change radically with super soon, and that it is a really good deal now and is likely to be a less good deal soon, I would put more in now hoping that what is already there will be grandfathered. I would review this when the rules change, and put less in as soon as they do.

Thanks Deborah. With the legislation changes maybe it is a good idea to invest more in super for the moment until we know whats happening. Its all just a bit overwhelming for me, I have been going back through MMM blogs as well as other websites trying to gather as much info as I can.

But as long as I am not just recklessly spending on consumer goods, and doing some investing I will be doing better than I have in the past.

(Also I didn't realise Australian life expectancy was 83, I don't think anyone in my family has made it to that- hopefully I do)

[deborah]

Life expectancy is about 80.3 for men and 84.4 for women (see http://www.abs.gov.au/ausstats%5Cabs@.nsf/mediareleasesbyCatalogue/F95E5F868D7CCA48CA25750B0016B8D8?Opendocument)- I made it 83 to have nice round numbers. Besides, you have made it to 28, so your life expectancy is longer - you are expected to live another 52.11 years if you are male - see https://www.lifebroker.com.au/life-insurance/life-expectancy-table#.Vo-DY1J1cUU

We live about 4 years longer than people in the US, and Australians are longer lived on average than just about everywhere else in the world (we are in the top 10, whereas the US is much lower).

[Bee21]

Male or female? If you are female definitely do the salary  sacrifice thing, especially if you are planning to take time off work later to look after your family. Otherwise check the return of your super fund. If it is better than what you would do by investing the money yourself, it is also worth doing.

[nnls]

Life expectancy is about 80.3 for men and 84.4 for women (see http://www.abs.gov.au/ausstats%5Cabs@.nsf/mediareleasesbyCatalogue/F95E5F868D7CCA48CA25750B0016B8D8?Opendocument)- I made it 83 to have nice round numbers. Besides, you have made it to 28, so your life expectancy is longer - you are expected to live another 52.11 years if you are male - see https://www.lifebroker.com.au/life-insurance/life-expectancy-table#.Vo-DY1J1cUU

We live about 4 years longer than people in the US, and Australians are longer lived on average than just about everywhere else in the world (we are in the top 10, whereas the US is much lower).

Male or female? If you are female definitely do the salary  sacrifice thing, especially if you are planning to take time off work later to look after your family. Otherwise check the return of your super fund. If it is better than what you would do by investing the money yourself, it is also worth doing.

Sorry should have specified I am female, actually indigenous female so I get about 10 years taken off that, but I will plan for a life expectancy of 83.

I have about $70k in my super now, I will look into the returns a bit more, but it seems to do ok

[FFA]

hi nnls, I agree with Deborah's logic of trying to plan based on approx. number of years before and after you can access Super. The basic assumption being Super is more tax effective, so prioritise that but bearing in mind you will need enough outside Super to last until then.

I've been thinking about this quite a bit as i'm now writing an eBook trying to provide a simple approach for Australian investing. You might find it helpful, it will be out in the next month (will be freely available from my blog, as below).

I've largely adopted the guidelines I found on superannuationfreak's blog. He suggests to target 5+% extra into Super. In your case I guess that's around $5k per year of salary sacrifice. Your $300/month is $3.6k is nearly there, and you are starting early which is an advantage. Anyway this is just a general guideline / rule of thumb. Any specific planning for your circumstances and goals would be better. all the best !

[nnls]

hi nnls, I agree with Deborah's logic of trying to plan based on approx. number of years before and after you can access Super. The basic assumption being Super is more tax effective, so prioritise that but bearing in mind you will need enough outside Super to last until then.

I've been thinking about this quite a bit as i'm now writing an eBook trying to provide a simple approach for Australian investing. You might find it helpful, it will be out in the next month (will be freely available from my blog, as below).

I've largely adopted the guidelines I found on superannuationfreak's blog. He suggests to target 5+% extra into Super. In your case I guess that's around $5k per year of salary sacrifice. Your $300/month is $3.6k is nearly there, and you are starting early which is an advantage. Anyway this is just a general guideline / rule of thumb. Any specific planning for your circumstances and goals would be better. all the best !

Thanks FFA I will put it up to 5% at least and look forward to reading your ebook