Contribute to Super or Mortgage

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  Donaldhump on 02/02/2017 - 00:36

  Anything above 80k put into super, is a good choice I think, and what I do

  Do this post tax but inform super fund it is a consetional (mind my spelling) contrib then claim it as a tax expense. The reason I advise this is some employers will rip you off by reducing their sg contrib, if done through salary sacrifice. This option will work from jul 1 this year only.

  Edit : high tax band might be 87k now

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  garetz on 02/02/2017 - 00:53

  +6

  Super is a scam, its a way for the government to prevent you from having access to your money till you retire. Even if you get tax advantages currently, calculate how much money you save from those tax incentives versus you will not be able to access that money until retirement, which in your case is a good 50 years away.

  Not to mention the value of $1 today is much more than it will be 50 years from now.

  Then calculate how much interest you would save for every dollar you keep for the future mortgage offset vs the tax savings.

  Its quite simple maths really.

  • 

    Donaldhump on 02/02/2017 - 00:55

    +2

    Provide the maths

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      StewBalls on 02/02/2017 - 01:30

      Contributions x mediocre interest - exorbitant fees & charges = SFA benefit ;)

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        Donaldhump on 02/02/2017 - 01:48

        SMSF in property .. No interest, minimal fees

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    mskeggs on 02/02/2017 - 07:21

    +5

    Yeah, screw that guy. Who cares about future me!

    Super gives you tax concessions when you contribute, tax concessions on any earnings, and currently, very generous tax concessions on withdrawals.
    There are very few restrictions on what you can invest in.

    The major drawback is that the savings are unavailable until you are 60yro. That is a long time to wait if you are 25. And the rules almost certainly will have changed by then. My expectation is that you will face some restrictions on how you withdraw the money (likely no more lump sums, pensions/annuities only) and likely more tax on the withdrawal. Probably there will be an upper limit for tax concessions too. Note, these are my guesses, not current policy, but i think they are likely to happen over coming decades.

    Regardless, the political reality is it will be hard to claw back too much wealth via retrospective measures, so while it is a sovereign risk, I think not a huge one. I can't see a circumstance where super becomes a less tax effective investment than non-super saving.

    In your case, you need to balance the pain of having your money locked away for 35+ years versus the tax benefits, assuming you would earn similar investment returns. Income over $87k is taxed at 37% for you, but only 15% if you divert it to super. And any investment earnings will be taxed similarly. That is a pretty strong case to put some in super.

    But, you are young and will need cash for your house, so having access to money is useful.

    How about splitting the difference? Put half your new savings into super and half into the savings for property. Your future self will thank you for the super, and your current self will be glad of a slightly higher house deposit.

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      [Deactivated] on 02/02/2017 - 07:29

      +1

      My wife and I have recently been put in a similar position - our end decision was put $100 per week onto the mortgage and our most recent pay rise (2.5%) into our respective supers through salary sacrifice.

      Reduces our individual tax burden, increases our net cash, cuts ten years off our mortgage, and boosts our retirement income by about 200K over the next 10-15 years

      Edit: Super is a long game - there will be years that super does not perform but over time, I have average 10%-14 percent and I've gone from 30K towards my retirement to 400K. Invest in your future

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      D-Rebbs on 02/02/2017 - 13:32

      Thanks mskeggs. I am thinking something along those lines.

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  chumlee on 02/02/2017 - 07:26

  Put it into super and wait for the next stock market downturn and have your super balance going backwards.

  You should only contribute more to your super at age 50+

  • 

    mskeggs on 02/02/2017 - 09:09

    Why don't you select alternative investments if you are unhappy with equities?

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    railspider on 02/02/2017 - 09:35

    A defensive or balanced portfolio would prevent this from occurring.

    If the OP doesn't need the $$$ now, it's not a bad idea to take advantage of the long term benefits a Super account provides

  • 

    Donaldhump on 02/02/2017 - 12:26

    or be smart, move it to cash, then rebuy them back when they rebound again.

    • 

      D-Rebbs on 02/02/2017 - 13:41

      +1

      It's not an easy job timing it right though.

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        Donaldhump on 02/02/2017 - 14:35

        if it was everyone would be rich..

        but you can make basic guestimates based on world economy.

        anyone who says their super suffered in the gfc, could have moved all their stocks to cash

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  djkelly69 on 02/02/2017 - 09:23

  +1

  I would keep most/all of it in savings/investments for when you buy a house or something else. I guarantee you at some stage before retirement you will want access to the money, be it for a house, investment, a holiday, school fees, medical expenses, whatever.

  Yes super may be a better investment in the long term due to tax concessions, etc, but not being able to access the funds until retirement is a huge, and irreversible, downside.

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  railspider on 02/02/2017 - 09:38

  If you don’t mind sharing – how did you save 100k by age 25, and what do you do for work?

  P.S. My advice is salary sacrifice (pre-tax earnings) concessional contributions to your super to get you under the ~80k tax bracket. In a year or two - reassess.

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    [Deactivated] on 02/02/2017 - 10:31

    If you don’t mind sharing – how did you save 100k by age 25, and what do you do for work?

    Probably a commerce/business graduate.

    You get rewarded early and quite nicely for doing less difficult jobs/degrees.

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      D-Rebbs on 02/02/2017 - 10:51

      You've hit the nail on the head. A fair bit of part-time work at while at uni, and starting full-time work at 21 helped. I think I'm also a pretty decent saver (OzBargain helps a bit with that!)

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        [Deactivated] on 02/02/2017 - 18:59

        Good on you mate. In this job environment, law and engineering grads are depressed and out of work. Many wishing they did something else.

        At least you've made something of yourself.

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  lainey13 on 02/02/2017 - 22:11

  +1

  Remember, if you're under 60 you can only put in $35k into super pre-tax. From mid this year that limit drops to $25k anyway. So I would do it up to that much because you get taxed less on it. Then the rest you can put onto mortgage.