Currently no superannuation strategy - do I need one yet?

Hi All,

I'm only 27 so have never really put much thought into a strategy for my funds in super. I'm a fairly active investor and on high income, so I'll be financially independent well before I hit retirement age, so I don't care about super much (will be a bonus when I have access to it). I'd prefer to have the funds now to invest!

I'm with AustralianSuper (Balanced Option) which seems to have good returns so I'm just letting it do its thing. I currently have around $90k in there.

I don't really want to spend much time thinking about my Super (would rather focus on work + investments) unless there's some way it can benefit me now. But from what I understand this isn't possible - right??

Open to suggestions though.

Thanks

 

Super is your money but held on trust until you meet a condition of release. So you should have a strategy to maximise it. This may or may not entail putting extra in above the employer contributions.

Also it is a mistake to think you cannot benefit from super until you meet a condition of release. You can benefit indirectly as if you know you are going to have an income stream of X at 60 then this may allow you to eat into some capital before 60 to bring forward retirement.

 

You're young, there's plenty of time for super to do its work, you might consider the more aggressive/growth option rather than the default.


Contributions to super can also be tax effective if you're marginal rate of tax is more than 15%. Linky

 

Extra contributions will limit your total borrowing capacity though, which has already been limited by many other factors as well currently.

 

not really. If it is voluntary the lenders will disregard it.

 

Do you mean if its a one-off payment yearly/here and there, a weekly contribution or both?

 

both. If you can stop the payments then the lenders will generally disregard it.

 

You're never to young to let the magic of compounding interest work in your favour.
At your age I'd probably go a bit more agressive than Balanced as you have more years to ride out the storms. When you are 40+ then you go less risky and 50+ even less risky.
With a good income it would be easy to put in an extra $100 a week ($5200 pa) and just let time do it's job. Putting extra into superannuation in your 20s is a lot more beneficial than extra in your 40s.

Found the graph I wanted - this shows adding $20 a week or approx $1000 per year. If you can times that by 5 (ie $5000 it would be even more impressive).

The graph assumes you that you put in $20 a week for a decade and then stop. If you did it between ages 20-30 your $10,400 would most likely be worth $29,000 at retirement. But if you did it between 50 and 60 then the $10,400 only grows to $12,000

It's not an exact prediction but I'm sure it explains the wonders of compounding.



Source: Unlocking The Power Of Compound Interest | AustralianSuper

 

Good to know, thanks for clearing that up.

 

I consider that you're a long time 'retired', so having a higher risk exposure for a much longer time, especially if you have exposure to growth assets outside of super is more beneficial however you will possibly start balancing up the amount in high and medium risk later rather than sooner ie: closer to when you have access.

 

An employer must contribute at least 9.5% of your pre-tax to super as I understand it. If you are salary sacrificing more than the 9.5%, then that part (above 9.5%) can certainly be cut. But do you have scope to reduce the 9.5%. Say, reduce is to 0% for a period of time. That would certainly boost servicing. But is that possible? Under super law, I don’t think you have any ability to salary sacrifice less that 9.5%.

 

I don't think that would be possible and if it was lenders would insist on taking super into account.

Not directly related but similar, I had a self employed customer recently, operating thru a company, and the lender thought the company was not paying super on her wages so they reduced the company profits by this amount for servicing purposes. But it turned out they missed it and the company was actually paying super.

 

You are not contributing the compulsory 9.5%, your employer is.
Therefore you have no control over it, and cannot alter or reduce it.
And, anyway, why would you, even if you could? Your employer would benefit, not you.

 

By the time you retire and paid off your house and have millions in asset to fund your retirement then you sure don't need super maybe you can even achieved all that well before that age by the sound of it.

Super is there to fund people retirement but if you can fund your retirement without super that is a good position to be in, the only thing you can do is keep contribution to a minimum and don't put extra in

 

IIRC, super arose out of an agreement to forego a pay rise/s, in essence, you are contributing your super.

You can derive your income as a non-incorporated contractor (sole trader/partnership) and have no obligation to contribute either.

Super is also tax effective, if you have assets earning income outside of super you pay tax at your MRT, if it is in your super you are paying only 15% (or zero if retired) on your income. It's better to get $100k/yr tax free from your super fund than $100k/yr from properties then have to pay costs/management etc.

 

but OP doesn't want to use super to fund his retirement, he doesn't care about super
he wants to retire before Super age where you entitled to tax free income

he asked what he can do if he doesn't care about super and not much as a PAYG person,
just stick to the minimum contribution.

 

@Terry_w has provided a strategy (retire whenever & use other funds from assets for lifestyle, then draw on super in later years).

I've suggested a way to stop contributing - exit the PAYE system.

 

I have seen a large number of people who have lost investments through business activities, divorce and other events who have little super to fall back on. I would encourage maximising super and also investment outside super. Super is asset protected on bankruptcy.

Super is 8.7% of employee remuneration over their lifetime and should never be ignored or dismissed. Later in life if asset asset wealth becomes an issue you will always be grateful for the super which can be taxed at a low rate - As low as 0%.

 

This is the way I see it. But I guess it's always good to have to fall back on. I certainly don't want to make more contributions to super though - I can get better returns with cash than my super fund gets, and I can keep reinvesting etc.

So I guess the question is - is there anything I can do to improve the returns in my super? Perhaps I should consider putting some of it in a more aggressive (risky) option rather than Balanced? It doesn't seem like there's any benefit in me buying property with the funds in super though (and probably too time consuming/too much paperwork and won't benefit me now).

 

Super is not an investment but a trust. Like all investors, there can be better returns depending on how it is invested.