The Money Mustache Community
Around the World => Australia Discussion => Topic started by: marty998 on October 18, 2017, 02:35:17 AM
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Would like to start a discussion here about super, break it out of the Australian Investing thread which is more general.
Been thinking about an article Judith Sloan wrote in the AFR earlier this week about Super. It was an interesting rant given her ideological bent.
Thrust of her argument is that Super is a drag on the economy (because people can't spend the money now) and that accumulating "forced" savings prevent people from accessing their full age pension entitlements because they have too much assets(!) and the effective marginal tax rate is over 50% for superannuants because they lose age pension income for having more super income. Would never have imagined she would be a champion for the welfare state...
Anyway, despite the above, I didn't post this topic to argue about that in particular. I just wanted to start a thread here about Super in general.
My balance has been ticking up nicely, aided by a stockmarket that is having a good run lately. It's also been beneficial to my dad who is drawing a super pension. Despite the usual advice for older people to switch to more conservative asset allocations as they enter retirement, he has kept his portfolio in the default balanced option. Amazing how his account continues to grow, I'm pretty confident the parents will never run out of money now which is great.
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Mine is climbing nicely ($4K since the start of the month) considering I'm no longer working and my last input from employer was just $25 in September.
BUT.
I just received notice that my provider,Aus Ethical, is changing administrator to Mercer. I'd never even heard of Mercer before. They're also changing the name of my investment choice from Smaller Companies to Australian Shares, which I find misleading and now implies that it's just investing in the Aus Index.
As I only worked until August of this year I'll be looking at contributing some cash of our own into my Super this year to get the governments matching bonus. Just not sure when to add it, now, or in June.
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Yeesh, Mercer has some very high fee options. Look at them very carefully to see if it's right for you.
More and more fund managers are closing down their "Core" Australian share teams and focussing on niche sectors (like small caps, or high conviction funds). It's very difficult to outperform a concentrated market like the ASX on a consistent basis without taking on extra risk.
AMP is the latest big name to close down the Core Australian shares option.
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Hostplus - Balanced index
Lowest fees around
Other questions? :-)))
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I just saw this thread after posting my superannuation question in the investing thread. Oh well. Posting to follow!
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PTF
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PTF
Why not "posting to contribute" Happy and Middo? :P
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Nothing to say right now Marty. Another day I might make a shaftingly brilliant contribution. ( ummm, how many have you had? ;))
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My FIRE date will be ~20 years from when I can access super -- is there any point in maximizing the tax advantage now? Also I'm likely to get a bit of inheritance (or at least gifts) by the time I'd be old enough to get to the super, plus I'd be eligible for the age pension if I've got no money left by retirement age so this devalues it even more. How do other people here consider their super stash? I consider it only good for generational transfer.
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My FIRE date will be ~20 years from when I can access super -- is there any point in maximizing the tax advantage now? Also I'm likely to get a bit of inheritance (or at least gifts) by the time I'd be old enough to get to the super, plus I'd be eligible for the age pension if I've got no money left by retirement age so this devalues it even more. How do other people here consider their super stash? I consider it only good for generational transfer.
Please do not aim so low that you rely on the age pension. It beggars belief that people prefer to shoot themselves in the foot to live off the pension, rather than accumulate a little bit more which will compound into a hell of a lot more income down the track.
Save enough into super now and you might find that you have a beautiful nest egg down the track giving you twice if not thrice the age pension.
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Nothing to say right now Marty. Another day I might make a shaftingly brilliant contribution. ( ummm, how many have you had? ;))
Not many lately. I've always posted a few gems, interspersed among a fair bit of caustic crap :)
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My FIRE date will be ~20 years from when I can access super -- is there any point in maximizing the tax advantage now? Also I'm likely to get a bit of inheritance (or at least gifts) by the time I'd be old enough to get to the super, plus I'd be eligible for the age pension if I've got no money left by retirement age so this devalues it even more. How do other people here consider their super stash? I consider it only good for generational transfer.
Please do not aim so low that you rely on the age pension. It beggars belief that people prefer to shoot themselves in the foot to live off the pension, rather than accumulate a little bit more which will compound into a hell of a lot more income down the track.
Save enough into super now and you might find that you have a beautiful nest egg down the track giving you twice if not thrice the age pension.
The issue is whether to save into index funds out of super (with limited tax advantage) or lock up funds with some tax advantage. With good returns for the period from when I retire until I can access super then the tax advantage doesn't matter, with terrible returns I might be forced to work again if I have too much in Super and not enough outside of Super. Having a more luxurious final 5 years of life is not worth anything to me, especially when compared to having 5 years of mid 40's life without working. Combined super is currently $230k with $350k in index funds and cash (slowly dropping the cash component). We're both 38, 2 kids, no debt, nice house.
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All right, contribution it is. I wasn't doing anything with super other than the 9.5% govt. SG. I earn $105,000 before tax. As Notch and others said in the Australian Investing thread, I really should be using the tax dodges offered by the government. I think I will be talking to my employer in a few weeks time when I come back from Long Service Leave. (Not stepping in the door for anything until my leave is over.)
So I will be contributing more....
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My FIRE date will be ~20 years from when I can access super -- is there any point in maximizing the tax advantage now? Also I'm likely to get a bit of inheritance (or at least gifts) by the time I'd be old enough to get to the super, plus I'd be eligible for the age pension if I've got no money left by retirement age so this devalues it even more. How do other people here consider their super stash? I consider it only good for generational transfer.
I also have concerns about super. I'm 47, so it is a lot closer than you obviously, but recently the date I can start collected shifted out by 5 years. Will that happen again? I need other assets to ensure it is not an issue before I pull the pin.
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My FIRE date will be ~20 years from when I can access super -- is there any point in maximizing the tax advantage now? Also I'm likely to get a bit of inheritance (or at least gifts) by the time I'd be old enough to get to the super, plus I'd be eligible for the age pension if I've got no money left by retirement age so this devalues it even more. How do other people here consider their super stash? I consider it only good for generational transfer.
Please do not aim so low that you rely on the age pension. It beggars belief that people prefer to shoot themselves in the foot to live off the pension, rather than accumulate a little bit more which will compound into a hell of a lot more income down the track.
Save enough into super now and you might find that you have a beautiful nest egg down the track giving you twice if not thrice the age pension.
The issue is whether to save into index funds out of super (with limited tax advantage) or lock up funds with some tax advantage. With good returns for the period from when I retire until I can access super then the tax advantage doesn't matter, with terrible returns I might be forced to work again if I have too much in Super and not enough outside of Super. Having a more luxurious final 5 years of life is not worth anything to me, especially when compared to having 5 years of mid 40's life without working. Combined super is currently $230k with $350k in index funds and cash (slowly dropping the cash component). We're both 38, 2 kids, no debt, nice house.
Ok lets lay this out... Couple, 38, FIRE date ~2 years from now? (20 years from access to Super age (60))
The $230k in Super you have now @7% after tax returns will compound to $890k at 60. That will give you a pension of $36,000 a year, and if history is any guide, by the time the minimum pension rates ratchet up at age 65 and 70 your original $890k will have grown quite substantially as well.
This assumes you don't contribute anything more to super at all over the next 22 years. Contribute even $10k a year between you (from savings or part-time work, whatever) and you can see where your balance is heading.
People think it's the norm for Super nest egg balances to come down, when in reality, past a certain threshold, they're likely to simply keep going up in retirement.
You've got $350k non super investments now, plus whatever equity in your current house (option of downsizing etc etc)
You only really need a strategy to get you through the next 22 years now - $350k is probably not enough, $1m is probably too much (assuming your spending is not outrageously high).
Not enough info to figure it out, but it seems you're well on your way :)
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You only really need a strategy to get you through the next 22 years now - $350k is probably not enough, $1m is probably too much (assuming your spending is not outrageously high).
Not enough info to figure it out, but it seems you're well on your way :)
Thanks, that is what I needed to hear. I've got very little idea about how much we'll be spending as the kids get older, but it does seem the critical time is from now until 60 (or 65 or 70 depending on how they change the rules), with Super taking care of itself from the next few years of work. Work is quite fun and the hours are fantastic (home before the kids most days), so I'm not giving up on too much by doing "one more year". Probably wait until kids leave home until I completely retire.
FWIW our house is only nice by Mustaschian standards, not a great deal of equity from downsizing is available (already in a low COL area).
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I also have concerns about super. I'm 47, so it is a lot closer than you obviously, but recently the date I can start collected shifted out by 5 years. Will that happen again? I need other assets to ensure it is not an issue before I pull the pin.
Recently? Is this correct? I remember being bummed out some time in the 80s (maybe 90s?) when I learned that my preservation age had shifted from 55 to 59 (yay, one year earlier than those born after me) but that preservation age hasn't shifted (as far as I am aware) since then.
That might be true. I may be thinking of pension age. But the point was that fiddling with the super rules by successive governments have not given me great confidence in my access to my superannuation when I want it.
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When there was discussion (by the Coalition) of lifting the preservation age, they were talking about making it 5 years earlier than the pension age. They were also mooting lifting the pension age to 70.
However, there seems to be no current talk of lifting either and even if the preservation age was to come back onto the scene, it would move from 60 to 62.
I'm not planning on cutting it so fine that a year here or there of the preservation age makes any difference.
I would think that the biggest change to super that could come in the foreseeable future is removing lump sum withdrawals to force people to take allocated pensions or annuities and stop retirees blowing it all on a cruise and then getting the pension.
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Nothing to say right now Marty. Another day I might make a shaftingly brilliant contribution. ( ummm, how many have you had? ;))
Not many lately. I've always posted a few gems, interspersed among a fair bit of caustic crap :)
Not overly active poster myself but reckon Marty is selling himself short. I’d say the occasional caustic crap, interspersed among a fair few gems. Seriously, I dig your work Marty!
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Hostplus - Balanced index
Lowest fees around
Other questions? :-)))
Scott Pope fan? ;)
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Nothing to say right now Marty. Another day I might make a shaftingly brilliant contribution. ( ummm, how many have you had? ;))
Not many lately. I've always posted a few gems, interspersed among a fair bit of caustic crap :)
Not overly active poster myself but reckon Marty is selling himself short. I’d say the occasional caustic crap, interspersed among a fair few gems. Seriously, I dig your work Marty!
Thanks Gremlin ;)
When there was discussion (by the Coalition) of lifting the preservation age, they were talking about making it 5 years earlier than the pension age. They were also mooting lifting the pension age to 70.
However, there seems to be no current talk of lifting either and even if the preservation age was to come back onto the scene, it would move from 60 to 62.
I'm not planning on cutting it so fine that a year here or there of the preservation age makes any difference.
I would think that the biggest change to super that could come in the foreseeable future is removing lump sum withdrawals to force people to take allocated pensions or annuities and stop retirees blowing it all on a cruise and then getting the pension.
I think there'll be further limiting of the tax concessions and how much you can put away. I doubt the age at which you can access it will shift too much.
The point the Government has clearly made (quite rightly I might add) if for people to actually spend it down and not use it for estate planning.
What is always forgotten is that even if your minimum drawdown from super exceeds your spending needs, there is nothing stopping you from investing that excess outside of super.
Amazing how that fact is lost on everyone.
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Hostplus - Balanced index
Lowest fees around
Other questions? :-)))
Scott Pope fan? ;)
Scott Pape even. ;)
I'm more interested in their Choiceplus options. I can use that to access Vanguard funds.
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Mine is climbing nicely ($4K since the start of the month) considering I'm no longer working and my last input from employer was just $25 in September.
BUT.
I just received notice that my provider,Aus Ethical, is changing administrator to Mercer. I'd never even heard of Mercer before. They're also changing the name of my investment choice from Smaller Companies to Australian Shares, which I find misleading and now implies that it's just investing in the Aus Index.
As I only worked until August of this year I'll be looking at contributing some cash of our own into my Super this year to get the governments matching bonus. Just not sure when to add it, now, or in June.
1. Mercer is a large Superannuation administrator many funds outsource their administration of the fund I.e. Processing of contributions, payments , call centre etc to Mercer or to Link the other big administrator eg. Virgin Super, First State Super, Qantas Super etc.
2. If you were only working till Aug, you can now make an after-tax contribution and claim a tax deduction up to the $25k concessional cap this financial year (you no longer need to be self-employed).
Sent from my iPhone using Tapatalk
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When there was discussion (by the Coalition) of lifting the preservation age, they were talking about making it 5 years earlier than the pension age. They were also mooting lifting the pension age to 70.
However, there seems to be no current talk of lifting either and even if the preservation age was to come back onto the scene, it would move from 60 to 62.
I'm not planning on cutting it so fine that a year here or there of the preservation age makes any difference.
I would think that the biggest change to super that could come in the foreseeable future is removing lump sum withdrawals to force people to take allocated pensions or annuities and stop retirees blowing it all on a cruise and then getting the pension.
Re: Preservation age, yes I think that changed a very long time ago, if they change it again they will have to tier it so that like they did with moving it from 55-60 I reckon they would make it so it only affects 30 year olds now as to not piss off older voters.
Re: removing lump sump withdrawals again this is so unpopular that I don’t think they would implement this for many years.
I personally hedge my bets, on top of the 9.5% I salary sacrifice up to the concessional cap of $25k, about $15k a year for me, I rather get the extra money in my super account than pay it to the tax man (free money!) but I don’t put any after-tax Money in. I’m saving outside of Super for my pre-60 stash.
Sent from my iPhone using Tapatalk
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Hostplus - Balanced index
Lowest fees around
Other questions? :-)))
Scott Pope fan? ;)
Scott Pape even. ;)
I'm more interested in their Choiceplus options. I can use that to access Vanguard funds.
Goddam autocorrect...
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I was also very interested in the choice plus option but it seems very difficult to access it in a cost effective meaningful way. For example if you want to invest in an ETF this is classed as one single share. You cannot invest more than 20% in any one share and this proportion must remain the same at all times. You cannot invest more than 80% in total in shares, therefore you might leave 20% in the balanced index fun. So if you invest $5000 and you invest $1000 in VAS, 1000 in VGS, 1000 in VTS, 1000 in VEU you have to leave 1000 remaining in the balanced index fund for example. But this means you will pay $100 (4 x $25) in brokerage which means a significant drag on your performance. I asked them about this and they accept the restrictions are to promote diversification but accept saying an ETF is a single share makes no sense. They have no plans to change this at this time.
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I was also very interested in the choice plus option but it seems very difficult to access it in a cost effective meaningful way. For example if you want to invest in an ETF this is classed as one single share. You cannot invest more than 20% in any one share and this proportion must remain the same at all times. You cannot invest more than 80% in total in shares, therefore you might leave 20% in the balanced index fun. So if you invest $5000 and you invest $1000 in VAS, 1000 in VGS, 1000 in VTS, 1000 in VEU you have to leave 1000 remaining in the balanced index fund for example. But this means you will pay $100 (4 x $25) in brokerage which means a significant drag on your performance. I asked them about this and they accept the restrictions are to promote diversification but accept saying an ETF is a single share makes no sense. They have no plans to change this at this time.
Eww, that's not a good option at all then.
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Is anyone putting property into their SMSF? I was talking to someone today who said that the majority of people with an SMSF tend to do this, and I think it is silly, but if someone has good reasons for this, I am prepared to listen.
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I can see why people who want property in their portfolio set up a SMSF, but the reverse doesn't necessary follow.
I have no property in my SMSF.
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No residential property in mine. Commercial is a different story
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Is anyone putting property into their SMSF? I was talking to someone today who said that the majority of people with an SMSF tend to do this, and I think it is silly, but if someone has good reasons for this, I am prepared to listen.
I'm an SMSF administrator and tax agent. I can count on my fingers the number of clients that have had property in their SMSF in the last 10 years. Most of those are commercial. Only two have had LRBAs. I would suggest that whoever said that is talking out their arse. Also ATO stats would not agree with that statement either.
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The changes last year with super pension phase caps and how defined benefit pensions are counted means I am already at my cap. so no more going into super for me. With my wife at age 52 and a low super balance, we will concentrate on loading hers up instead and will be putting all excess cash to concessional contributions, which I believe we can near double to $50K by putting half through my super then splitting it off to hers.
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But if you are at your cap, I don't think you can ever add any more to yours - or am I wrong?
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You can still add concessional contributions. Just can't add non-concessional contributions, once over $1.6m.
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I need to research it more to confirm before I do it but I believe that I can contribute $25K concessional amount to my super, then transfer 85% of that to my wife's super (the other 15% is the tax going in). This does not affect her concessional cap, so she can put in $25K concessional amount too.
Re contributing above the cap, I believe that you can in any case its just that it has to stay in the accumulation phase, and hence subject to 15% earnings tax annually. By income splitting the way I plan to, everything that goes in either gets transferred to my wife or gobbled up in contributions tax. I will not do this until I am absolutely sure it is a legit strategy under super rules.
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I need to research it more to confirm before I do it but I believe that I can contribute $25K concessional amount to my super, then transfer 85% of that to my wife's super (the other 15% is the tax going in). This does not affect her concessional cap, so she can put in $25K concessional amount too.
Re contributing above the cap, I believe that you can in any case its just that it has to stay in the accumulation phase, and hence subject to 15% earnings tax annually. By income splitting the way I plan to, everything that goes in either gets transferred to my wife or gobbled up in contributions tax. I will not do this until I am absolutely sure it is a legit strategy under super rules.
Correct.
Also, once you reach a condition of release, eg reach age 60 and retired or reach age 65, you could pull out a lump sum and transfer it to your wife if she is still eligible to contribute. You could transfer $400k within a couple weeks if you time it correctly.
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I need to research it more to confirm before I do it but I believe that I can contribute $25K concessional amount to my super, then transfer 85% of that to my wife's super (the other 15% is the tax going in). This does not affect her concessional cap, so she can put in $25K concessional amount too.
Re contributing above the cap, I believe that you can in any case its just that it has to stay in the accumulation phase, and hence subject to 15% earnings tax annually. By income splitting the way I plan to, everything that goes in either gets transferred to my wife or gobbled up in contributions tax. I will not do this until I am absolutely sure it is a legit strategy under super rules.
Correct.
Also, once you reach a condition of release, eg reach age 60 and retired or reach age 65, you could pull out a lump sum and transfer it to your wife if she is still eligible to contribute. You could transfer $400k within a couple weeks if you time it correctly.
That's good to know, thanks!
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I've been making use of concessional contributions up to the limit for almost a decade now. In the last year, I've also started making non concessional contributions. I've started doing this s I'm getting more confidence that I have enough in the non-super stash to see me through, and any extra may as well get the lower tax rates. The contribution limits are also driving this a little too. At the moment I can add 100k a year in post tax along with 25k pre tax. Once I hit 1.6m (still a fair way off) I can only put in the pre tax money. May as well get it in there while I can.
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Please do not aim so low that you rely on the age pension. It beggars belief that people prefer to shoot themselves in the foot to live off the pension, rather than accumulate a little bit more which will compound into a hell of a lot more income down the track.
Save enough into super now and you might find that you have a beautiful nest egg down the track giving you twice if not thrice the age pension.
I agree with Marty. This makes me so mad when people / the media suggest people save as little as possible to keep the age pension - e.g. The Moneymag article that says you only need $275k in savings to retire.
http://moneymag.com.au/275k-super-retire/ (http://moneymag.com.au/275k-super-retire/)
... with terrible returns I might be forced to work again if I have too much in Super and not enough outside of Super. Having a more luxurious final 5 years of life is not worth anything to me, especially when compared to having 5 years of mid 40's life without working.
I love this thought. So true.
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Mmm... that Money Mag one raised my eyebrows. I think it was intended to reassure people that they'll be ok if they don't have 1-1.5m, which is what the ASFA guidelines were for a comfortable retirement.
But it can get totally misinterpreted as "great news! Don't bother saving, because the government will look after you!"
People don't realise that by doing this they're essentially making life much harder for their kids.
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So, we have upped our super to the maximum contributions. We won't hit the 25,000 each this year, as we want to ensure we can do this easily ongoing, but next year onwards, 25000 each. It's a lot when you write it down...
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Mmm... that Money Mag one raised my eyebrows. I think it was intended to reassure people that they'll be ok if they don't have 1-1.5m, which is what the ASFA guidelines were for a comfortable retirement.
But it can get totally misinterpreted as "great news! Don't bother saving, because the government will look after you!"
People don't realise that by doing this they're essentially making life much harder for their kids.
I went to a retirement planning session run by my super fund (it was so basic and boring, I must have learnt something on here after all). When folks start complaining that they are worse off with more savings, he offers to relieve them of their excess funds, so they can get the OAP. Hasn't had any takers yet.
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My super balance leapt ahead in the last 3 months of the year. I'm 60% invested in Australian Shares and 40% in Fixed interest, so got quite a large benefit out of the run up in Aus shares in the last 3 months. Debating internally whether I should take sugar off the table now.
My balance is where my Dad's was when he was almost 20 years older than me. Given the relatively good retirement the parents are living (without any Age Pension support) I think I'll be alright by the time I'm that age too.
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8 years to go until I'm 60, but I'm planning on living into my 90s so my super allocation is 75% equities and 25% cash (aka dry powder). Until and unless there's a significant correction I expect it'll stay this way for another 20 years,
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I have my super in 100% shares. We have significant property holdings, so it helps us diversify a bit.
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My Super is really aggressive, 100% stocks with lots of complicated fund diversification because its Super and they do it for me! (well a small bit of REIT and neat infrastructure stuff that the fund holds). But I'm about 27 years from getting mine, so that makes total sense.
Though to be honest I'll probably keep it at that until maybe a year out when I might glide path it to about 5-15% bonds, then glide path those away again in to 100% stocks in the first few years.
I'm at 30k super (student most my life...). But I'm sure this small amount even now garantees me at least $4k per year once I hit super age, or about 1/5 my requirements. So I'm pretty happy with that, especially knowing I have (hang on am I happy about this???) a bunch more years of working and contributions left...
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You do realise that because super hasn’t been around for that long, and was minuscule at first, most people rRETIRE with less than $100,000. I think you have MORE super than most female retirees. And you are saying that you have a small amount!
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You do realise that because super hasn’t been around for that long, and was minuscule at first, most people rRETIRE with less than $100,000. I think you have MORE super than most female retirees. And you are saying that you have a small amount!
Remember wages and pension schemes back (25-40 years ago) then were still sufficient for a sole (male) earner to provide for the household. Super has been around for 25 years now - and most people back then would have been on a defined benefits scheme and would not have needed super, or they saved/invested outside of retirement savings vehicles.
I recall doing accounting/tax work 11-12 years ago and you would have a lot of oldies with the RSA's earning their 4-7% interest on their large deposit balances. This was in the days of RBLs so wealthy people would have structured their affairs differently (trusts and companies - same old same old really).
Times have changed obviously.
I blame the victim here. People bitch and complain that the government keeps changing the rules or will steal their money blah blah so they don't trust super so they don't contribute.
It's the biggest tax shelter in town. Make the most of it while you can.
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People bitch and complain that the government keeps changing the rules or will steal their money blah blah so they don't trust super so they don't contribute.
It's the biggest tax shelter in town. Make the most of it while you can.
I totally agree! I have 20 years till I can cash out my Super and I already have more than the average female retiree today due to benefiting from Super all my working life as well as salary sacrificing for the last 15 years including maxing out my concessional cap for the last 2 years.
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Very few people had pensions. They moved companies, they were female, or they were ineligible because they were at the bottom of the payroll. In fact, only about one in ten of the people I know who fit the 25 - 40 year ago group you are talking about had them, and each time I’ve seen the stats, they reflect my experience.
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You do realise that because super hasn’t been around for that long, and was minuscule at first, most people rRETIRE with less than $100,000. I think you have MORE super than most female retirees. And you are saying that you have a small amount!
Remember wages and pension schemes back (25-40 years ago) then were still sufficient for a sole (male) earner to provide for the household. Super has been around for 25 years now - and most people back then would have been on a defined benefits scheme and would not have needed super, or they saved/invested outside of retirement savings vehicles.
I recall doing accounting/tax work 11-12 years ago and you would have a lot of oldies with the RSA's earning their 4-7% interest on their large deposit balances. This was in the days of RBLs so wealthy people would have structured their affairs differently (trusts and companies - same old same old really).
Times have changed obviously.
I blame the victim here. People bitch and complain that the government keeps changing the rules or will steal their money blah blah so they don't trust super so they don't contribute.
It's the biggest tax shelter in town. Make the most of it while you can.
Well mate I fit right into the category of thinking the government will change the rules, who can blame them though? I'm worried that I'll sacrifice a lot and then the goalposts will be moved so I have to wait longer to access it. As a mustachian, shouldn't we not be contributing because we want to retire early (before 60)?
There is a correct make-up for everyone. I'm personally sacrificing 5.5%. As long as I've got enough pre-super and post-super, it'll be fine. We should definitely take the tax advantages now.
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Is anyone here subject to the Div 293 tax (additional 15%).
It probably still makes sense to contribute extra, but it's not as clear cut if you want early access to money and are factoring in some uncertainty in what the government will do to super in future.
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There is a correct make-up for everyone. I'm personally sacrificing 5.5%. As long as I've got enough pre-super and post-super, it'll be fine. We should definitely take the tax advantages now.
Agree with this view - a balance needs to be struck between pre & post retirement, and it's up to everyone to figure out what that line is for each of themselves.
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There is a correct make-up for everyone. I'm personally sacrificing 5.5%. As long as I've got enough pre-super and post-super, it'll be fine. We should definitely take the tax advantages now.
Agree with this view - a balance needs to be struck between pre & post retirement, and it's up to everyone to figure out what that line is for each of themselves.
People also forget that you can add money into super any time before you are 65. Like everything with super, there are pros and cons...
- Between preservation age and 65 an early retiree could move everything gradually into super. I assume that your super will be in pension phase, so any dividends... will not be taxed, and your own income from superannuation will not be taxed either, so from preservation age onwards, superannuation is currently the best way to go.
- It is probably strongly advisable not to move investment properties (or any other large item that doesn't generate much income) into super, because you will have difficulties later on with the compulsory withdrawal rates, unless you have quite a lot in other investments that you are prepared to use for withdrawal instead.
- Superannuation withdrawal rates are greater than 4% once you are over 65. This means that you could end up with most of your money outside super (if you are following the 4% rule), even if you put it all inside super to start with. I'm not sure where you should put the excess. However, because super is not taxed (except in certain circumstances), you can have a reasonably large income (let's say $18,000) outside super before you need to think about tax.
- If you retired early, you will probably be living on a small income during the years between retirement and preservation age, so you won't be paying much (if any) tax. Adding money to superannuation may not be tax effective in those years.
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Is anyone here subject to the Div 293 tax (additional 15%).
It probably still makes sense to contribute extra, but it's not as clear cut if you want early access to money and are factoring in some uncertainty in what the government will do to super in future.
Yep - and it stinks.
If you're copping Div 293, then your taxable income is at least around $220-230k and your SGC contributions are around $20k (assuming you're an employee). You can contribute only $5k concessionally before hitting the cap. You'll save $1000 in tax by putting that extra into your super.
I agree that it's less arguable, but a grand is a grand and they're doing everything possible to make it hard to get money into super, so at least take all the concessions you can.
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I'm currently maxing out my concessional cap each year, largely for the tax break, but anything over that is going into my taxable accounts, so I can access them at 50.
The biggest headache on my horizon is working out what to do if and when I move back to NZ - pension eligibility/accessing Super/should my American husband get Aus citizenship or stay on PR/eventually become a kiwi- and concluded I need to talk to an accountant because if we get this wrong we may be smashed with CGT events AND lose pension eligibility in both countries. Which, you know, first world problems etc.
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Please do not aim so low that you rely on the age pension. It beggars belief that people prefer to shoot themselves in the foot to live off the pension, rather than accumulate a little bit more which will compound into a hell of a lot more income down the track.
Save enough into super now and you might find that you have a beautiful nest egg down the track giving you twice if not thrice the age pension.
I agree with Marty. This makes me so mad when people / the media suggest people save as little as possible to keep the age pension - e.g. The Moneymag article that says you only need $275k in savings to retire.
http://moneymag.com.au/275k-super-retire/ (http://moneymag.com.au/275k-super-retire/)
They referred to that again today.
A couple wrote in asking for advice on how to "throw away" (Paul Clitheroe's words) some of their assets so they can get the pension.
They got the idea from the $275k story. >.<
http://moneymag.com.au/ask-paul-claim-pension/
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I work with SMSFs. I know a few people like this. They are not the majority but they definitely exist.
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I work with SMSFs. I know a few people like this. They are not the majority but they definitely exist.
I have tried really hard to understand the mindset of these people.
Simply call it shooting yourself in the foot. The worst thing is we have a system that encourages it.
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The worst thing is we have a system that encourages it.
It's absolutely the system. The system penalises people for saving. Ordinary people looking to be independent of welfare are taxed and punished for it because they have the audacity to have sacrificed consumption to be able to look after themselves in their later years.
End result, irrational behaviour from some people who feel that they've been wronged.
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The system doesn’t penalise people for saving. It gives you wonderful tax breaks for saving to super (and other things) - both during your working life and after you have retired. The fact that you don’t get some benefits, including the aged pension and the health care card, is just concentrating on incidentals rather than the holistic approach.
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Ah crap.
Came home today to a letter from my superannuation fund. New Project Job pays considerably better than Regular Job (about $22k p/a more). I've set up my pre-tax super deductions as a percentage, not an amount.
I didn't even think about the fact that the percentage of the higher salary is going to tip (has tipped!) me over the $25k cap, and that I needed to recalculate.
What happens now? Do I get penalised, or do I just pay tax on the extra? Anyone ever had this happen before?
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Bugger.
Obviously you should call the ATO soonest.
Looks like you'll pay some extra tax on those contributions.
https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Excessconcessionalcontributioncharge#Excessconcessionalcontributioncharge (https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Excessconcessionalcontributioncharge#Excessconcessionalcontributioncharge)
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Bugger is right.
I've only tipped over the last pay period (I think). My other issue is that my employer is still paying super into my account until June for this F/Y, even if I stop contributing today.
I'll call the ATO tomorrow. I hope this isn't going to be too expensive.
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Ouch... you went over in March??? wow that's unusual.
Hopefully it won't be too much of a penalty.
The system doesn’t penalise people for saving. It gives you wonderful tax breaks for saving to super (and other things) - both during your working life and after you have retired. The fact that you don’t get some benefits, including the aged pension and the health care card, is just concentrating on incidentals rather than the holistic approach.
I agree, but you have to save a lot to get over the hump where it is more efficient not to save and simply take the age pension.
Once you do get over the hump, you will tend to end up with much more than a frugal person could ever spend, by virtue of compounding. You will win in the end if you stick it out long enough.
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The system:
- taxes income from savings the same as tax from working
- hits you with Div 293 if you earn too much
- whacks you further if you accumulate more than $1.6m in super
- removes your pension and healthcare care
- has a hugely skewed tax system resulting in higher income earners paying the lion's share of tax (which is how it should be, but it's a question of degree. 49% tax !!)
- constantly changes under your feet as people decide that money you earned under the rules should be transferred to other people
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The system:
- taxes income from savings the same as tax from working
This seems equitable
- hits you with Div 293 if you earn too much
Still taxed below marginal rates (30% vs 49%)
- whacks you further if you accumulate more than $1.6m in super
Still taxed below marginal rates (15% vs up to 49%%)
- removes your pension and healthcare card
Putting my neoliberal hat on, why should anyone except for the truly in need be entitled to taxpayer support in this day and age?
- has a hugely skewed tax system resulting in higher income earners paying the lion's share of tax (which is how it should be, but it's a question of degree. 49% tax !!)
Agree 49% is far too high
- constantly changes under your feet as people decide that money you earned under the rules should be transferred to other people
There will always be change. Policy setting always need to be adjusted, because when the entire country has fully exploited a strategy it ends up sending the country broke. You can't expect governments to walk steadfastly like lemmings when there is a need for change
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Dunno if this is useful for some.
https://medium.com/@TheAustraliaInstitute/why-the-government-doesnt-want-you-to-understand-how-franking-credits-work-59dfb7178e0c
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The system:
- taxes income from savings the same as tax from working
This seems equitable Doesn't encourage saving when they're taxed at full marginal though, does it ?
- hits you with Div 293 if you earn too much
Still taxed below marginal rates (30% vs 49%) Agreed. Still penalised.
- whacks you further if you accumulate more than $1.6m in super
Still taxed below marginal rates (15% vs up to 49%%) Agreed. Still penalised.
- removes your pension and healthcare card
Putting my neoliberal hat on, why should anyone except for the truly in need be entitled to taxpayer support in this day and age? Because the people who saved to look after themselves pay more than their peers. Savers are penalised.
- has a hugely skewed tax system resulting in higher income earners paying the lion's share of tax (which is how it should be, but it's a question of degree. 49% tax !!)
Agree 49% is far too high
- constantly changes under your feet as people decide that money you earned under the rules should be transferred to other people
There will always be change. Policy setting always need to be adjusted, because when the entire country has fully exploited a strategy it ends up sending the country broke. You can't expect governments to walk steadfastly like lemmings when there is a need for change If only there was a way to put fair rules in place and stop changing them when some interest group describes people as "exploiters"
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If only there was a way to put fair rules in place and stop changing them when some interest group describes people as "exploiters"
But isn't this the basis of the ongoing argument? What one considers to be fair rules, others may not. That is the beauty, and the problem with democracy.
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If only there was a way to put fair rules in place and stop changing them when some interest group describes people as "exploiters"
But isn't this the basis of the ongoing argument? What one considers to be fair rules, others may not. That is the beauty, and the problem with democracy.
Precisely.
I fully expect that if the ALP win Government, that when this policy reaches the Senate, an exemption will be written into the tax law allowing the refund of up to $5,000 in franking credits.
Similar to the 45 day rule holding rule for claiming franking credits - if you're under $5k then you don't have to adhere to it.
Everyone needs to take a chill pill. The senate is made up of 25% cross benchers. In the totally unlikely event that the ALP get a majority in both houses, then by all means you have the right to riot, and I will cheer you on.
The fact is, that won't happen, so with all the horse trading that will occur, expect there to be changes from here.
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Bugger is right.
I've only tipped over the last pay period (I think). My other issue is that my employer is still paying super into my account until June for this F/Y, even if I stop contributing today.
I'll call the ATO tomorrow. I hope this isn't going to be too expensive.
Check out the below link, if you don’t go over by more than $10k over the cap and it’s the first time you have gone over then the ATO will send you a form to take the excess out at the end of the financial year.
https://www.ato.gov.au/Super/APRA-regulated-funds/In-detail/APRA-resources/Learner-guides/Excess-Contributions-Tax-learner-guide/?page=44
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Apparently I need to learn to read.
The letter from the super fund was to inform me that I would tip over the $25k limit IF I continued to contribute the same rate with my pay increase.
So drop the percentage back, and all is good. Phew! Stop panicking, everyone.
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I think I know the answer to this but just want to make sure. I have a client and until now I've always lodged their super payments via the Small Business Clearing House because I absolutely refuse to have anything to do with Cbus (their default super fund). But the ATO have moved the SBCH into the BAS agent portal and the new version is a mess (looks flash but is clunky and time consuming) to use.
Is there any reason why I couldn't set the company up in Australian Super's Quicksuper website, set up the employees as Cbus members and just use that to lodge the return each month?
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I think I know the answer to this but just want to make sure. I have a client and until now I've always lodged their super payments via the Small Business Clearing House because I absolutely refuse to have anything to do with Cbus (their default super fund). But the ATO have moved the SBCH into the BAS agent portal and the new version is a mess (looks flash but is clunky and time consuming) to use.
Is there any reason why I couldn't set the company up in Australian Super's Quicksuper website, set up the employees as Cbus members and just use that to lodge the return each month?
Suspect that you are the one who knows more about this than anyone else... :)
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I use the clearing house too, or I did. Now I've got about a month to figure out how to pay my employees super. I've been doing everything in excel and filling out paper PAYG forms :(
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I use the clearing house too, or I did. Now I've got about a month to figure out how to pay my employees super. I've been doing everything in excel and filling out paper PAYG forms :(
The websites of the industry funds (HESTA, Aust Super etc) are easy to use. You'll need an Auskey if you want to use the SBCH now that they've moved it into the tax and BAS agent portal. I'm not sure if you need to sign up as an employer to use one of the super fund sites (hence the reason for my question above).
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pretty sure you will need to be registered as an employer to use an industry fund as a clearing house.
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That explains why my clients have contributions coming into their SMSFs that have descriptions similar to tax refunds when they SBSCH before.
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I think I know the answer to this but just want to make sure. I have a client and until now I've always lodged their super payments via the Small Business Clearing House because I absolutely refuse to have anything to do with Cbus (their default super fund). But the ATO have moved the SBCH into the BAS agent portal and the new version is a mess (looks flash but is clunky and time consuming) to use.
Is there any reason why I couldn't set the company up in Australian Super's Quicksuper website, set up the employees as Cbus members and just use that to lodge the return each month?
Using the Australian Super Clearinghouse might work if they don’t charge small employers for using their clearing house, you would have to check on that with them.
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A quick question for those in the know. My wife is changing jobs and that got us thinking about super, as she has to nominate a super fund. We are 48, and interested in growth, so what would be a fund recommendation for her? I notice Hostplus has some share options with low fees, such as "International Shares (hedged) Indexed", and "IFM - Australian Shares"
Anyone have nay thoughts? She will be rolling over around $150,000 of super as well.
Cheers.
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A quick question for those in the know. My wife is changing jobs and that got us thinking about super, as she has to nominate a super fund. We are 48, and interested in growth, so what would be a fund recommendation for her? I notice Hostplus has some share options with low fees, such as "International Shares (hedged) Indexed", and "IFM - Australian Shares"
Anyone have nay thoughts? She will be rolling over around $150,000 of super as well.
Cheers.
Check out Superguide for a list of the cheapest funds:
https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-check-out-the-cheapest-funds
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Thanks. There are a couple there I hadn't thought of. I am reluctant to go with a commercial (bank) based fund, as in the past they have not always done the right thing by their customers. Presently looking for the lowest fee, highest "share" percentage fund. Many "share" funds are only 75% shares with property as a significant portion. We have our own property, so look to spread our portfolio through shares in super at the moment.
It isn't urgent, as she has ticked the "join the employer fund" box at the moment, but will change that in a few weeks time when we settle down into our new roles. I will keep looking.
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Presently looking for the lowest fee, highest "share" percentage fund. Many "share" funds are only 75% shares with property as a significant portion. We have our own property, so look to spread our portfolio through shares in super at the moment.
I agree. It can be hard to find a fund that will let you have a very high allocation of stocks. Many funds like to have control and just give you a few options ranging from pure cash to something like 80% stocks, 20% bonds, which they call "high growth" or similar. I suspect its because they don't like it when they have a year of negative returns and people complain, making the fund look bad.
^This is more annoying when you don't have the choice of fund at all, but have to go with a compulsory fund. Eg in the SA Public Service.
I'm with UniSuper at the moment (compulsory in my current position). They are very good. I have tweaked it so that I'm basically 95% stocks, 5% property. There is a little infrastructure exposure in one of the parts I've chosen, which I'm more than happy with. I could tweak it to be pure stocks if I wanted.
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I've found sunsuper to be the best in terms of low fees and the ability to control the exact asset allocation.
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I'm with UniSuper at the moment (compulsory in my current position). They are very good. I have tweaked it so that I'm basically 95% stocks, 5% property. There is a little infrastructure exposure in one of the parts I've chosen, which I'm more than happy with. I could tweak it to be pure stocks if I wanted.
I wouldn't be comfortable with 95% shares right now. I'm at 60-40 Aus Shares-Fixed Income right now... which is very conservative but is helping me stay relaxed while the market sorts itself out.
I'll dial up the % a little later in the year, but for now happy to keep a lot of powder dry while we continue to fall.
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Doesn't both me in the slightest being so exposed to shares. I have 27 years before I can access my super! :-)
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I'm with UniSuper at the moment (compulsory in my current position). They are very good. I have tweaked it so that I'm basically 95% stocks, 5% property. There is a little infrastructure exposure in one of the parts I've chosen, which I'm more than happy with. I could tweak it to be pure stocks if I wanted.
I'm also with unisuper, I initially looked around but they're actually quite good. How did you manage to change it to 95% stocks though?
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Hi Casserole Dish
I can probably walk you through it over the phone sometime, few steps to it. But you can change your asset allocations online. My allocation is actually a mix of a bunch of different things, including their "International stocks" and domestic stocks options. I also have things in there like "Global Environmental Opportunities". Some of these options are blended investments, but you can work out the percentages within each then multiply your allocation to it (yourself in a spreadsheet), etc.
Nothing stopping you say just putting all in on the International stocks option.
*I might not actually be exactly 95% stocks at the moment. I didn't actually double check my spreadsheet but its pretty much that. Also some of their options might fluctuate a little within a set range based on their investments.
UniSuper are very good, they have an excellent reputation. Definitely in the top few funds in the country. We are lucky in that respect!
Cheers,
Adam
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Hi Adam,
Thanks, I just had a look online and found the sector options. I'll probably change it later in the year or sooner if stocks go on sale.
Cheers,
C
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No worries!
Note change the way they invest your new inputs as well.
Also, I think they give us two free rebalancings per year. I need to rebalance soon. Then I'll do it again in a few months. Not that its that out of balance, but I can.
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Canstar has just released their super ratings for 2018.
They have a page where you can put in your account balance and age (no personal details) and they will tell you which funds have the lowest fees etc.
https://www.canstar.com.au/superannuation/
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Canstar has just released their super ratings for 2018.
They have a page where you can put in your account balance and age (no personal details) and they will tell you which funds have the lowest fees etc.
https://www.canstar.com.au/superannuation/
thanks for the link
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Sent an email to payroll today to adjust my salary sacrifice to get to exactly 25k. This will be the third year maxing my concessional contributions and it's building up nicely.
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I dropped $1000 into my Super this week to get the $500 match from the government for earning SFA this year.
The cash was in there the next day, just need to wait til I've done my taxes to see the deposit from the government.
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Didn't know this one.
Another change is the relaxing of the spouse contribution rules that delivers people a $540 tax offset — effectively a cashback deal — if they pay $3000 into the super of a low-income spouse. Previously the spouse had to earn below $10,800 to qualify for the full benefit, but now it’s $37,000.
https://www.news.com.au/finance/money/how-new-rules-deliver-super-savings-through-tax-deductions/news-story/63dbf09a90e39caa65c60f6b04dde0d1
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That s a good idea.
I messed out calculations this year and we're going to both over the $25k limit
On the good side, this is because of unplanned bonuses...
I called employers, super, nothing they can do to stop or delay the last payments into super. Annoying..
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My only question would be how does the government know if my wife dropped $3k into my Super and not me, on top of the $1k already did myself?
Is it declared when she does her tax and that's all it takes?
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My only question would be how does the government know if my wife dropped $3k into my Super and not me, on top of the $1k already did myself?
Is it declared when she does her tax and that's all it takes?
Wouldn't it be declared on your tax, not hers?
I noticed this change recently also, sent it to my parents, they are going to give it a go.
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To claim the tax offset, you need to complete the Superannuation contributions on behalf of your spouse question in the supplementary section of your tax return. You also need to complete Spouse details – married or de facto in your tax return
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I dropped $1000 into my Super this week to get the $500 match from the government for earning SFA this year.
The cash was in there the next day, just need to wait til I've done my taxes to see the deposit from the government.
Don't expect the government to be super fast, I had to wait till December to get mine last time.
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Sent $1000 to my husband’s super account today so he can take advantage of the $500 match.
But I also had to prepay $1500 onto a water bill for an investment property to drop his investment income so his salary was >10% of his total earnings!
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Sent $1000 to my husband’s super account today so he can take advantage of the $500 match.
But I also had to prepay $1500 onto a water bill for an investment property to drop his investment income so his salary was >10% of his total earnings!
with the budget changes this year, I think that’s been changed for next year.
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Sent $1000 to my husband’s super account today so he can take advantage of the $500 match.
But I also had to prepay $1500 onto a water bill for an investment property to drop his investment income so his salary was >10% of his total earnings!
with the budget changes this year, I think that’s been changed for next year.
Hopefully, because it was painful!
Won’t be a problem next year for us though because his salary *should* be more than $247 (not a typo!!)
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Sent $1000 to my husband’s super account today so he can take advantage of the $500 match.
But I also had to prepay $1500 onto a water bill for an investment property to drop his investment income so his salary was >10% of his total earnings!
Could you have pre-paid interest?
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Sent $1000 to my husband’s super account today so he can take advantage of the $500 match.
But I also had to prepay $1500 onto a water bill for an investment property to drop his investment income so his salary was >10% of his total earnings!
Could you have pre-paid interest?
Hmmmm, I don’t think so- We’ve one mortgage which isn’t fixed, but I suspect if I paid extra it would have just been offset against the principle? Maybe this something I need to research further.
I got 1 velocity point per dollar on the only credit card I have that awards points for utilities which I want to churn soon, so there was another silver lining!
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Pre paid is good for your IP not your PPOR
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Pre paid is good for your IP not your PPOR
I have one IP loan which is P&I. Checking my internet banking, we’ve paid ~$2k more than the minimum this year. Googling tells me the max I can pay in advance is only the follow year’s interest (~$4k), but all the examples I found are for interest only loans where the interest is more clear cut.
Any advice on this from the brains trust here?
Amusingly, my husband received his share of tips yesterday ($50) which increases his annual salary by 20%. We’re possibly the only people looking forward to declaring tips to the ATO!
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Pre paid is good for your IP not your PPOR
I have one IP loan which is P&I. Checking my internet banking, we’ve paid ~$2k more than the minimum this year. Googling tells me the max I can pay in advance is only the follow year’s interest (~$4k), but all the examples I found are for interest only loans where the interest is more clear cut.
Any advice on this from the brains trust here?
Amusingly, my husband received his share of tips yesterday ($50) which increases his annual salary by 20%. We’re possibly the only people looking forward to declaring tips to the ATO!
You can only do it on a fixed rate interest only loan, and you need to give the bank enough time to sort the paperwork out. Usually if you haven't talked to the bank by end of April, they won't get it done in time (depending on the incompetantness of your bank).
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Pre paid is good for your IP not your PPOR
I have one IP loan which is P&I. Checking my internet banking, we’ve paid ~$2k more than the minimum this year. Googling tells me the max I can pay in advance is only the follow year’s interest (~$4k), but all the examples I found are for interest only loans where the interest is more clear cut.
Any advice on this from the brains trust here?
Amusingly, my husband received his share of tips yesterday ($50) which increases his annual salary by 20%. We’re possibly the only people looking forward to declaring tips to the ATO!
You can only do it on a fixed rate interest only loan, and you need to give the bank enough time to sort the paperwork out. Usually if you haven't talked to the bank by end of April, they won't get it done in time (depending on the incompetantness of your bank).
Thanks marty998. Both our IP loans are P&I so no go there. And, I’m not keen to change the unfixed one, cause it’s little and on a decent rate (driven by a grandfathered discount, not fixed)
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Is anyone here subject to the Div 293 tax (additional 15%).
It probably still makes sense to contribute extra, but it's not as clear cut if you want early access to money and are factoring in some uncertainty in what the government will do to super in future.
Have I got my numbers right here for Div 293:
Example:
Income $230k
Super non-concessional contribution =$20k
Rental Income $10k
Investments $30k
Total $290k
$290k – 250 = $40k
DIV 293 = $40k x 15% =$6k tax payable?
Even though tax would have already been paid on the income and super contributions?
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From the ato https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-paying-tax/division-293-tax---information-for-individuals/?page=3#How_much_will_your_Division_293_tax_be
If the combined figure is greater than the threshold, you have taxable contributions. Taxable contributions will be the lesser of either
the low-tax contributions
the amount above the threshold
The tax applied will be 15% of the taxable contributions.
I think you're only on the hook for 15% of the 20k concessional contributions.
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Payroll company managed to squeak some more of my concessional contributions into my super this financial year [yay!] so I'll only be claiming some of the post-tax contributions I put in this year.
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From the ato https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-paying-tax/division-293-tax---information-for-individuals/?page=3#How_much_will_your_Division_293_tax_be
If the combined figure is greater than the threshold, you have taxable contributions. Taxable contributions will be the lesser of either
the low-tax contributions
the amount above the threshold
The tax applied will be 15% of the taxable contributions.
I think you're only on the hook for 15% of the 20k concessional contributions.
Correct.
Also, you don't include the concessional contributions in income for surcharge purposes, so your total div 293 income would be $270K. Therefore, if your concessional contributions had been 25K instead of 20K, you would only pay div 293 tax on the 20K excess above the threshold.
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From the ato https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-paying-tax/division-293-tax---information-for-individuals/?page=3#How_much_will_your_Division_293_tax_be
If the combined figure is greater than the threshold, you have taxable contributions. Taxable contributions will be the lesser of either
the low-tax contributions
the amount above the threshold
The tax applied will be 15% of the taxable contributions.
I think you're only on the hook for 15% of the 20k concessional contributions.
Correct.
Also, you don't include the concessional contributions in income for surcharge purposes, so your total div 293 income would be $270K. Therefore, if your concessional contributions had been 25K instead of 20K, you would only pay div 293 tax on the 20K excess above the threshold.
Thanks - just so I am clear, even if my gross earnings are $350k year, the only part I need to worry about for Div 293 is the amount of super contributions for any FY?
As I don’t intend (while I am still working full time) to put more than the $25k limit, it sounds like I can do my maths around that as a worst case additional tax scenario – meaning $25k x 15% = $3750.
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I was just thinking about the Div 293 scenario above and thought that if I make spouse super contributions I might be able to receive an offset for this based on this info:
“Spouse Contributions
Under the current 2017/2018 tax rules, you may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000.”
The above I think works out to be about $500 tax offset.
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I was just thinking about the Div 293 scenario above and thought that if I make spouse super contributions I might be able to receive an offset for this based on this info:
“Spouse Contributions
Under the current 2017/2018 tax rules, you may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000.”
The above I think works out to be about $500 tax offset.
Yeah it's $540. We contemplated it for adding to my Super, but didn't end up pulling the pin on it. Probably should have based on the bonus my wife got this year, could have easily afforded it.
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I was just thinking about the Div 293 scenario above and thought that if I make spouse super contributions I might be able to receive an offset for this based on this info:
“Spouse Contributions
Under the current 2017/2018 tax rules, you may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000.”
The above I think works out to be about $500 tax offset.
Lush - you really need to go talk to your accountant!
And you're too late now to do anything about minimising 2017/18 tax via fiddling with superannuation contributions.
So talk to him or her now to map out a strategy for 2018/19 :)
Sorry - Edit to add - I just realised I already told you to go do this last week haha.
I can't recommend you one (an accountant of financial adviser), because as a CA myself I do my own taxes. Unfortunately, I don't have a certificate of public practice, so I'm not allowed to provide tax advice to you (nor charge you for it!)
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Marty yes I will be discussing this with my accountant - just throwing some idea's around to get real life feedback.
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how do you all calculate what your annual % increase is on your super?
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how do you all calculate what your annual % increase is on your super?
Not sure what you mean @missbee
Are you talking about you got a payrise and you want to know how much more will be going into your Super each year?
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Ah no, what I meant was more along the lines of if my super balance was $XX,xxx as at 30/06/2017 and now it is $ZZ,zzz as at 30/06/2018, if I subtract the known net SG and salary sacrifice contributions for the year from the total amount my balance increased by I got a 7.7% return.
is that how you lot check the overall performance of your super?
If I just look at the total $$ increase it works out to be a rather nice 17.688% but just over half that was technically my own money.
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It's less than that because your SG and salary sacrifice also earnt interest/dividends.
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Ah no, what I meant was more along the lines of if my super balance was $XX,xxx as at 30/06/2017 and now it is $ZZ,zzz as at 30/06/2018, if I subtract the known net SG and salary sacrifice contributions for the year from the total amount my balance increased by I got a 7.7% return.
is that how you lot check the overall performance of your super?
If I just look at the total $$ increase it works out to be a rather nice 17.688% but just over half that was technically my own money.
You annual statement will show the investment returns %. Note this might be gross of admin fees and insurance costs so that will also affect the final % return.
It is very complicated, because as deborah said your contributions throughout the year also get invested (at different times, so each earning a different return for the year).
It's a long rabbit hole to come out of if you go want to explore it further.
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oh, of course I will see what the actual investment returns are on the statement.
I guess using the word 'return' was unclear, I'm just pondering overall superannuation growth, year on year and a possible cut off point for salary sacrifice contributions (if there's no tax benefit in it for me) and letting compounding do it's thing to get to my desired superannuation balance at preservation age.
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It really depends on how long you’re retired before you reach your preservation age (the age at which you can access your super), and how much you’re going to end up with in super.
Say your preservation age was 60. If you were to retire at 58, you only need 2 years of expenses available to you, so you could put almost everything into super, so salary sacrifice is reasonable. If you were retiring at 30, you’d really need as much as you can outside super. The 4% rule says you only need 25 times yearly expenses no matter how many years you plan to retire for, so you would have to have that much available outside super.
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I went along to the member briefing put on by Australian Super today. I must have been the youngest person in the room :)
It took less than 2 minutes for the barbs to be thrown at the retail super sector "good to see a thousand people in the room and 4000 online, this is much better engagement than the banks and none of you are dead either"
Stated mission is to see the end of retail super products - basically actively lobbying the government to tell APRA to progressively cancel the licences of poorly performing funds and forcing them to merge with better performing industry funds.
It's going so far as to advocate for the 4 million Australians who are in crap funds and trying to get them a better deal, even though they are not Australian Super members. You'd never ever see that from a Bank.
I came out of it thinking "thank christ I made the right decision 13 years ago. If I'd stuck with AMP I'd be $80,000 poorer".
TL/DR, your trust in the Mustache Man (Ian Silk) is not going to be misplaced.
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Get rid of all of them and create a massive fund with 1 basis point MER.
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Get rid of all of them and create a massive fund with 1 basis point MER.
and about 1% of the staff and directors. Superannuation should not be an industry or a big employer, the funds should be for members. I'll stick with self managing thanks.
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I have been with Rest's CoreStrategy since my teenage years and have only just gotten around to looking at the different options in greater detail.
Trying to decide between:
- AustSuper High Growth (I'm mid-20's)
- AustSuper Indexed diversified (lower fees, only 70% "growth")
- Hostplus Indexed Diversiified (even lower fees, only 75% "growth)
- SunSuper DIY mix with Aus/Intl Shares (believe they use Vanguard ETF's?)
Anyone with a compelling reason for one over the other?
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Someone put a Super comparison table up on Reddit today. It might help you some:
https://www.reddit.com/r/AusFinance/comments/9uakio/super_comparison_table/
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Someone put a Super comparison table up on Reddit today. It might help you some:
https://www.reddit.com/r/AusFinance/comments/9uakio/super_comparison_table/
Hehe, that may or may not have been me...
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Someone put a Super comparison table up on Reddit today. It might help you some:
https://www.reddit.com/r/AusFinance/comments/9uakio/super_comparison_table/
Hehe, that may or may not have been me...
It also may or may not have been me...
Okay, it wasn’t. Thanks AussieLad! Great addition...
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Interesting report out today from the Grattan Institute* regarding Super.
They are correct that there's a lot of fear mongering from vested interests about people "not having enough" retirement savings. People don't necessarily need a high proportion of their working salary. If they want it, then they can save for it accordingly.
They are not correct in wanting to loosen the means testing for the age pension. IMO the system needs to be designed to make sure the majority of people don't need it. If you've got $800,000 in assets + a home, you should not be getting welfare.
I agree with their proposal that pension earnings should be taxed at a nominal 15%. There is no equitable justification at all for it being a zero rate.
Should be noted the Grattan Institute is quite left wing in political bent.
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Interesting report out today from the Grattan Institute* regarding Super.
They are correct that there's a lot of fear mongering from vested interests about people "not having enough" retirement savings. People don't necessarily need a high proportion of their working salary. If they want it, then they can save for it accordingly.
They are not correct in wanting to loosen the means testing for the age pension. IMO the system needs to be designed to make sure the majority of people don't need it. If you've got $800,000 in assets + a home, you should not be getting welfare.
I agree with their proposal that pension earnings should be taxed at a nominal 15%. There is no equitable justification at all for it being a zero rate.
Should be noted the Grattan Institute is quite left wing in political bent.
Some decent points but the one that caught my attention is the suggestion to increase preservation age to 70. Seems unreasonable to punish salary sacrificers like that when they have been strongly encouraged to save in super.
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I missed that... 70 is far too late. 60 in my view is about right.
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I agree, 70 is way too late for a preservation age. Lots of folks find it physically difficult to work past 55, and I think if I recall the average retirement age is 63?
I think the gubmint needs to be careful about tightening the srcrews too much on super such as introducing 15% on pension earnings. There still needs to be some incentive for people to buy into super beyond the 9.5%
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I agree, 70 is way too late for a preservation age. Lots of folks find it physically difficult to work past 55, and I think if I recall the average retirement age is 63?
I think the gubmint needs to be careful about tightening the srcrews too much on super such as introducing 15% on pension earnings. There still needs to be some incentive for people to buy into super beyond the 9.5%
Throwing it out there but further means testing the age pension would be the "stick" part of the incentive to build super. I reckon the discount to marginal tax rates on contributions and earnings is "carrot" enough.
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I have always thought that no tax during pension phase is ridiculous, as it annoys younger generations.
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A whole lot of things annoy younger generations....
and funnily enough, they are annoyed by them less and less as they become older.
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:)
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Someone was talking about Life Insurance in Superannuation funds. I never had any, because I never had any dependents. But opting out was sometimes tricky.
However, it leads to another point. Generally speaking, we are told only to have one superannuation fund. At various stages I deliberately had up to three, and I could have had more. In my circumstances, I was salary sacrificing to super - which had to be a different fund than where my work contributions were going, and couldn't be my SMSF - so that made three. Until I retired. Every so often, I might move money from one fund to another.
If life insurance is available in your current, more expensive super fund, but not (because of pre-existing conditions) in the cheaper one you plan to move to, maybe it makes sense to retain a small sum in the more expensive fund, and treat it like a separate life insurance policy which you top up once a year to maintain its currency and stop the ATO getting their hands on it.
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I have been with Rest's CoreStrategy since my teenage years and have only just gotten around to looking at the different options in greater detail.
Trying to decide between:
- AustSuper High Growth (I'm mid-20's)
- AustSuper Indexed diversified (lower fees, only 70% "growth")
- Hostplus Indexed Diversiified (even lower fees, only 75% "growth)
- SunSuper DIY mix with Aus/Intl Shares (believe they use Vanguard ETF's?)
Anyone with a compelling reason for one over the other?
So I was reading the Barefoot investor and saw that he advised going with the fund that had the least fees. For him that’s Hostplus Diversified. He argued that he would save more over the years by paying less fees than the ones that had higher growth. I’m with AusSuper and had them in the growth but switched to the Indexed one for 100%, based off of BI’s advice. Did I do the right thing? I’m the guy who wants everything simple and maximized, so I don’t have to worry about anything.
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Last I checked the fees in Australian Super for the Indexed diversified option were higher than if you chose the individual indexes and allocation yourself.
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Last I checked the fees in Australian Super for the Indexed diversified option were higher than if you chose the individual indexes and allocation yourself.
Do you mean if I DIY the indexes? Not sure I know how to do that? Any suggestions? I thought the fees were pretty low, less than Host plus but maybe I read it wrong?
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Hmm. Ignore me then. My knowledge is out of date. 0.12% is hard to beat.
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Hmm. Ignore me then. My knowledge is out of date. 0.12% is hard to beat.
Ok, thanks. Guess I read it right then, so I’ll just leave as is.
Now I’m wondering: do I really need income protection? I work in an office. I have bike insurance so if I’m hurt riding, that will cover me.
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My next door neighbour is currently recovering from cancer. She has income protection, and it includes cancer, so she's sorting it out at the moment. However, Income Protection is one of the types of insurance with a bad name because claims are often knocked back and take a long time to finalise.
And they don't necessarily cover you in certain situations. For instance, many years ago, I was stopped at a traffic light in my car, and the double decker express bus from Melbourne to Sydney ignored me, and all the other cars that were stopped for an ambulance, and biffed me across the intersection. My car was a writeoff, and I had whiplash for the next three years, and had a hard time keeping my job with the amount of time off I needed. I had become a contractor THREE MONTHS earlier. You need(ed) six months of job history to claim (the Transport Accident Commission covered income loss - so it was a form of income protection), and I didn't have it. All up, I lost about $80,000. I had the money, but most people would have been in a lot of trouble.
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Hi, just found this thread!
I was reading this interesting article this morning about the Productivity Commission Inquiry Report:
https://www.clime.com.au/weekly-investing-report/super-for-some/?omhide=true&utm_source=clime&utm_medium=email&utm_campaign=ir-310119&utm_content=button
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@ozbeach thanks for the boot up the bum I needed, time to review my super and how much I am paying in indirect fees
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Was that a retail fund Ozbeach? If so, care to share which fund is that? Gosh! those fees are too rich to swallow!
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On the assumption that you have about $500k in your super fund (which is of course entirely your business), did you checkout an SMSF ?
While Industry Funds *do* run rings around retail funds in terms of lower charges, SMSFs can run rings around Industry Funds.
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On the assumption that you have about $500k in your super fund (which is of course entirely your business), did you checkout an SMSF ?
While Industry Funds *do* run rings around retail funds in terms of lower charges, SMSFs can run rings around Industry Funds.
When I started my research I figured that I would likely go the SMSF route. But at the end of the day, I wanted to put the lot into a few Vanguard indexes and the compliance issues (even with the "SMSF in a box" options) seemed overly onerous. Sad to say, I think one of the requirements was two Directors? and I didn't know anyone to ask. The HostPlus Balanced Indexed gives me 90% of what I wanted for minimal fees ($78pa plus MER 0.02%) and no compliance headaches. The other issue I considered was that I will be switching to pension mode in a few years - this seemed to be another area that could easily become a minefield with a SMSF.
One thing I have learnt is how easy it is to switch, so I remain open to being convinced of the merits of an SMSF :)
SMSFs appeal to my sense of independence but I am still currently with an industry fund. One thing the funds seem to have in their favour is convenience when it comes to changing asset allocation ( just click a button), and starting and stopping pensions and income streams. It cost me nothing additional to set up a TRIS, and won't cost anything for subsequent changes. I know, I know I probably paid for it in advance in the fee structure. The other issue is they achieve a level of diversification across many asset classes ( depending on what you chose within the fund - mine I can chose single asset classes if I wish as well as a pre-mix) that an individual investor is unlikely to achieve in a SMSF, even using index funds.
When I first started out learning about investing this latter fact irked me no end...I couldn't actually pin down what my money was invested in in simple terms like stock or bonds. Now I understand more it no longer bothers me.
Last time I did the math, it wasn't really worth it to change to a SMSF. Time has passed and my super balance is bigger now...now I'm retired I should re look at it again. But there would need to be substantial gains in a SMSF over an industry fund to offset all the administrative issues.
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Sad to say, I think one of the requirements was two Directors? and I didn't know anyone to ask. The HostPlus Balanced Indexed gives me 90% of what I wanted for minimal fees ($78pa plus MER 0.02%) and no compliance headaches.
Set up a corporate trustee, which is the more robust option anyway and you can be the sole director.
$78 + 0.02% is pretty cheap, although don't forget the ICR which is 0.05%.
I engage a low-cost SMSF accountant with whom I am very happy and they take care of all tax and compliance issues.
I also have the majority of the funds in Vanguard ETFs and I can fiddle them as I like.
I'll be upfront and admit that I have a real problem with investing with union-affiliated funds. If that's not something you share, then I agree that what you have now is not worth changing.
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Sad to say, I think one of the requirements was two Directors? and I didn't know anyone to ask. The HostPlus Balanced Indexed gives me 90% of what I wanted for minimal fees ($78pa plus MER 0.02%) and no compliance headaches.
Set up a corporate trustee, which is the more robust option anyway and you can be the sole director.
$78 + 0.02% is pretty cheap, although don't forget the ICR which is 0.05%.
I engage a low-cost SMSF accountant with whom I am very happy and they take care of all tax and compliance issues.
I also have the majority of the funds in Vanguard ETFs and I can fiddle them as I like.
I'll be upfront and admit that I have a real problem with investing with union-affiliated funds. If that's not something you share, then I agree that what you have now is not worth changing.
Yeah corporate trustee is the way to go for an SMSF. If you do an individual trustee, the ATO mandates by law you must have two trustees. I'm guessing this is because there are problems if the sole trustee dies....super doesn't automatically go into an estate and cannot be in a will.
On the topic of union affiliated funds.... why do you have this problem? The unions don't have a say in the investment decisions, and there is generally equal representation between union reps and employer organisations. Just as I don't think a union official has any special skills to run a super fund, neither do I think the members of the Business Council of Australia or Australian Chamber of Commerce & Industry or the Master Builders Association have any special skill either. They're all equally bad, and it's the price you pay to keep everyone happy. But across all of the industry funds they must be doing something right - they top all rankings for 1, 3, 5, 7, 10 and 15 year performance measures....
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Yay or Nay?
Say you have a child who has just started an industry fund; and you want to gift her $5000 every year ...but you do not want her to touch the money for a LONG LONG time...
What do you guys think of the merits of tipping it into her industry fund (Aust Super Balanced Fund) as a non concessional contribution and watching it compound through her life?
(also out of touch from pesky future spouses:))))
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I think it's a great idea, as long as you don't mind that she can't touch it until she's 60
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Yes, I think it's a good idea too. Putting in $5000 a year now saves her from having to put in $25000 a year later on.
Also helps limit the damage from fees on low balances while she is young.
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Thanks plus no contribution tax of 15%
Also plan to drip over a year instead of a whole lump sum to even out the average price...
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Thanks plus no contribution tax of 15%
Also plan to drip over a year instead of a whole lump sum to even out the average price...
Only if she hasn't been suckered into stupid insurances tacked onto her Super that she doesn't need at this stage of life.
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You do realise that spouses can get their hands on super when they divorce, don’t you?
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Thanks to all for your valuable comments!
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I've been encouraging my young ones to invest in super as well for all the above reasons, and also as the market is so expensive at the moment. Once I showed them one of those graphs that showed the exponential growth of compounding interest over 40 years, they were much more interested. I'll keep an eye on their balances and do some math from time to time. Once it looks like it will grow into a reasonable retirement, I'll be offering advice about investment outside super, if they want to take any notice of me.
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These days saving for your first home deposit through extra contributions to super is a big benefit that is worth investigating.
I went smsf property, best thing I ever did and reached my goals in less than half the expected time.
Cheers, Paul.S
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On the topic of union affiliated funds.... why do you have this problem? The unions don't have a say in the investment decisions, and there is generally equal representation between union reps and employer organisations.
Because of things like this (article from the AFR on 22 Feb, its paywalled, so no direct link. If you search for it you will be able to click through to the article). In short, the ACTU is demanding 30 industry funds pressure BHP to maintain an antiquated shipping arrangement. Super should not be an IR tool, hence unions have no place in it. Quote below. I also had a lot of trouble actually getting transparency from my old fund (CBUS, an industry fund) on what they did and didn't do. If they won't answer a member's questions then they won't be managing my super.
"Trade unions have demanded 30 union-backed industry superannuation funds use their leverage as shareholders to pressure mining giant BHP to save the jobs of 80 local seafarers who work on ships hauling iron ore."
I also have a moral beef with how much money is involved in running people's super. My old day job was in commercial property. A lot of very high end property occupied by super funds, and a lot of people working for them on massive incomes. When the whole lot could be replaced with a single whole of country index operation.
Industry funds have a record of being the least worst between retail and industry funds. Just because they are less bad than their neighbor doesn't make them good. I'll manage my own money rather than a sponsor a fund manager's swish office and yacht thank you.
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I had no idea that industry super funds used their leverage as shareholders in this way. That gives me pause for thought. My super might actually be being used to lobby for causes which I may or may not support: either way though, its without my consent.
I am not surprised by what you've said about the big salary aspect, in fact I begrudgingly expect that. Makes me mad though, that its compulsory to participate in super, and one might expect it would be in the gubbmint's interest to prevent too much rorting. How that could be achieved of course is another thing.
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These days saving for your first home deposit through extra contributions to super is a big benefit that is worth investigating.
I went smsf property, best thing I ever did and reached my goals in less than half the expected time.
Cheers, Paul.S
Can you elaborate with a numerical example please? Are you a young person or close to retirement?
I always thought one should not buy (residential) property inside an SMSF closer to retirement as one has to take a certain % compulsive amt once reach retirement age and difficult to sell part of the property in order to do that?
But if one is young, perhaps there is room to do that?
I would be really keen to dissect your example...so please post for my education:))
Especially the part where you say .."reach my goals in half the time.."
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I spent some time on the weekend trying to roll my wifes three super funds into the one fund. Using the ATO website it was easy to find her details and numbers for the two funds we wanted to roll over.
Fund A - use the ATO roll-over button. Done.
Fund B - use the ATO roll-over button. No. Can't do it. I looked further into it. PSS (Public Sector Super) from some work 20 years ago. It is increasing, and the costs are very minimal, but we cannot get it out until she retires. Thanks Federal Governments!
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middo- The PDS fund could be a defined benefit fund of it's not letting you rollover online.
Might be worth a phone call to find out what benefits she is entitled to (might be a lump sum or an income stream (pension) and at what age as some of these funds allow retirement at an earlier age such as 55. If she can't roll it over you might want to ensure beneficiary details are up to date.
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middo- The PDS fund could be a defined benefit fund of it's not letting you rollover online.
Might be worth a phone call to find out what benefits she is entitled to (might be a lump sum or an income stream (pension) and at what age as some of these funds allow retirement at an earlier age such as 55. If she can't roll it over you might want to ensure beneficiary details are up to date.
Thanks. I hadn't thought about the beneficiaries. I'm fairly sure it is a defined pension scheme, and she is eligible for a pension of ~$300 p.a. when she turns 57 I think. (Could be wrong, this is from memory) The balance is around $9000. We are not talking big dollars, but it would have been easier to just roll it into her current super fund, but rules. The fund used to have an address that we hadn't lived at for 18 years.
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I spent some time on the weekend trying to roll my wifes three super funds into the one fund. Using the ATO website it was easy to find her details and numbers for the two funds we wanted to roll over.
Fund A - use the ATO roll-over button. Done.
Fund B - use the ATO roll-over button. No. Can't do it. I looked further into it. PSS (Public Sector Super) from some work 20 years ago. It is increasing, and the costs are very minimal, but we cannot get it out until she retires. Thanks Federal Governments!
I have a small amount in PSS. Its a defined benefits scheme, and you're pretty well stuck with it until you hit preservation age AND are retired. You can't put more in, and you can't do a TRIS once you've reached preservation age. I've not tried to roll it over because of its pension option. As well, one portion only increases with CPI and there are very limited investment options for the other. The one advantage is that you can take a lifelong pension and on my math at least, taking it as a pension way outweighs taking the lump sum. Eg at 65 lump sum around 108k vs indexed pension of around 10,800 PA. In other words, if you live more than 10 years, past 75, you win more or less. Maybe make it 11 years coz if you took the 108k and invested it you'd probably do a bit better.
Go onto the site and use I-estimator to see what your figures are.
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On the topic of union affiliated funds.... why do you have this problem? The unions don't have a say in the investment decisions, and there is generally equal representation between union reps and employer organisations.
Because of things like this (article from the AFR on 22 Feb, its paywalled, so no direct link. If you search for it you will be able to click through to the article). In short, the ACTU is demanding 30 industry funds pressure BHP to maintain an antiquated shipping arrangement. Super should not be an IR tool, hence unions have no place in it. Quote below. I also had a lot of trouble actually getting transparency from my old fund (CBUS, an industry fund) on what they did and didn't do. If they won't answer a member's questions then they won't be managing my super.
"Trade unions have demanded 30 union-backed industry superannuation funds use their leverage as shareholders to pressure mining giant BHP to save the jobs of 80 local seafarers who work on ships hauling iron ore."
Ahh yes, and the Industry Funds are free to ignore that request, as is BHP, which I expect they will do.
The likes of Heather Ridout and Innes Willox who sit on the Australian Super Board are hardly going to entertain this stupidity from the unions.
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These days saving for your first home deposit through extra contributions to super is a big benefit that is worth investigating.
I went smsf property, best thing I ever did and reached my goals in less than half the expected time.
Cheers, Paul.S
Can you elaborate with a numerical example please? Are you a young person or close to retirement?
I always thought one should not buy (residential) property inside an SMSF closer to retirement as one has to take a certain % compulsive amt once reach retirement age and difficult to sell part of the property in order to do that?
But if one is young, perhaps there is room to do that?
I would be really keen to dissect your example...so please post for my education:))
Especially the part where you say .."reach my goals in half the time.."
Hi Ozlady, feel free to ask I know I don't explain things so well!
I encourage my (working) kids to salary sacrifice as much as they can stand into Super, so they can get the government to help them buy a first home by getting a deposit together quicker. The info is all in here much better than I can explain.. https://www.ato.gov.au/individuals/super/super-housing-measures/first-home-super-saver-scheme/
I started an smsf at 47 years of age, with the goal of doubling my super money by 60 through borrowing and paying off an investment property purchase through smsf. With capital gains it had doubled in 3 years! The plan is to sell when I get to 60 years old (9 years away) and switch from accumulation phase to pension phase.
Hopefully I will be retired well before 60 though, and superannuation is just a nice boost!!
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I'm going to aim for 20% of my stash in Super and 80% out of super.
Reasoning:
- I want the option of retiring earlier than 65.
- I want the option of buying a house before 65.
- I might die before 65 (unlikely but possible).
- The low tax and extra time super has to grow will offset the low amount I invest in it.
- At the same time, a bit of extra income at 65+ won't go astray.
- It's also useful as an additional emergency buffer ("compassionate grounds").
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I'm going to aim for 20% of my stash in Super and 80% out of super.
Reasoning:
- I want the option of retiring earlier than 65.
- I want the option of buying a house before 65.
- I might die before 65 (unlikely but possible).
- The low tax and extra time super has to grow will offset the low amount I invest in it.
- At the same time, a bit of extra income at 65+ won't go astray.
- It's also useful as an additional emergency buffer ("compassionate grounds").
@conwy FYI- The oldest preservation age is 60 not 65 see:
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=11
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I'm going to aim for 20% of my stash in Super and 80% out of super.
Reasoning:
- I want the option of retiring earlier than 65.
- I want the option of buying a house before 65.
- I might die before 65 (unlikely but possible).
- The low tax and extra time super has to grow will offset the low amount I invest in it.
- At the same time, a bit of extra income at 65+ won't go astray.
- It's also useful as an additional emergency buffer ("compassionate grounds").
@conwy FYI- The oldest preservation age is 60 not 65 see:
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=11
It is at the moment. When I started work the oldest preservation age was 55. But that's not the rules that now apply to me. I now can't access super until 60. Depending on your age and your appetite for an early retirement, it may be prudent to build in some buffer to allow for future changes. Having a FIRE strategy that only works if there's no future changes to the superannuation rules is a risk.
As an example, the Tax Review has recommended moving the preservation age to 67 from 2024 and aligning to the pension age. http://taxreview.treasury.gov.au/content/StrategicPaper.aspx?doc=html/Publications/Papers/Retirement_Income_Strategic_Issues_Paper/Chapter_5.htm (http://taxreview.treasury.gov.au/content/StrategicPaper.aspx?doc=html/Publications/Papers/Retirement_Income_Strategic_Issues_Paper/Chapter_5.htm)
Neither party seem to want to touch this right now, but there's many more budgets and elections to go between now and when I'm 67.
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I'm going to aim for 20% of my stash in Super and 80% out of super.
Reasoning:
- I want the option of retiring earlier than 65.
- I want the option of buying a house before 65.
- I might die before 65 (unlikely but possible).
- The low tax and extra time super has to grow will offset the low amount I invest in it.
- At the same time, a bit of extra income at 65+ won't go astray.
- It's also useful as an additional emergency buffer ("compassionate grounds").
@conwy FYI- The oldest preservation age is 60 not 65 see:
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=11
It is at the moment. When I started work the oldest preservation age was 55. But that's not the rules that now apply to me. I now can't access super until 60. Depending on your age and your appetite for an early retirement, it may be prudent to build in some buffer to allow for future changes. Having a FIRE strategy that only works if there's no future changes to the superannuation rules is a risk.
As an example, the Tax Review has recommended moving the preservation age to 67 from 2024 and aligning to the pension age. http://taxreview.treasury.gov.au/content/StrategicPaper.aspx?doc=html/Publications/Papers/Retirement_Income_Strategic_Issues_Paper/Chapter_5.htm (http://taxreview.treasury.gov.au/content/StrategicPaper.aspx?doc=html/Publications/Papers/Retirement_Income_Strategic_Issues_Paper/Chapter_5.htm)
Neither party seem to want to touch this right now, but there's many more budgets and elections to go between now and when I'm 67.
This was written TEN YEARS AGO and it hasn’t happened. They haven’t even started to think about lifting superannuation age. Since they have always had a long lead time before the age increases happen, I’d expect that, if it was legislated tomorrow, the increase from 60 to 67 would start to happen in 2030 and that would mean that in
2030 your preservation age would be 60.5
2031 your preservation age would be 61
2032 your preservation age would be 61.5
2033 your preservation age would be 62
2034 your preservation age would be 62.5
2035 your preservation age would be 63
2036 your preservation age would be 63.5
2037 your preservation age would be 64
2038 your preservation age would be 64.5
2039 your preservation age would be 65
2040 your preservation age would be 65.5
2041 your preservation age would be 66
2042 your preservation age would be 66.5
2043 your preservation age would be 67
At the earliest.
Also, there are an enormous number of people who simply break down before aged pension age now. They are put on New Start or get NDIS, and the figures for those have ballooned since the OAP ages have increased and superannuation preservation age has increased. Most of the people who use up their superannuation before pension age do so because they are in this situation. Studies show that it is the rare person who just fritters their super away, although many decide to take a bit of it out to make a one off purchase at the start of retirement - pay off the mortgage, buy a caravan...
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I don't disagree Deborah. But if I'm FIRE-ing at 40 (say) with a view that I have 20 years to go before I can access super, I don't want that to be out by 5 years because I assumed there wouldn't be any changes to the super regime.
I love super and Mrs Gremlin and I have a stack of money socked away in super. But I have more than I would otherwise outside of super to cover the gap between now and my preservation age, given that I don't definitively know what that preservation age will be. It may be 60, but it may be more than that by the time I'm 60.
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I'm more pessimistic than Deborah. I think its quite possible that the preservation age will increase again at some point in the future. The main issue against that is indeed a proportion of the population that is constitutionally unable to manage to work til 67...maybe more incentive to keep working part-time will emerge, although that won't solve all this problem.
I think it pays to consider all the worst case scenarios with super if you are a long way from accessing it. The idea of lifetime contributions cap has been around a long time in various papers...? at least 10-15 years, maybe longer. There was not much public discussion about it, and then all of a sudden the idea of lifetime contribution and pension fund caps appears and before you know it, they're on. ( I have a low information diet, so I may be incorrect about the lack of discussion but that's how it appears to me). Its also getting harder and harder to put super in, so it would be helpful to make elective contributions sooner rather than later.
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OK, let's look at the worst cases... I think this is very worth doing, and that they don't have much to do with preservation age.
Firstly, I'd look at political differences.
The election was interesting, because there were some super announcements that didn't really make it to the news. One was that Labor would cancel the super catch up rules (that you can now add superannuation you missed out on adding for several years), and stop people being able to put concessional contributions in themselves - for instance see - https://www.canberratimes.com.au/story/6119884/not-so-super-election-promises/?cs=14248.
If we assume that each party will be in power at some stage, and that the promises that they restate at every election are going to occur at some stage, what are the risks to us as early retirees?
I contend that raising the preservation age is the least worry. It has been suggested by various white papers, but neither political party has seemed at all interested. When we will actually have a 12% super guarantee also seems to be a bit of a political football - Labor wants it, the Liberals don't and wages stagnation has made it political dynamite. But if we start to have some inflation, it may be back on the table.
Labor appears to be against several measures that would make it easier to retire early and stuff extra money into super later on. This means that we need to avoid counting on such measures still existing when we retire.
Since the beginning of Howard's reign, the liberals are all for families having just one income, and having a traditional stay-at-home wife. The family allowances were created by Howard to ensure that sort of family had no disadvantages, and many of their measures can be viewed in that context. The ability to put super in your spouse's fund, and the measures I've mentioned already are part of this liberal emphasis on the traditional family.
We also face a problem with the aging population and consequent lack of tax. Labor has it in for family trusts, and I suspect that the liberals will eventually also decide that they are too much of a tax haven. I also think now people can have a maximum of $1.6million in super pension phase, that the tax on super in accumulation phase will increase.
As our superannuation system becomes more mature, and people can play catch-up with their concessional contributions, both sides of politics will see little need for non concessional contributions to exist, and the amount people can put into super will continue to decrease. This has already been happening, and both parties have been reducing these contributions. I would be surprised if you could make any non concessional contributions in a decade.
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OK, let's look at the worst cases... I think this is very worth doing, and that they don't have much to do with preservation age.
Firstly, I'd look at political differences.
The election was interesting, because there were some super announcements that didn't really make it to the news. One was that Labor would cancel the super catch up rules (that you can now add superannuation you missed out on adding for several years), and stop people being able to put concessional contributions in themselves - for instance see - https://www.canberratimes.com.au/story/6119884/not-so-super-election-promises/?cs=14248.
I contend that raising the preservation age is the least worry. It has been suggested by various white papers, but neither political party has seemed at all interested. When we will actually have a 12% super guarantee also seems to be a bit of a political football - Labor wants it, the Liberals don't and wages stagnation has made it political dynamite. But if we start to have some inflation, it may be back on the table.
The SG gradual increase to 12% has already been legislated. They would need to introduce new legislation to stop it if they wanted to stop it.
https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=24
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Yes, it has been legislated. Several times. And each time, it is rolled down the street
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If I look back on many of my posts here after the years I'm sure most would be 100% in favour of super and the increase to 12%.
Must be a function of getting old because I'm starting to see the opposite view that raising it to 12% is not necessarily desirable for very low income earners. You can bet employers will say to staff "you're getting an extra 0.5% in super, so we'll give you a pay raise of 1% instead of 1.5% this year. Will only continue perpetuating the low wages growth environment.
Someone on $50,000 could use the 2.5% in their pocket, rather than going into super. They would still of course have the option to contribute extra through salary sacrifice, but I do start to question whether compelling people to give up 11%* of their gross income is a good thing.
Perhaps 10 is a reasonable ceiling, even if it is not adequate for various groups.
* $12 super out of $112 income is 11%.
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I get what you are saying Marty, but conversely those on under $50k a year are the ones most in need of 12% later on.
There is a big danger of employer slithering out of wage rises. I've had it happen to me in the public service where in the late 1980's compulsory super came in ( at a meagre 2%), in my sector and we forfeited payrises of 2% for a couple of years because it was going into super. I was so outraged by the compulsory acquisition of my pay rise I was biased against super for a long time. Of course it was still my money but I didn't being treated like a child being made to save by Big Brother, and I had no faith that I would ever see the money some 30-40 years later. It was another decade before I saw the light.
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The other reason why I don't think preservation age is much of a worry is that for a number of years we have had TRIS or its equivalent. I would expect that if the preservation age is lifted past 60, TRIS will be modified to be allowed to keep starting at 60, so that people who can't continue working can at least access an income stream from their super.
Also =, I forgot to link to this article in the ABC in my previous post - https://www.abc.net.au/news/2019-04-02/part-33a-superannuation-policies-of-both-major-parties-explain/10960328
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Ok, so maybe I can get my super out at 60 rather than 65. So what? I still want to be able to retire much earlier than that, hence why I'm involved in this community.
I'm not necessarily planning on quitting work. By 40, I hope my career will be at a point where either I have a very relaxing, flexible, easy full-time job or I work a high-pressure, intense 6 months out of every year and then completely chillax for the other 6 months.
But I want to always have the option of quitting work altogether and still being able to survive at my current lifestyle until I'm 60. I don't think super was ever intended for that, but that's what I'm after.
So I'll put enough into super that it's worth something by the time I can access it, but not so much that I don't have a very comfortable safety cushion throughout my 40s and 50s. I think the 80/20 non-super/super split should do that.
The good thing about staying more or less in the workforce is that I'll have that extra income stream, which can be stepped up or stepped down, in case of healthcare costs, extra expenses or a slight change in my goals.
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My guess is that this 80/20 split isn't too far off from most Australians, except that the bulk of their non-super wealth is in their home, which is a lower-performing and non-liquid investment. All I'm doing is substituting a diversified portfolio for the overpriced home, thus making more efficient use of my capital while allowing me to live almost anywhere in the world. Rather than "the Australian dream", I call it "the globe trotter's dream" - I own my own space-time-slice of anywhere on earth, in perpetuity.
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Hi, @conwy , there is a thread - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/ - where we were talking about how to retire early in Australia before Super kicks in. You may be interested in that.
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Hi, @conwy , there is a thread - https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/ - where we were talking about how to retire early in Australia before Super kicks in. You may be interested in that.
Brilliant, I'll be right over! Thanks deborah!
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Loving this little run on the markets. In addition to my shares going gangbusters, my Super balance just passed $200,000!
Not too shabby at all!
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QSuper and UniSuper funds topped the APRA list with 9.9% return for the last financial year. My SMSF which is about 75% shares and 25% cash returned 10.2%.
Anyone have any wilder better (or worse) performances from their funds, SMSF or otherwise ?
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SMSF 14.7%
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Neat. What's your allocation, Deborah ?
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I’m a bad person, as it’s mainly individual stocks.
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Australian Super returned 8.8% in the balanced option if I recall correctly. I haven't worked out my returns are yet (I'm with them but I was 75% shares, 25% fixed income for most of the year).
Just switched mine to 50/50 shares/fixed income now.
The top retail fund was IOOF for what its worth. Long way behind the top industry funds again.
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I received unexpectedly a letter from my employers default fund last week welcoming me as a member of their fund. I asked my payroll - they had changed systems on the 1st July, and everyone's super had somehow automatically been paid to the default fund. They were busy retrieving the funds paid the wrong way and fixing the issue, but I was the first to work out something had gone wrong.
I had noticed no payments into my normal fund for about 6 weeks, but they are a bit lumpy so I was starting to watch it more closely.
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I received unexpectedly a letter from my employers default fund last week welcoming me as a member of their fund. I asked my payroll - they had changed systems on the 1st July, and everyone's super had somehow automatically been paid to the default fund. They were busy retrieving the funds paid the wrong way and fixing the issue, but I was the first to work out something had gone wrong.
I had noticed no payments into my normal fund for about 6 weeks, but they are a bit lumpy so I was starting to watch it more closely.
Ooh that's going to be a nightmare to unravel. You'd want to hope the new fund hasn't started deducting contributions tax, insurance, admin fees...
(edit for typo)
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Someone should/will lose their job over such a cock-up
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The super fund will be able to reverse the contributions easily enough
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The super fund will be able to reverse the contributions easily enough
It'd probably have to go through the clearing house and then back to the employer.
Still a pretty decent stuff-up. I'm amazed that nobody checked the superannuation details when doing the data migration to the new payroll system. Even a sample check (I understand it may be difficult to check everyone for a big employer).
I'm with VicSuper using their Equity Growth option. The returns from it last financial year were 8.86%. I'd like to be able to have more control over the allocation (ie: I'd like to have most go to overseas shares with a smaller % going to Australian shares), but I'm too lazy to change for now, bigger financial fish to fry :)
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Saw this in the Sydney Morning Herald today: https://www.smh.com.au/business/companies/public-warned-to-check-super-as-young-mum-charged-over-10m-scam-20190917-p52s46.html .
Super scam affecting Hostplus, Hesta, etc. "Public warned to check super as young mum charged over $10m scam".
(Side note: can't imagine subs writing a headline about a "young dad" being charged over scam...)
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Saw this in the Sydney Morning Herald today: https://www.smh.com.au/business/companies/public-warned-to-check-super-as-young-mum-charged-over-10m-scam-20190917-p52s46.html .
Super scam affecting Hostplus, Hesta, etc. "Public warned to check super as young mum charged over $10m scam".
(Side note: can't imagine subs writing a headline about a "young dad" being charged over scam...)
Having it as "Public warned to check super as alleged fraudster charged over $10m scam" isn't going to generate the same number of clicks.
Describing her as a young mum is both sexist and adds a level of salaciousness to it. Twice the controversy = much more attention gained.
I checked my super balance today. It's still there. If it were gone it would have gone weeks / months ago. The Super Funds are on to it, cooperating with police and have it in order.
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I'm actually thinking about changing my super to one of the scammed funds named in the article, because it has lower fees and better performance. I assume that now it's been hit, it's going to be particularly cautious?! Stable doors, bolted horses...
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I'm actually thinking about changing my super to one of the scammed funds named in the article, because it has lower fees and better performance. I assume that now it's been hit, it's going to be particularly cautious?! Stable doors, bolted horses...
They're already very cautious. Lose your reputation in financial services and you've got nothing left. Just ask the big banks!
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According to the article, the scam involved the perpetrators changing the dates of birth on the victims super accounts. How does that work? "hello big super company - My name is Joe Bloggs and I've just realised I gave you, my employer and the ATO my wrong birth date. Oops, can we just fix that?" How on earth did that ever work? The article doesn't say, but I assume the companies that fell for this assumed liability.
It was a little more sophisticated than that. From the article:
It is claimed the syndicate obtained ID documents from another group of criminals who advertised the material for sale on the dark web after raiding people's letter boxes.
However, a change of birth date that subsequently allows a payout should be more thoroughly checked, I would have thought. I suspect there will be more rigorous checks in the future, making it harder for everyone to do their business.
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According to the article, the scam involved the perpetrators changing the dates of birth on the victims super accounts. How does that work? "hello big super company - My name is Joe Bloggs and I've just realised I gave you, my employer and the ATO my wrong birth date. Oops, can we just fix that?" How on earth did that ever work? The article doesn't say, but I assume the companies that fell for this assumed liability.
It was a little more sophisticated than that. From the article:
It is claimed the syndicate obtained ID documents from another group of criminals who advertised the material for sale on the dark web after raiding people's letter boxes.
However, a change of birth date that subsequently allows a payout should be more thoroughly checked, I would have thought. I suspect there will be more rigorous checks in the future, making it harder for everyone to do their business.
The change of birth date means that a 25 year old suddenly hits preservation age.
I agree though, it seems ridiculous a super fund would allow a change of birth date.
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I received unexpectedly a letter from my employers default fund last week welcoming me as a member of their fund. I asked my payroll - they had changed systems on the 1st July, and everyone's super had somehow automatically been paid to the default fund. They were busy retrieving the funds paid the wrong way and fixing the issue, but I was the first to work out something had gone wrong.
I had noticed no payments into my normal fund for about 6 weeks, but they are a bit lumpy so I was starting to watch it more closely.
Ooh that's going to be a nightmare to unravel. You'd want to hope the new fund hasn't started deducting contributions tax, insurance, admin fees...
(edit for typo)
My super is back in my correct account. It took a while, but anything with super always seems to take a while. I don't understand why it is so murky. It should be like normal banking, clear and almost instantaneous.
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Looks like there's a review of the whole super shebang on the way: https://www.smh.com.au/politics/federal/super-and-pension-budget-measures-in-firing-line-of-retirement-review-20190927-p52vkf.html
The next increase in compulsory superannuation and a string of budget savings measures that have crimped retirees' incomes will be investigated in the first comprehensive review of the nation's retirement income system in 30 years.
Treasurer Josh Frydenberg on Friday released the terms of reference for the inquiry, which will cover the age pension, voluntary savings including the family home, aged-care funding, franking credits and the role of the powerful $2.9 trillion superannuation industry.
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Looks like there's a review of the whole super shebang on the way: https://www.smh.com.au/politics/federal/super-and-pension-budget-measures-in-firing-line-of-retirement-review-20190927-p52vkf.html
The next increase in compulsory superannuation and a string of budget savings measures that have crimped retirees' incomes will be investigated in the first comprehensive review of the nation's retirement income system in 30 years.
Treasurer Josh Frydenberg on Friday released the terms of reference for the inquiry, which will cover the age pension, voluntary savings including the family home, aged-care funding, franking credits and the role of the powerful $2.9 trillion superannuation industry.
Ugh, another review. Nice that Josh has put a partisan hack on there - someone who was a vocal critic and led a lobby group against Labor's franking credit policy at the last election.
Also I'm getting pretty tired of Labor standing up for oldies who live in multi million dollar houses, allowing them to get the full pension without means testing. They talk a lot about intergenerational warfare but this is the biggest one of the lot.
At the end of all this both sides will yell at each other and the public will be the loser, either through higher taxes or less super.
I'm getting far too cynical :/
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Nice that Josh has put a partisan hack on there - someone who was a vocal critic and led a lobby group against Labor's franking credit policy at the last election.
Yes. Admirable commitment to a rigorous review there by our treasurer.
Also I'm getting pretty tired of Labor standing up for oldies who live in multi million dollar houses, allowing them to get the full pension without means testing. They talk a lot about intergenerational warfare but this is the biggest one of the lot.
Can't see this changing after the recent franking credits debacle. The government would annihilate them.
At the end of all this both sides will yell at each other and the public will be the loser, either through higher taxes or less super.
I'm getting far too cynical :/
Just accurate :)
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Franking credits and their refunds weren't an issue at all before Bowen's brain explosion.
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I have a question that's probably very basic and silly - please bear with me!
Unit prices on super - I've suddenly noticed them.
I'm thinking about switching my super investment option from the default offering to the indexed growth option (because index funds).
The default option has a unit price of 3.90ish and the indexed one has a unit price of 2.09ish. From google, I see that unit prices are sort of like share prices. Does this mean that the default option "costs" more and the indexed one is better value - like selling high, buying low sort of thing? That's not why I'm thinking of switching, but I thought it might be a bit of icing on the cake.
Does that make sense or have I got it muddled?
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Individual share prices are whatever seems reasonable at the time. A company initially issues shares at a price they think is reasonable - maybe the company was valued at $100 million before the owners joined the stock exchange, and they initially decided to issue a million shares with a face value of $100. They could just as reasonably issued 10 million shares with a face value of $10. Once the shares have been traded for a while, they may be bought from the ASX for $45 - that is how the market values the company, and it seems reasonable to the market, whether the shares were originally $10 or $100.
As many indexed funds are based upon a basket of shares, the price of a unit of the ETF is based initially on the price of the basket of shares in the unit. As these prices change, the unit price also changes.
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Individual share prices are whatever seems reasonable at the time. A company initially issues shares at a price they think is reasonable - maybe the company was valued at $100 million before the owners joined the stock exchange, and they initially decided to issue a million shares with a face value of $100. They could just as reasonably issued 10 million shares with a face value of $10. Once the shares have been traded for a while, they may be bought from the ASX for $45 - that is how the market values the company, and it seems reasonable to the market, whether the shares were originally $10 or $100.
As many indexed funds are based upon a basket of shares, the price of a unit of the ETF is based initially on the price of the basket of shares in the unit. As these prices change, the unit price also changes.
Thanks, Deborah! I'm on a steep learning curve here.
I've also just noticed (after some reasonably tenacious searching) that my super's default option has a MER of ten times the indexed option! And this is in an industry super fund! They're not exactly advertising that.
Reminds me of Hitchhiker's Guide to the Galaxy.
“But the plans were on display…”
“On display? I eventually had to go down to the cellar to find them.”
“That’s the display department.”
“With a flashlight.”
“Ah, well, the lights had probably gone.”
“So had the stairs.”
“But look, you found the notice, didn’t you?”
“Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.”
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I've also just noticed (after some reasonably tenacious searching) that my super's default option has a MER of ten times the indexed option! And this is in an industry super fund! They're not exactly advertising that.
AND I just clicked on another button and found that the default option also has a bunch of "indirect fees" which are 26 times as expensive as the indexed option!
Wow.
I suppose I should be grateful that they have an indexed option.
But...
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@Mellow Mallow good on you for looking! you are doing great.
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Thanks, @mspym !
I'm getting there. It's all new info to me!
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Thanks, @mspym !
I'm getting there. It's all new info to me!
I know how that feels! It is worth doing the digging. My funds cheapest option is their shares option, which I wanted anyway. It was just coincidence initially, but made me happy when I did some digging .
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Thanks, @mspym !
I'm getting there. It's all new info to me!
I started my journey off just squirrelling away as much as possible in as simple a form as possible - > Max out Super and buy some basic Vanguard funds in a ratio I was comfortable with.
After a few years I started calculating in Excel what the difference would be if I switched my super provider and changed over to wholesale. In each case it was an additional $40k in my pocket between now and 60 which is a year of freedom. And it wasn't like I was paying a lot in fees by AU standards but that extra 0.4% really starts adding up fast once the pile increases.
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I have a question that's probably very basic and silly - please bear with me!
Unit prices on super - I've suddenly noticed them.
I'm thinking about switching my super investment option from the default offering to the indexed growth option (because index funds).
The default option has a unit price of 3.90ish and the indexed one has a unit price of 2.09ish. From google, I see that unit prices are sort of like share prices. Does this mean that the default option "costs" more and the indexed one is better value - like selling high, buying low sort of thing? That's not why I'm thinking of switching, but I thought it might be a bit of icing on the cake.
Does that make sense or have I got it muddled?
At it's most basic, a super fund is a trust. Trusts issue units to beneficiaries (e.g. you). The unit price is calculated simply as the total value of the asset pie divided by the number of units on issue.
2.09 vs 3.90 doesn't mean much if you don't know when each investment option started and hence the % returns to get from the starting unit price (probably $1) to the price today. Probably not worth worrying too much about.
Thanks, @mspym !
I'm getting there. It's all new info to me!
I started my journey off just squirrelling away as much as possible in as simple a form as possible - > Max out Super and buy some basic Vanguard funds in a ratio I was comfortable with.
After a few years I started calculating in Excel what the difference would be if I switched my super provider and changed over to wholesale. In each case it was an additional $40k in my pocket between now and 60 which is a year of freedom. And it wasn't like I was paying a lot in fees by AU standards but that extra 0.4% really starts adding up fast once the pile increases.
This always amazes me. Fees really are a killer.
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At it's most basic, a super fund is a trust. Trusts issue units to beneficiaries (e.g. you). The unit price is calculated simply as the total value of the asset pie divided by the number of units on issue.
2.09 vs 3.90 doesn't mean much if you don't know when each investment option started and hence the % returns to get from the starting unit price (probably $1) to the price today. Probably not worth worrying too much about.
Thanks, Marty! Good to know.
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I've been posting in the general Australian investing thread, didn't realise there was a separate thread, what are the best super options available, who is everyone with and what options? I'm currently with hostplus, considering moving to sunsuper to recreate a vanguard index, is it worth moving and what are the options available? I would ideally like to be atleast 90% stocks and high international allocation. Hostplus has a similiar option but with higher fees
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There are hundreds, if not thousands of super options available. There is no one best option out there for everyone, and each year a different one will come out on top.
For a long time REST was #1 because of the performance of its international shares option. Sticking with them would have meant underperformance in recent years - the figures look bad but you would have been coming off a much higher base so you'd probably still be well ahead than if you chopped and changed.
Difficult as it is to suggest a fund that will always be on top, you will only really shoot yourself in the foot by going to a retail fund.
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Most of my friends who are into shares investing use Australian Super, good performance & easy to use, low fees etc.
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There are hundreds, if not thousands of super options available. There is no one best option out there for everyone, and each year a different one will come out on top.
For a long time REST was #1 because of the performance of its international shares option. Sticking with them would have meant underperformance in recent years - the figures look bad but you would have been coming off a much higher base so you'd probably still be well ahead than if you chopped and changed.
Difficult as it is to suggest a fund that will always be on top, you will only really shoot yourself in the foot by going to a retail fund.
I found hostplus has an indexed international stocks option which I think I will go with for now
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Folks, a mini superannuation case study question.
I set up my SMSF 3 years ago and used the bring forward rule to drop in $540k before they lowered the limit.
As of 30/6/19, the balance was $1.397m. As of today, it's $1.51m. The bring forward has expired and I can contribute non-concessionals again.
As my last balance was less than $1.4m, I can contribute the full 3 years again. Unless we have a major correction, this financial year is my last chance to get significant extra money in to super - I could deposit $300k non-concessional and $25k concessional and my balance would leap up to well over $1.8m.
The problem ? First world problem, of course, but that would deplete most of my available cash. I like having extra money around, one day I'm going to realise I'm not getting any younger and may blow some money on a boat or a plane or help the kids out with a property. I have a million in equities in my taxable accounts which will generate enough dividends to live off for the next 6 years until I'm 60 and I want to keep that intact. I can take an advance on my inheritance of $250k if I want (which I don't), so I don't really have anything to worry about there either.
My question: I don't really want to run too close to the wire, even with safety nets. I haven't crunched the numbers, but my gut feel is that once you cross the $1.6m balance cap, then putting extra into super becomes marginal. Maybe I don't bother contributing the full $300k, maybe $150k or $200k.
Anyone have thoughts as to whether I should take advantage of this once-in-lifetime opprtunity ?
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Folks, a mini superannuation case study question.
I set up my SMSF 3 years ago and used the bring forward rule to drop in $540k before they lowered the limit.
As of 30/6/19, the balance was $1.397m. As of today, it's $1.51m. The bring forward has expired and I can contribute non-concessionals again.
As my last balance was less than $1.4m, I can contribute the full 3 years again. Unless we have a major correction, this financial year is my last chance to get significant extra money in to super - I could deposit $300k non-concessional and $25k concessional and my balance would leap up to well over $1.8m.
The problem ? First world problem, of course, but that would deplete most of my available cash. I like having extra money around, one day I'm going to realise I'm not getting any younger and may blow some money on a boat or a plane or help the kids out with a property. I have a million in equities in my taxable accounts which will generate enough dividends to live off for the next 6 years until I'm 60 and I want to keep that intact. I can take an advance on my inheritance of $250k if I want (which I don't), so I don't really have anything to worry about there either.
My question: I don't really want to run too close to the wire, even with safety nets. I haven't crunched the numbers, but my gut feel is that once you cross the $1.6m balance cap, then putting extra into super becomes marginal. Maybe I don't bother contributing the full $300k, maybe $150k or $200k.
Anyone have thoughts as to whether I should take advantage of this once-in-lifetime opprtunity ?
You still have 6 years before you can access 'pension phase', and as you say the tax breaks are marginal if you go over the $1.6mill cap......so I would invest the money outside of Super. You could probably get it tax effectively into the Super after you turn 60 by using the new home downsizing rules.......
To help the kids get into property, I bought an investment property on borrowed money that they could rent from me. Their accrued rent became their deposit when they bought for themselves. It made it easy for them to save a deposit, and it is mostly cost neutral for me given the tax deductible loan interest and capital gain etc. Much better than just giving money and risk spoiling them!
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You could probably get it tax effectively into the Super after you turn 60 by using the new home downsizing rules.......
That's not an option.
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It's your money of course, but why lock it up in Super for 6 years when there is no tax benefit?
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Because there is a still a marginal benefit over the next 6 years and beyond. What will likely be 30% marginal tax on earnings outside of super versus 15% in an accumulation account. Otherwise I wouldn't even ask the question.
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Given your numbers I would agree with you that the benefit is marginal to you........a more substantial benefit would be to devise a strategy to help your kids.
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If you contribute this and end up over the cap, you will need to keep the excess in the accumulation phase. So it will see a 15% tax rate for the foreseeable future. Say you are earning 4% yield on it, and don't sell in future (so no capital gains issues). Taxable income from the 300k is 12k. You are better off by 30-15 =15%, or $1800 a year.
The money is locked up min 6 years. It sounds like you have plenty to get you through the next 6 year's, even if you need to sell a bit of taxable account.
If you put it in super, would it be invested in equities, or still cash?
Is having 300k in cash sitting around worth $150 a month to you? If it were me, I'd take the opportunity to get it into super while I can. But I'm a pathological saver/investor and hold negative cash, so the answer that's right for me may not be for you.
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Hi Chris,
no, I wouldn't hold it in cash. It's in cash (well, a 1.6% term deposit) now as my defensive allocation and if I need it, but if I lock it away in super it would all go into equities. My super already has $250k in cash in it, that's more than enough.
I'm pretty likely to put it in, but unlike you I can't handle negative cash, I need a few hundred k lying around to feel like I can afford anything even if the market crashes tomorrow :-) That's the real issue here.
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I'm pretty likely to put it in, but unlike you I can't handle negative cash, I need a few hundred k lying around to feel like I can afford anything even if the market crashes tomorrow :-) That's the real issue here.
You’re not alone - I never could stomach negative cash either. But you’ve already won - you already have enough and this is just icing on the cake, so any decision is a good one.
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Thanks Chris and Deborah.
Oh, and Chris, I too am a pathlogical saver, but not an investor. Saving comes naturally to me, investing needs constant will power.
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I may have missed it but what does everyone think of Vanguard starting a super? Would you move your super there? I’m with Aussie Super and love it and the app, but think it might be good to have all my money in Vanguard.
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I have an SMSF, but I'll be moving my mother's super there the day after they launch it.
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I have an SMSF, but I'll be moving my mother's super there the day after they launch it.
I read an article that said this would threaten SMSF’s cause there would be less of a need to have one if you can get low cost index funds directly from Vanguard.
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I'd agree. I started the SMSF because 3 years ago I needed to bail on retail funds due to the cost but I have an ideological objection to Industry funds.
I'm against unions and want them nowhere near managing my money and taking fees from me. I know that employer group representatives are also trustees and while I don't dislike them per se, I also don't see that they have any expertise in managing funds either.
My point being that I wouldn't have set up my SMSF in the first place if Vanguard was available, assuming that their products and fees are acceptable, of course.
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My point being that I wouldn't have set up my SMSF in the first place if Vanguard was available, assuming that their products and fees are acceptable, of course.
This rumour/news has been around for a while. Any news on when it will actually launch?
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I mentioned in another thread that superannuation withdrawal rates have been halved for 2019/2020 and 2020/2021, but I didn't mention it here, and it's on the ATO website.
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=10
Since it was part of a much larger set of changes due to the coronavirus stimulus, I thought it was worth mentioning in case anyone is in the situation where they are withdrawing from super and don't need the full minimum amount.
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My point being that I wouldn't have set up my SMSF in the first place if Vanguard was available, assuming that their products and fees are acceptable, of course.
This rumour/news has been around for a while. Any news on when it will actually launch?
I'm a bit late to the party but...saw that they just hired a head of Operations for the Vanguard super business, so I'm guessing towards the end of this year.
Sent from my Pixel 2 using Tapatalk
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Anyone know of a calculator that shows yoyu how much super you can salary sacrifice without changing your after tax take home amount? I thought I saw a calculator a while ago but can't seem to find it again.
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Anyone know of a calculator that shows yoyu how much super you can salary sacrifice without changing your after tax take home amount? I thought I saw a calculator a while ago but can't seem to find it again.
Sounds like something Aussie Firebug had on his websote.
https://www.aussiefirebug.com/
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Hello,
I like the QSuper calculator https://qsuper.qld.gov.au/calculators-and-forms/calculators/maximise-your-super/salary-sacrifice-for-qld-gov-employees
I did try the 'non Government employee' calculator but it's only for extra contributions, not for making your super (and extra contributions) pre-tax.
Hit the 'match net pay' button to see how much extra you can put in with no difference to take home.
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Anyone know of a calculator that shows you how much super you can salary sacrifice without changing your after tax take home amount? I thought I saw a calculator a while ago but can't seem to find it again.
The answer should always be $0 unless you're getting some kind of special treatment. That's why it's called salary sacrifice and not salary conjuring.
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If you've got a HELP debt I guess it's possible (as the tiers apply to the whole of income). That or if a $2 salary sacrifice causes the tax deducted to drop $2.
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If you've got a HELP debt I guess it's possible (as the tiers apply to the whole of income). That or if a $2 salary sacrifice causes the tax deducted to drop $2.
That would probably work. I remember years ago getting a $1000 pay rise and receiving less each fortnight in take home thanks to reaching the HECS threshold, as it was called then.
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If you've got a HELP debt I guess it's possible (as the tiers apply to the whole of income). That or if a $2 salary sacrifice causes the tax deducted to drop $2.
That would probably work. I remember years ago getting a $1000 pay rise and receiving less each fortnight in take home thanks to reaching the HECS threshold, as it was called then.
Isn't HECS repayments calculated on your adjusted taxable income (so they add back investment losses and reportable super contributions)?
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If you've got a HELP debt I guess it's possible (as the tiers apply to the whole of income). That or if a $2 salary sacrifice causes the tax deducted to drop $2.
That would probably work. I remember years ago getting a $1000 pay rise and receiving less each fortnight in take home thanks to reaching the HECS threshold, as it was called then.
Isn't HECS repayments calculated on your adjusted taxable income (so they add back investment losses and reportable super contributions)?
It might be, I can't remember now. That was too long ago when I had that happen to me. It was a bit of a shock with a mortgage, young kid and bills etc, to receive a welcome pay rise and then get less in pocket. The joys of a tax system that is not always progressive.
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Yeah the HELP thresholds apply to the whole of the income, rather than progressively.
https://www.ato.gov.au/rates/help,-tsl-and-sfss-repayment-thresholds-and-rates/#HELPandTSLrepaymentthresholdsandrates201
It'd have a fair impact if you were earning just under the $0 repayment rate amount and then go over the lowest threshold, especially prior to 2017-18 when the first step of payment was 4%. In 2017-18 you could go from $55K to $57K and take home less money, because you'd have to pay $2280 HELP in addition to the extra PAYG Withholding.
I do wonder why it's not progressively included with the PAYG thresholds. Not that it bothers me, I paid mine a couple years back.
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It pays to keep an eye out if you are receiving some govt supplement/rebate/benefit and you are near a threshold. Years ago I was close to a threshold for childcare rebate or a family tax benefit, can't remember which. My employer wanted me to increase my hours just a little, by 4 hours. I did the math, and sure enough went over the threshold and reduced my net income. She looked at me weirdly when I declined, saying I would take home less money.
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I am thinking of changing to hostplus super and 100% stocks: 50% U.S, 50% ex U.S. Does this sound like an ok plan, or is there something else I should consider? Also is it still worthwhile contributing to super more than the 25k concessional amount?
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I am thinking of changing to hostplus super and 100% stocks: 50% U.S, 50% ex U.S. Does this sound like an ok plan, or is there something else I should consider? Also is it still worthwhile contributing to super more than the 25k concessional amount?at
Inside v outside super rather depends on your age and when you are looking to retire. The earnings are taxed ta a lower rate but you can't access them before your retirement age. Have you used the Aussie firebug calculation spreadsheet? It was useful to have an Oz specific calculation of how much to put inside super and outside it.
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I've just heard that the age limit to contribute to super without working has been raised to 67. @deborah I think you mentioned a while back that you regretted not putting more into super, while you had the chance. This might be your lucky day, or not :)
Apparently you can also use the bring forward rule.
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Thanks. No, I have the right amount in super at the moment.
There are several changes I’d like to see. One is that people can put the $20,000 back that they took out during the covid19 changes at some time in the future. This would allow early retirees more flexibility if they got the amounts inside and outside super wrong, and wanted to take some out now and have the option to put it back later. As dividends all look to be reduced, having some extra cash around as an emergency for the duration could be very useful.
I wonder if anyone is planning on taking advantage of being able to sell the house you’ve owned for more than 10 years when you’re over 65 and both you and your spouse being able to put an extra $300,000 (from the sale of the house) each into super no matter how much you already have in super and no matter which of you actually owns the house. It must meet guidelines for being your PPOR, but that can be rather flexible.
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I wonder if anyone is planning on taking advantage of being able to sell the house you’ve owned for more than 10 years when you’re over 65 and both you and your spouse being able to put an extra $300,000 (from the sale of the house) each into super no matter how much you already have in super and no matter which of you actually owns the house. It must meet guidelines for being your PPOR, but that can be rather flexible.
We already downsized before that rule came in and we wouldn't have met the age requirement anyway. We knew people who did so.
An interesting quirk is that you could buy a more expensive ppor and still put the extra into super if you had the money. I think the total super limit per person was still $1.6 million.
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I wonder if anyone is planning on taking advantage of being able to sell the house you’ve owned for more than 10 years when you’re over 65 and both you and your spouse being able to put an extra $300,000 (from the sale of the house) each into super no matter how much you already have in super and no matter which of you actually owns the house. It must meet guidelines for being your PPOR, but that can be rather flexible.
We already downsized before that rule came in and we wouldn't have met the age requirement anyway. We knew people who did so.
An interesting quirk is that you could buy a more expensive ppor and still put the extra into super if you had the money. I think the total super limit per person was still $1.6 million.
No, it's EXEMPT from the $1.6million, so if you have reached the limit for the lifetime cap, selling your house and buying another will allow you to put extra money into your super.
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I wonder if anyone is planning on taking advantage of being able to sell the house you’ve owned for more than 10 years when you’re over 65 and both you and your spouse being able to put an extra $300,000 (from the sale of the house) each into super no matter how much you already have in super and no matter which of you actually owns the house. It must meet guidelines for being your PPOR, but that can be rather flexible.
I had planned to do this, sell our house & downsize into the IP and add that money to super. But hubby has changed his mind about moving which has mucked up my plans a bit.
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My husband and I haved moved from Australia to the Netherlands, and we've both left superannuation accounts. I'm trying to figure out if there are any changes I need to make to optimize our supers given that we're no longer residents for tax purposes.
My husband is over 60 and he has retired. He's withdrawing the minimum amount from his super as an income stream (currently 2% due to COVID-19), and this income is not taxed due to his age. If I understand correctly, though, any earnings through super investments are still taxed at 15%. Given this, should we consider still contributing to his super? If we invested that money outside of super, investment earnings would be taxed at 32.5% (non-resident rate). Of course we can always just keep money in our offset account to reduce mortgage interest.
Since I'm nowhere near preservation age, I've basically been treating my super as money I likely won't need by the time I can access it. That's the plan, anyway. I looked into potential early access due to COVID-19 but I don't believe I qualify due to my continued employment (through a non-Australian company).
Is there anything I'm missing that I should be considering?
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Is anyone using hostplus for super? I am trying to emulate VTS/VEU which is what I have outside super, I see they have 1 choice called international shares and one called Int shares, but don't really explain the difference between them.
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Is anyone using hostplus for super? I am trying to emulate VTS/VEU which is what I have outside super, I see they have 1 choice called international shares and one called Int shares, but don't really explain the difference between them.
I'm with Hostplus pension, which is in Indexed Balanced (a variety of index funds) and cash from which I draw the pension. I chose this as Scott Pape recommends the Indexed Balanced because of the low fees.
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Is anyone using hostplus for super? I am trying to emulate VTS/VEU which is what I have outside super, I see they have 1 choice called international shares and one called Int shares, but don't really explain the difference between them.
I'm with Hostplus pension, which is in Indexed Balanced (a variety of index funds) and cash from which I draw the pension. I chose this as Scott Pape recommends the Indexed Balanced because of the low fees.
How does it compare to hostplus normal super, what's the difference?
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Is anyone using hostplus for super? I am trying to emulate VTS/VEU which is what I have outside super, I see they have 1 choice called international shares and one called Int shares, but don't really explain the difference between them.
I'm with Hostplus pension, which is in Indexed Balanced (a variety of index funds) and cash from which I draw the pension. I chose this as Scott Pape recommends the Indexed Balanced because of the low fees.
How does it compare to hostplus normal super, what's the difference?
The proportions of where the money is held eg bonds/stocks, australian/overseas, corporate /govt that make up the index. You know, as per the very large PDS that they jazz up with some tables and charts explaining the make-up of each fund?
I don't read investment books for fun, but spending a few hours coming up with my personal investment statement, including a rough breakdown of what ratio of holdings let me sleep at night, was worth the effort. I could then go through the PDS and look at the breakdown of the various funds and decided that
1- the Indexed Balanced matched my preferred investment profile and
2- I didn't want to faff about with constructing a profile for myself out of their other funds and then have to futz about rebalancing. I had done that for about 3 years in my Vanguard acct before moving to a premade index.
You need to know the basics about investing - enough to read a PDS - and about yourself - what risk you are comfortable with, how much effort you are prepared to put in/what you find fun.
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Is anyone using hostplus for super? I am trying to emulate VTS/VEU which is what I have outside super, I see they have 1 choice called international shares and one called Int shares, but don't really explain the difference between them.
I'm with Hostplus pension, which is in Indexed Balanced (a variety of index funds) and cash from which I draw the pension. I chose this as Scott Pape recommends the Indexed Balanced because of the low fees.
How does it compare to hostplus normal super, what's the difference?
The proportions of where the money is held eg bonds/stocks, australian/overseas, corporate /govt that make up the index. You know, as per the very large PDS that they jazz up with some tables and charts explaining the make-up of each fund?
I don't read investment books for fun, but spending a few hours coming up with my personal investment statement, including a rough breakdown of what ratio of holdings let me sleep at night, was worth the effort. I could then go through the PDS and look at the breakdown of the various funds and decided that
1- the Indexed Balanced matched my preferred investment profile and
2- I didn't want to faff about with constructing a profile for myself out of their other funds and then have to futz about rebalancing. I had done that for about 3 years in my Vanguard acct before moving to a premade index.
You need to know the basics about investing - enough to read a PDS - and about yourself - what risk you are comfortable with, how much effort you are prepared to put in/what you find fun.
Thanks mspym for the explanation :)
The Hostplus normal super performs slightly better. I wanted index funds, after reading JL Collins and Scott Pape.
Prior to Hostplus I was with ING Super while in the accumulation phase, where I chose the index funds myself, and had to re-balance. Then they decided to raise the fees, (they thought I shouldn't be bothered as I was doing ok)! So I rolled over to Hostplus.
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Hi - I am in the default Hostplus Balanced Fund and have been thinking for awhile now to move it over to the Balanced Indexed option, just because of I am a fan of index funds. Any one else done that / thinking to doing the same? Cheers
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I'm in the international index and international index (hedged) which I think is similiar to VGS and VGAD
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Hello! Long time lurker. I've got so much going through my head right now - from investing in Index funds outside of Super to trying to work out if ER at ages 52 for me and 54 for my husband (5 years from now) is even possible! But, for now, I saw this Superannuation thread and hoped I could put something out there that has been bothering me.
I'm in Westpac's BT Super. I have $620,000 stashed away there. There is a good chance I won't have any employer contributions as my job (in travel) was pretty much killed off by Covid, but I did have a side business I'm trying to build up to replace Job Keeper when that finishes in March. With my focus now on ER and all our money in super and our Primary House, I figure if I can make this business work to replace my wage and then some, I should be diverting money to Index Funds and not my super which, I think, should mature from its current figure to a reasonable sum just over the next 13 years I have ahead before being able to access it. My husband has $250,000 in his super and should have employment for the next five years so even without him contributing there should be another $75,000 poured into his account before any market returns and compounding.
My question is - I know BT gets a lot of bad flack for its fees and I think they may even have been recently handed a warning notice from ASIC. What Superannuation funds to people suggest these days? I know Host Plus has been talked about a lot here - is it still a good one, and at my age, is there an investment offering from them that I should start to study?
Thank you in advance for any help - while I'm working through our situation outside of super to figure out whether retiring in 5 years is possible, it would be good to at least get this important part of our investment lives sorted.
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@MrsJ Hello and welcome onboard. I can't recommend a Super fund - ex-banking industry pounded that one in my head - but BT always positioned themselves as a premium brand and I expect their fees still reflect that.
I recommend playing around with the Aussie Firebug https://www.aussiefirebug.com/australian-financial-independence-calculator/ which is excellent for working out how much to invest inside and outside of Super. In my case, I need to move from primarily investing outside of Super to increasing my Super holdings and allowing it to compound between retiring and accessing it. I am aiming to get a similar amount in there as you currently hold.
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Thank you - I will definitely have a look at that calculator! I’ve got so much to learn with index funds too (had no idea there were so many under vanguard alone!). But if I can sort this super to work it’s hardest over the next 13 years it is a big thing to tick off the list. Thank you again.
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Hi @MrsJ . The best performing funds vary from person to person and year to year! Have a look at https://www.superguide.com.au/comparing-super-funds/best-performing-super-funds
However, maybe you should go back to basics, develop an investment plan, https://moneysmart.gov.au/how-to-invest/develop-an-investing-plan, decide when you want to retire, and work out where your money should be before you do. What types of investments you’re happy with, and which ones you think are too risky. Depending on your own experience, you will be happy with different types of investments than everyone else. Many types of investments are available in superannuation funds, and once you’re happy that you want a particular mix of investments you can then work out which ones you want inside and outside super. It may be that super funds provide everything you want, or that you want to set up an SMSF and purchase investments within it - you appear to have enough money between you that financial advisers may think it worthwhile.
From your post, as @mspym says, you’ll need some investments (which may be cash - you need to work out the investment type that works for you) to last you for the years between retirement and when you can access super, but the majority of it (in your case) should probably be in super.
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Thank you very much Deborah! I'll check out that site and try to get DH involved in a bigger plan (right now it is more me, he commented he is so happy I'm taking such an interest in all this!).
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Hi Deborah, I was reading your quote below on the Australian Investments's thread on defined benefit pensions:
A defined benefit pension counts as
16 x annual pension
towards your transfer balance cap. If you expect to be near your transfer balance cap, this may be a problem, especially if both of you have residual defined benefit pensions that, when added together may break the transfer balance cap after one of you dies.
Depending on the pension, it can be worth more or less. Is it indexed to inflation? Does it have a residual benefit - for instance, some public service DB pensions give 65% to your widow(er), whereas some give nothing, and some give a lump sum... The thing you need to look at is its value to you, which might be completely different.
Most pensions are pretty poor value to a FIREee, because they look at your income in your last years of work at the company and work out the pension amount from that. Anyone who leaves early is penalised, and many have a different (more generous) calculation if you reach retirement age.
On the other hand... Some of them assume that you retire at 55, and can give you an earlier retirement stream than most super. They can also be worth more if you’re retrenched. If they’re indexed to inflation or cost of living, they can provide a certain income, no matter what investments do. So if you’re not retiring particularly early, they can be really good value.
These don't apply to us, but I think they're what our teacher friends and other public servants have?
Is there any benefit to adding after tax money to such a fund? Are you even able to top them up? They appear to be fabulous if you live a long time, but then your spouse only gets a percentage if you die early and your children get nothing unless they are dependents?
With inheritances in mind are people better off having an industry fund as well as the defined benefits fund, (assuming you can't opt out of the defined benefits fund) so to protect your assets?
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DB funds used to be available from many large organisations as well as the various public sector organisations. Once DC (defined contribution - which most funds now are) funds started to be available, a lot of DB funds were closed to new members, because they were costing much more as (if you stayed until you retired) they tend to give people more money. The public sector organisations seem to be about the last places that still have any DB funds available, but a lot of them have also been closed.
Again, it depends on the fund. I have been in three DB funds during my working life. The first two didn’t allow you to add anything to them, so you would need to have a different fund for any extra contributions. If you left these before retirement age, you would be removed from the fund and given a superannuation cash out, to be transferred into another fund. This was about the same amount as I’d put in, with very little interest. I would have been much better off in a DC fund.
The third fund allowed extra contributions of two sorts - either as pre tax money that allowed you to multiply your pension benefits, or as post tax money that effectively went into a separate DC fund. The pretax contributions were very worthwhile but the post tax DC fund wasn’t worth it, so I put that money into a different fund. As I was closer to retirement age and I was retrenched (the fund had higher benefits for people who were retrenched), this was an excellent fund to be in.
Inheritance is definitely better for DC funds. However, the government gives the tax breaks to superannuation on the understanding that it’s going to be used during your lifetime and not inherited. The transfer balance cap is one way of them clamping down on superannuation being used for inheritance. I suspect that there will be future regulations to reduce inheritance even more.
All the DB funds I know of that still exist can be opted out of - and I think it might be contrary to the legislation if you couldn’t, since you are supposed to be able to chose your super fund. Whether a DB fund is worthwhile really depends on how old you are, and how long you expect to work there.
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Hi,
We're FI but working semi casually whilst waiting for our boys to fly the coup (one just finished high school and looking at doing gap year with defence force and other is midway through uni with a year or so to go) before we hopefully retire at the Sunshine Coast. I'm still 10 years off preservation age, but believe we have enough funds outside of Super to see us through until we can access super. As such we've been maxing out concessional contribution ($25K pa for both wife and I) plus pumping additional non concessional into my wife's super as she has a lower super balance than me (ironically most of the investments outside super is in her name as I was / am the higher income earner). As it stands we're about 7% HISA, 44% investments outside super; 49% in super. I'm with Hostplus and wife is with QSuper and would rollover to Vanguard Super if it gets off the ground.
The question I have is upon retirement, Super goes from Accumulation to Pension stage. What strategy is being used to manage the mandatory drawdown (4% to start with) to avoid selling investments in depress markets especially if the drawdown is more than is required due to investments outside super. I haven't looked into it but heard that with Covid the government has reduced the mandatory drawdown amounts.
Peter Thornhill's strategy is investing in LICs with the cashflow going into a cash account (2 years living expenses) within super which they use for their mandatory drawdown but I believe he would have a SMSF. How do everyday people without SMSF do it.
Is it as simple as setting up a "cash" investment within Super so that proceeds from other investment options are paid to the cash investment account for the compulsory drawdown (ie can nominate where the drawdown comes from). Also is there any reason to leave money in the Accumulation phase rather than moving 100% into Pension stage (I realise that you can only move up to the threshold of $1.6 million which we are not in that position).
Lastly, is there a reason to move investments from outside super into super as we get closer to preservation age (selling to put into super would incur capital gains tax). As we each can earn up to $18k tax free pa and a large portion of our investments outside super are in International Vanguard Wholesale indexed funds (lower dividends compared to Aust shares but without franking credits), it's not like we're getting a huge tax penalty due to the distributions. Together with the 4% compulsory drawdown from super this should easily meet our yearly expenses.
Thanks for hearing me out
Thanks
WTPF
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Hi WTPF,
I've struggled with a lot of your concerns and found JL Collins' website helpful (although US based rather than Aust).
The question I have is upon retirement, Super goes from Accumulation to Pension stage. What strategy is being used to manage the mandatory drawdown (4% to start with) to avoid selling investments in depress markets especially if the drawdown is more than is required due to investments outside super. I haven't looked into it but heard that with Covid the government has reduced the mandatory drawdown amounts.
Is it as simple as setting up a "cash" investment within Super so that proceeds from other investment options are paid to the cash investment account for the compulsory drawdown (ie can nominate where the drawdown comes from).
I keep a certain amount in cash to cover the pension draw down, two or three years worth, allowing the balance in Hostplus' index balanced to keep growing. I can top up the cash component when it gets low.
The government allowed halving the drawn down percentage after the market took a dive with covid, but I think it is only until the end of the financial year and it was optional. I don't expect it to continue after the market has bounced back.
Also is there any reason to leave money in the Accumulation phase rather than moving 100% into Pension stage (I realise that you can only move up to the threshold of $1.6 million which we are not in that position).
While in accumulation your interest/dividends are taxed at 15%. Once in pension there is no tax (so far).
Lastly, is there a reason to move investments from outside super into super as we get closer to preservation age (selling to put into super would incur capital gains tax). As we each can earn up to $18k tax free pa and a large portion of our investments outside super are in International Vanguard Wholesale indexed funds (lower dividends compared to Aust shares but without franking credits), it's not like we're getting a huge tax penalty due to the distributions. Together with the 4% compulsory drawdown from super this should easily meet our yearly expenses.
Once you stop working you only have certain ways you can add to your super. eg downsizing your house enables you to put in $300K each - I don't think there's an age limit. There are other ways: after tax lump sums - it used to be $540K but reduced to $300K over a 3? year period. (I don't know if there's an age limit).
Bear this in mind if you are likely to receive an inheritance in the future, it might change your strategy in the short term. There are others here who are definitely more expert than me. :)
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Thanks for replying "Abundant Life"
I've struggled with a lot of your concerns and found JL Collins' website helpful (although US based rather than Aust).
Yes, I'm a fan of Mr Collins and have read "Simple Path to Wealth" as well as this Stock Series on his blog. He talks about increasing bond allocations in retirement to stable the ship but I don't see much of an advantage in bonds over HISA in Australia. I know people say there isn't much difference between using dividends vs selling investments if the total return is the same but I quite like Thornhill's approach if LICs can consistently churn out 6.5% dividend yield inclusive of franking credits (but nothing that I have not owned any LICs to date). His argument is that LICs can smooth out the cashflow by withholding dividends and the cashflow is less sensitive to market movements (although I note many companies have cut dividends with Covid so there is always an exception). In other words live off the dividends without selling the underlying investment. Pity Vanguard doesn't have an Aust Industrial Index fund as I agree with criticism that ASX200 is too heavy on banks and resources.
While in accumulation your interest/dividends are taxed at 15%. Once in pension there is no tax (so far).
Yes, I was aware of that. So there is really no reason not to transfer everything from Accumulation to Pension stage aside from having to put up with the mandatory withdrawal. But I guess if you have to withdraw it and invest outside of super (surplus to needs) and you've exceeded the $18K tax free threshold then you're taxed at 19% which is more than the 15% if retained in the accumulation phase.
Once you stop working you only have certain ways you can add to your super. eg downsizing your house enables you to put in $300K each - I don't think there's an age limit. There are other ways: after tax lump sums - it used to be $540K but reduced to $300K over a 3? year period. (I don't know if there's an age limit).
But why would you want to add to super after you stop working. Yes I know in pension stage there is no tax on earnings. Hence my original question about putting investments in from outside super leading up to preservation age but to balance that against the capital gains tax incurred.
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I retired at 52 and I continue to add my $25k concessional contributions to super (from dividends and cash reserves). It brings my taxable income down.
Regarding keeping cash to pay drawdown, I have an SMSF so I can do what I like. But I manage Mum's super pension, her fund allows me to specify what percentage to keep in the cash account, so I could fiddle that to load it up if I was convinced that the market was soon to take a dive and I wanted to not have them sell units. But I don't worry about that.
Your post is well-written and thought out. A pleasure to read.
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Would hazard a guess the current very generous tax treatment of pension fund earnings is not going to last forever. Suspect it will be adjusted back to 15% soon enough.
I don’t think you’ll have much to worry about WTPF. My parents have been drawing a super pensions for almost a decade now... their balances are much higher than when they started, because over the long term, investment returns are much higher than the 4-5% draw downs in the early years.
Even if you have to invest outside of super with the excess that you don’t spend, you’ll still get your franking credits, meaning you can still earn almost 80k(?) each before paying cash tax.
It pays to be an old fart in this country.
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You'd hazard a guess, or your politics/ideology want it to be removed ?
A shot at franking credits (although I can't work out what the shot is) and denigration of old farts. I get a vibe of a disgruntled young person railing at how good the boomers have it.
Also, pllease show us how a couple can earn $160k tax-free outside of super, I'm genuinely interested in that one.
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Not very hard to see... $80k in fully franked dividends, gross it up for ~$35k franking credits.
Apply marginal tax rates, less franking credits equals $0 cash tax paid.
As to your other comments, there’s been a bit of commentary lately about the current government’s ideological position of basically wanting to dismantle the super system (see Tim Wilson). Throw in the mix ACOSS who are suggesting a 15% rate so that boomers actually contribute meaningfully to the increasing cost of their own age care and their isn’t much love for super on both sides.
Genuinely horrifying the entitlement of boomers who don’t want to pay any tax at all because... why? What is the actual equitable argument for unearned passive income for a 60 year old being tax free, and employment or business income from a 40 year old not? I’m yet to hear it.
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Not very hard to see... $80k in fully franked dividends, gross it up for ~$35k franking credits.
Apply marginal tax rates, less franking credits equals $0 cash tax paid.
I must be a bit slow because I have trouble coming up with that figure as well. Franking credits is basically getting back the 30% tax that has already been paid by the company providing the distributions.
The lowest marginal tax of 19% applies for income over $18,201. This figure also equates to the maximum dividend prior to applying franking credit before tax is payable. To work out the total income inclusive of franking credit before tax is payable would be as follows:
Total * (1 - 0.3) = $18,201.
Total * 0.7 = $18,201
Total = $18,201 / 0.7
Total = $26,001.
So the franking credit portion would be $26,001 * 0.3 = $7,800
So dividend of $18,201 plus franking credit of $7,800 = total income of $26,001 with no tax payable
So for a couple = $26,001 * 2 = $52,002
That's a long way from your $80,000 * 2 = $160,000 pa for a couple
Note also that the above is based on investments having 100% franking credits. International shares have no franking credits.
Happy to be be corrected
Cheers
WTPF
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The point is you don’t pay the company tax in cash.
Yes if you look at it from the “all in” perspective the company tax is indirectly paid by you, but from a cash flow perspective it’s not.
If you receive $70k in fully franked dividends cash, only accountants will tell you you have an income of $100k. After franking credits you don’t owe cash tax payable.
You can argue that you’re the one paying the $30k corporate tax but I’d argue you haven’t really “earned” it or “paid” by passively holding shares.
I don’t think I’m going to change anyone’s mind here, just making the point about your cash position vs your accounting position.
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Thanks for replying "Abundant Life"
I've struggled with a lot of your concerns and found JL Collins' website helpful (although US based rather than Aust).
Yes, I'm a fan of Mr Collins and have read "Simple Path to Wealth" as well as this Stock Series on his blog. He talks about increasing bond allocations in retirement to stable the ship but I don't see much of an advantage in bonds over HISA in Australia. I know people say there isn't much difference between using dividends vs selling investments if the total return is the same but I quite like Thornhill's approach if LICs can consistently churn out 6.5% dividend yield inclusive of franking credits (but nothing that I have not owned any LICs to date). His argument is that LICs can smooth out the cashflow by withholding dividends and the cashflow is less sensitive to market movements (although I note many companies have cut dividends with Covid so there is always an exception). In other words live off the dividends without selling the underlying investment. Pity Vanguard doesn't have an Aust Industrial Index fund as I agree with criticism that ASX200 is too heavy on banks and resources.
While in accumulation your interest/dividends are taxed at 15%. Once in pension there is no tax (so far).
Yes, I was aware of that. So there is really no reason not to transfer everything from Accumulation to Pension stage aside from having to put up with the mandatory withdrawal. But I guess if you have to withdraw it and invest outside of super (surplus to needs) and you've exceeded the $18K tax free threshold then you're taxed at 19% which is more than the 15% if retained in the accumulation phase.
Once you stop working you only have certain ways you can add to your super. eg downsizing your house enables you to put in $300K each - I don't think there's an age limit. There are other ways: after tax lump sums - it used to be $540K but reduced to $300K over a 3? year period. (I don't know if there's an age limit).
But why would you want to add to super after you stop working. Yes I know in pension stage there is no tax on earnings. Hence my original question about putting investments in from outside super leading up to preservation age but to balance that against the capital gains tax incurred.
WTPF I learnt more from your reply :)
My response was coloured by our own experience as baby boomers with a low income background from a not for profit, and super only coming in half way through my husbands career. Many of our friends don't seem to have had an easy ride either.
We are not typical baby boomers as portrayed by some who could afford to attend uni when education was free. When I did attend as a mature aged student I paid upfront despite encouragement to get a hecs debt as it was, 'a debt that died with you'.
We worked three jobs each to raise the money for a house deposit and that was for a house outside the metropolitan area, when finance was not as easy to get as it is today. After paying off our first house in 13 years on one income by careful management, I approached a bank about a mortgage with a view to moving closer to the city. I was told we couldn't afford it and they recommended we sell and rent!
It was unheard of for ordinary people to invest in the stock market, that was the domain of the wealthy. The best you could hope for was an investment property when you paid off your own home.
Sorry to get off track.
Most of our super came from downsizing and everything was reasonably set until I received an inheritance in the last year.
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Would hazard a guess the current very generous tax treatment of pension fund earnings is not going to last forever. Suspect it will be adjusted back to 15% soon enough.
A much better policy would be to limit the ability to draw large lumpsums from super. If super income going to be taxed, people can draw lumpsums between 60-67y.o. to gift to children, upgrade property and cars as well as hide cash under the mattress, then claim age pension at 67.
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Would hazard a guess the current very generous tax treatment of pension fund earnings is not going to last forever. Suspect it will be adjusted back to 15% soon enough.
A much better policy would be to limit the ability to draw large lumpsums from super. If super income going to be taxed, people can draw lumpsums between 60-67y.o. to gift to children, upgrade property and cars as well as hide cash under the mattress, then claim age pension at 67.
Holding assets outside of super would be a cheaper option if the funds are going to be taxed anyway, (depending on your tax bracket). IIRC my husband is paying around $40 per week in fees in an industry fund for his super pension, which was about what we were paying for private health insurance at the time.
Also it might not be to upgrade property and cars, but for costly repairs to older homes or to replace an older unreliable car, or pay out of pocket medical expenses.
Centrelink count assets and income in and out of super and it is usually painful dealing with them. Advice seems to depend on who you deal with, leaving the client bewildered. Unequal rules: you've been overpaid? we will garnishee your pension until it is paid; you've been underpaid? we will only backpay you 3 months, too bad you didn't notice earlier.
They also want to know what you've done with your money, there are limits to how much you can 'gift' to children. You've divested yourself of assets? you have to wait 5 years to apply for the OAP.
Personally I'm glad my head is out of the Centrelink noose.
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Hi.. Does anyone know if there are issues with rolling over super in pension stage to another fund. My parents found out that due to stricter regulations their financial advisor is doubling his fees to over $3k pa. On further investigation, I was aghast to discover their super is with Colonial First State and invested in over 15 fund managers in various asset classes (finger in every pie with emerging markets, bonds, international equities, Aust equites, fixed interest, property, cash etc) with exorbitant MERs. I compared what they would pay in Hostplus investing in index funds equivalent based on simplifying to 3 funds between international, Australian equities and cash and based on their balance they would reduce fees from $5.5k (including advisor fees) to less than $500 pa with Hostplus. They are receiving part pension. I told them to speak to current advisor as well as Hostplus but main concern is that the rollover process doesn't impact their pension or leave them with a tax bill (wouldn't expect to as super in pension stage has no taxes). They are in their mid 80s in good health and active. Thanks
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Hi.. Does anyone know if there are issues with rolling over super in pension stage to another fund. My parents found out that due to stricter regulations their financial advisor is doubling his fees to over $3k pa. On further investigation, I was aghast to discover their super is with Colonial First State and invested in over 15 fund managers in various asset classes (finger in every pie with emerging markets, bonds, international equities, Aust equites, fixed interest, property, cash etc) with exorbitant MERs. I compared what they would pay in Hostplus investing in index funds equivalent based on simplifying to 3 funds between international, Australian equities and cash and based on their balance they would reduce fees from $5.5k (including advisor fees) to less than $500 pa with Hostplus. They are receiving part pension. I told them to speak to current advisor as well as Hostplus but main concern is that the rollover process doesn't impact their pension or leave them with a tax bill (wouldn't expect to as super in pension stage has no taxes). They are in their mid 80s in good health and active. Thanks
No issues. They may eat a small exit spread on redeeming out of the CFS funds, but that will be less than the ongoing fees.
I will say however, CFS have some index products (Aus Equities, Aus Fixed Interest, Aus Property Securities) and, combined with their mySuper option may be just as comparable with Hostplus on fees. However with CFS you'll still pay the advisor and possibly the wrap/administration fees, which will reduce the value proposition compared to industry funds.
I am with Australian Super. It bears pointing out that Australian Super's equities options have outperformed their benchmarks over the long term. There may still be a place for active management... and for high fee options where there is significant outperformance. Can't say which fund, but there is one industry fund mandate my organisation has where we basically tripled the value of the mandate and triggered an outrageously large performance fee.
The industry fund was unhappy because even though their performance figures would be significantly turbocharged, their fees expense ratio would go up and their members (many of whom are part of the FIRE community here) would leave because they only look at fees and not performance.
It's an odd mentality that has been instilled in parts of the FIRE followers.
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A reminder to everyone who wants to do this before June 30 to pay their super contributions tomorrow to be able to have enough time for their fund to receipt the money and for you lodge your notice of intent to claim a deduction forms so you can use your carry forward contributions cap space.
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I have a question about in specie transfers of shares.
We have been buying shares outside of super and now want to transfer them to our SMSF. The form I have looked at asks for the date of purchase. This implies you can only transfer a 'bundle' of shares you bought on a certain date meaning a form and a fee for each bundle. For example if we bought 100 shares on 01/07/21 and 100 on 02/07/21 do we need to do 2 forms and incur 2 fees {$55 from my sums platform). This will be laborious as we want to transfer quite a lot while the markets are down to reduce CGT.
Has anyone done this?
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Ok so I ended up answering my own question after multiple phone calls.
You can do an off market transfer form and if it is all the same share/ETF you only need the one form. You just nominate how many shares and then pick an average date or the date when you bought the bulk of them. I ended up transferring all the shares we had bought in the last 12 months as they are all worth a lot less now and I figure it’s better to have them inside super at a lower price now than have to pay the considerable cgt bill they will incur in later years.
But when you do your tax return you will have detail all the different bundles of shares to do the CGT calculations.