Extra Super Contributions in 20s?

I'm in my late 20s, and have saved a fair bit of cash through thrift and not having much investments...

So to put my cash to more productive use, I'm thinking of topping-up my super, especially since I'm now in a higher bracket which will reduce my tax bill.

Any implications I should consider, besides the obvious lack of flexibility once it enters super, being unable to access until much older etc.

I just don't know if the tax savings now is worth all the trade-offs, and whether I'm limiting options abit too early in life by putting extra cash into super rather than other investments.

Thanks!

 

If you invest that money outside super, do you think you can retire by 50?

 

A little extra now will be a lot in the future, I'm a fan of superannuation and salary sacrifice extra into mine. Go on Compound interest calculator - Moneysmart.gov.au and play around with tue calculator to see the power of compound interest. Make sure you consolidate your super and check to make sure you aren't paying a lot in fees. I've heard less than 1% isn't bad, but there is cheaper ones out there too.

 

Consider also the probable rule changes in the years ahead... and probably not in your favor.

Other than that... as mentioned above, investing outside of super gives the flexibility to retire well before preservation age.

I was late 20s and began topping up as I figured that regardless of what happens over the years I'm definitely going to retire one day.

 

Consider the Super Home Saver option as well, you can withdraw this when you purchase a house.

 

Super is still your money - and to a degree you can access it if you setup a SMSF (for investment purposes of course) if you want to take active control of investments.

Based on nothing other than compound interest - additional early contributions will make a substantial difference in the long term given your age.

I would however still be looking to invest out of super rather than be completely reliant on super. May need to put some thought into what you're looking to achieve in terms of goals/vision and work back from there.

Usual disclaimer of no specific advice here... you should seek specific advice before making any investment decisions.....

 

There may be excellent compounding benefits to adding extra super earlier and consistently. ASIC have a calculator on "smart money"which can demonstrate this. However do weigh up the preservation of this and the lower income available to service loans etc.

 

imho only
Pros of super: lower taxes going in, lower taxes going out, keep it away compounding
Cons of super: age limit, fewer gearing options.

Would it be better to pay higher taxes up front, and buy geared investments and/or investments that focus on cg instead of income (e.g. US shares or even PPOR)? Do you plan on living off investment income well before the preservation age (which may rise?)

Different for each person.

 

Not a big fan of super - govt changes the rules on it regularly, so what might be a good idea now might not be next year. The exception being if you're a high income person and have enough Super to make SMSF viable and can invest as you please with it.

I'd rather invest in what i choose rather than in what some Super company chooses for me. And with the guidance from this forum its not hard to get far better returns too.

 

They change rules around contributions regularly eg concessional and non concessional limits etc, but change to how you spend super in pension phase is very rare with lots of notice given.

Eg preservation age change from 55 to 60 was announced in 1997 with 28 years notice until fully implemented https://archive.budget.gov.au/1997-98/press_releases/pr40.pdf

Getting money into super early
a) Gives it lots of time to compound in a low tax environment
b) Reduces the risk of the rules changing against you with regard to contributions

 

Yeah nah.... incorrect. Many super funds allow you the option to actively manage how your funds are invested OR to choose one of their portfolio options.

Super can be a very useful asset vehicle as part of a broader portfolio. The smart choice is to use each asset vehicle as effectively as possible for your individual circumstances & means.

As for access limitations, consider that if you have a decent super balance at 60 then you only need to fund yourself by other means up until that age & then switch across to a very tax friendly income stream..... it's not an either or issue.... use both!

 

I often ask people who disregard super for them to indicate which rules changes that actually harmed them and they cant mention two rules. (Most mention changing ages etc as the first problem which is factually incorrect. Since 2007 age 60 means "tax free" and mostly unrestricted withdrawals.) Tip : The second rule very few mention is when the $1.7m cap was introduced on tax free pensions. People who argue against super arent affected by that rule so its a illogical arguement. I would love to have more than $1.7m in super and pay 10-15% final tax. Its less than if it was invested in their own name. And with wise investment knowledge & choice can still be tax free with tax credits in cash.

Many people are dismissing of Australia biggest legit tax scheme because THEY dont understand it. The one issue I will agree on is the rules are complex. But they are also very well publicised and easily understood and offer very generous concessions. I have never ever seen anyone financially disavantaged by having a highsuper balance. Its as illogical as saying you wont work or invest because the Govt taxes it.

Quite the opposite. I often encounter people who get to age 6+5 with a bit of property who complain they wished they knew more about super before the door closed on them. It usually at a time when we explain and calculate their CGT. Then they ask how they could have planned better. Too late.

 

If you have $100/$150/200k in Super by 30 then with only the 10/12% contributions you will have a very comfortable retirement post 67. (Lots of super calculators on the net)
After 30 invest wisely and you will probably FIRE

 

I wish I put some cash in super starting 20. It’s something I regret not doing. Investments are one thing. But beating great returns of top funds and the tax treatment of super return is very very hard.

Key here though is being in one of high performing funds…

 

I don’t believe this is accurate. Most good (industry) super funds allow investing in shares and ETFs at your own choice. I know that AustralianSuper allows members to direct their funds to specific companies in ASX or ETFs. Which gives exposure to US etc.

 

Didn't say super funds do not allow investment in US markets. Just saying that the advantage of ongoing lower tax rates in super can be offset by investing outside super in assets that produce CG instead of income.

 

People have different needs and views and the whole financial situation need to be taken into account.
Most people need forced savings as they spend everything they get. So compulsory super fits the bill.
Others have different life views and experiences, and not interested being in a small cubicle most of their life working to pay over 50% tax.

The Super Home Saver seems like a good thing, with the usual limitations of how much you can withdraw currently 30k, and 50k in July
First Home Super Saver Scheme

If I was in my 20s I would probably put more in super than I did in my day, though not much more.
And that's because I bought my first IP in my 20s. Didn't even get the first home buyer grant as that was later.
It did get many years of neg gearing and depreciation though.
For someone in their 30s or 40s with no RE it's a very different situation.

Or withing the next 15-20 years.
I think it takes 10-15yrs of going hard making income and saving plus then a 5yr period to be fairly financially independent.

 

The First home Super Saver scheme sounds good.

I’ve gotten my daughter to do this a couple of times, I might get my son to too while income is low. https://www.mlc.com.au/personal/retirement/super-and-retirement-rules/government-co-contributions

 

The first saver scheme is a mere parking lot to set savings for a home to one side. It also has some flaws. eg If you contribute and then some event happens so you cant or dont buy a property the amount saved cant be taken back out. If you can also use grants and other schemes they can add up BUT dont chase some of these for that benefit alone.

I know in Sydney many of the apparent schemes dont even work. Who can find a property with a cost so low its eligible for duty and grant schemes? The type of property that is eligible may be a poor purchase choice.

 

Putting in a little bit now saves putting in a lot later!

magic of compound interest!