Generally speaking, is there a better option out of:
1) Keeping money in an offset account for your mortgage (and/or making extra repayments)
vs.
2) Salary sacrificing extra super payments?
Mortgage vs. super
sclass on 24/07/2019 - 16:36
Comments
That would depend on the future performance of your superfund and your future mortgage rate, your age, how much super you have, how much money you owe.
I’m going to bet on mortgage first, super second.Personally, I would put money into my mortgage.
I just don't trust the government with Super!! The pools of money are just too tempting and they'll eventually dip their grubby hands in!!
If nearing retirement I'd put it in super for the tax benefit, then draw it out at retirement to pay off the mortgage. Otherwise putting it on the mortgage now provides a risk free return (savings on interest with the added benefit of not being taxed).
(savings on interest with the added benefit of not being taxed).
How does paying off your mortgage not get taxed? I mean the income you contribute to paying it off is taxed.
Compared to paying tax on interest in a bank account or dividends from shares, the same amount of money into a mortgage is tax free as not actually earning anything on it (but are reducing interest payments)
At the moment with record low interest on home loans, I would get it down while you are paying less interest, remember they can pretty much only go up from here.
Not saying don’t invest in super or that either is a bad option.
That’s just my two cents
Not a financial advisor.
Depends what tax bracket you are in.
I would pay down the mortgage first, but if it's just in an offset account with no intention of paying directly into the mortgage then put it into your super and claim the tax deduction
Mortgage.
Super is locked away and dead money until you retire. You might technically pay less tax if you put it in super but the money becomes unusable to help finance your next house, holiday, education etc.
Put it in super if you have no forseeable use for cash.
How old are you?
Offset for now, gonna try and time the market using the rolling 25k contribution cap over the next 5 years.
Say you are a 30 years old, earn $100k including super
You employer would already contribute $8,700 Super guarantee
You can put extra $16,300 into SF or to home loan (3.5% pa)
If the $16,300 would save you $8k in tax if you throw into Super + super growth rate of 8%p.a
If the $16,300 is put into offset, it would save you $570 p/a
My 2c
- super growth rate of 8%p.a
I think we have been over this before (or maybe another user on here) but I don't think it is safe to assume 8% average growth rates going forward.
Where does the 8k come from
It's not 8k but the amount depends on your income tax bracket. Below $25,000 (including employer contributions) going into super is taxed at 15%. 37% income tax bracket on a $16,300 personal contribution would save you $3,586, while 32.5% income tax bracket on a $16,300 personal contribution would save you $2,852.50
*** Income tax brackets are changing. Currently, $90,001 - $200,000 is taxed at 37%. From 01/07/2022, $41,001 – $120,000 will be taxed at 32.5%. and from 01/07/2024, $41,001 – $200,000 will be taxed at 32.5%. Depending on your current income, this change may reduce your future tax deduction values including personnel super contributions, novated leasing and negative gearing. I would suggest to make the most of the current opportunity.
I know how it works, that’s why I’m asking where the 8k came from, as it’s incorrect
Btw you forgot to include the 2% Medicare Levi surcharge
I’ve sacrificed to super for about 11 years now
Where does the 8k figure come from
Mortgage. Super is a scam, taking money today, for the promise of money tomorrow, while being destroyed in value by inflation.
I might not live to retirement age (my dad didn't) so I'd rather pay off my mortgage first then think about super.
Sorry to hear about your dad
But some one like your mum or you would have got his super and benefited in the bad circumstances to the extent they have some financial security
This was in the UK so no such thing as super, I think my mum got a bit of a payout which she used to pay off her mortgage but not sure where it came from.But let's say I pay off my mortgage in the next 10 years then pass away at least my wife and kids will have somewhere to live without the burden of a mortgage and still get an insurance payout from my super.
It's probably a really negative way of thinking about it but when most of your family have died before they were 60 I guess it's something I should think about and just hope I take after my mum and her mum's side of the family and live to 80+.
Yeh horses for courses.
My dad is 92 the previous family pb was 63
Salary sacrifice is a way to go depending on your age!!. Cuts your tax, and supercharges your final pay out to enjoy your retirement, and not depend on governments handouts. Do this 10 - 15 years before retirement. I did and it's great!!.
That assumes you have have plenty of disposable cash to pay for everything you want to in the lead up to retirement.
It's very much age and situation dependant.
Without some detail it's hard to give an answer.
I'm a strong advocate of salary sacrifice into superannuation but if you've got 30 years to retirement and think you'll need the money in the next 5 years for travel, renovations, other investments then super isn't an option.
With current low interest rates I can't see the point in a mortgage offset account when NAB/WBC/CBA/ANZ shares are paying 6%-9% plus franking offsets. Buy shares and put the dividends onto the mortgage.
Personally, I've been putting what I can afford in pre-tax & post tax money into super for the past 25 years and it's the smartest thing I ever did but I've always spread my income over cash-stash, shares and family home as well. Every case is different.
The biggest mindset change for me was believing that I'm probably not gonna die anytime soon.
The 2nd biggest change was treating super as just another entity that I control and just happens to be mighty tax efficient.
Been putting additional money into super since 26 years old.
Short of any freak accident or health issues, you've probably got another 50/60/70 years to go..
Agreed. Not sure why people are so keen on non-super investments (i.e. shares) when they don't even max out their concessional contributions.
The added benefit to super is income earned is taxed at 15% only and Capital gains (Holding >1 year) at 10% which is way better than most people's marginal tax rate.
Seems a short term vs long term thing. If you want the benefits now / sooner pay off your mortgage ASAP to free up disposable income down the line. Super better longer term and will give you more to retire on.
There's really no going wrong with either option but personal preference will dictate what you go for.
Personally I'd prefer to be debt free before focusing on super.