Investing in superannuation in 30's?

Hi all,

My wife and I are in our early 30's, and so won't have access to superannuation for some time.
To date, we haven't made any continuations to our super, other than the compulsory payments from our employers.
I understand there are tax benefits to salary sacrificing up to a certain amount.

We own an investment property and a home, and currently put all our surplus income into our PPR offset account.

My question is: Should we be focusing on accumulating wealth through continuing to pay off our PPR, and then move onto paying our investment property, and perhaps future properties...or should we consider making super contributions as well?

 

We are in the exact same position as you, I’m going to start salary sacrificing $100 per week only because my income has increased dramatically recently and paying too much tax but looking forward to hearing what people’s response are to your scenario, cheers.

 

Im around the same age in a similar situation and have considered the same thing myself. The conclusion i have come to is that if I put money in Super, I dont have access to it for active wealth creation, or as emergency funds. I have decided to put any savings I have toward paying down or offsetting the highest cost debt, then when I have enough for another deposit will look toward another investment property.
As I see it, the difference with investing in a property as opposed to your super, is that you leverage your money with a loan to get greater returns than just investing that money through super.

 

Except salary sacrificing into super is at a tax rate of 15%.
Putting money into offsets etc is after a much higher rate.

There are a few more differences than just leveraging money. And.. are the returns always better in property?

We're same age, and won't be touching super yet. Still in accumulation stage of property.

 

Firstly, well done on your financial journey thus far. You seem to be making sound progress although your equity position is unclear. FWIW, I wouldn’t say I “own” a PPOR unless I held the title or had 100% offset....

My 1st priority was always non-deductible debt. Smash it & keep it out of your life forever if possible. Ie. Live within your means & spend less than you earn.

My 2nd priority was increase income. Invest in yourself, your career, your well being, your family.

3rd priority investment - use what’s left over, when it is available, to buy investments & stash some for the long term. If your goal is to retire before 60, you need to determine how much is required to bridge the eligible to super income gap.... Ie. at 45 you need to be self sufficient for 15 yrs before getting any boost or replacement income from Super. Figure this out & you know if you need to add more, how much more & for how long..... Caution! If retiring early, your super contributions might dwindle to zero for a period of time.... Remember this!

 

Agreed. Which is why to date I have preferred to hold onto as much surplus cash as possible, place it in the offset, and improve my cash flow to further invest.
However, given super contributions you make before tax (concessional) are taxed at 15%, I'm thinking this may be a better investment of my money.

 

Yep, hold on to your cash surplus. Invest it in real estate - you can grow it more quickly with leverage.

And try to keep only the mandated compulsory amount locked away in super. It's the matrix, and I fear governments will see it as a honey pot and come after it if government finances don't improve. We already see this happening. Rules change, and they won't change in your favour once the money is locked away.

 

For me it depends on whether I think I can do better than the 22% additional tax benefit (15% super contribution tax vs 37% marginal tax rate) by investing in property. Which I personally think i can......

 

The most important word in world of money is cashflow.

And the second most important word is leverage.. If cashflow/savings allow you to make next purchase, now is the time to do it..

Sit down with your broker and accountant, and run the magic numbers..

 

Not only that. What if you need the money before preservation age?

 

Absolutely agree. access to cash has a lot of value....

 

If you truly "need" it, there are provisions to access super early under financial hardship, terminal illness, temporary/permanent incapacity or compassionate grounds.

I agree that having greater control of your assets is far more flexible however I wouldn't write off extra super contributions entirely without knowing a few details about interim financial goals.

 

Its a balance
Dont forget from an asset protection view point.
Whats in your super is almost untouchable unlike all other assets.

We put some away in our Super when we purchased in Super and needed to top up.

I think super is an investment vehicle.
Some people just dont see it as its long term vehicle. But tax advantage is huge.

 

Spot on. Long term, Govt needs to keep it comparatively attractive to lessen burden on revenue. Note, comparatively. Nobody talking about the pending CGT discount haircut that further reduces attractiveness of selling assets for profit. Plenty of vested interests on this site will tell you to forget super to support the flogging of debt. If you are top bracket, flicking another few grand in above the SG limit is a no brainer, likewise distributing $25k pa from trust to a non working spouse to make concessional contrib. Long term arrives a lot quicker than we think.......

 

Super should be part of everyones wealth accumulation. Not a sole strategy. Just like property alone is a poor strategy. And while debt reduction is a good strategy it should just be a part. While its limited by preservation issues there are merits of building super that offer very long term tax benefits. The super calculator provided by ASIC is a good place to test what a modest additional amount of personal savings may do to make life easier when you are older. The true final benefit will occur much later if life and wont be visible for a long time. Thats shouldnt mean you disregard it now. The highest super balances are generally those who started modest savings a long while ago.

ASIC calculator Superannuation calculator | ASIC's MoneySmart

Have a play and test what $100 a month does. Or $200 a month. etc. I have seen people NOT make extra contributions until they eliminate personal debt. Thats a strategy too. Its often forgotten that "good"debt" is also a bad debt. Repaying a deductible loan will increase equity $1 for $1. But its equally a poor choice to repay a debt that cant be accessed later if you need it. Use offsets wisely.

Tax on contributions is concessionally taxed (10-15%) and can save many taxpayers up to 25% tax v's if they earn the salary. But it doesnt mean you go "all in". The lower salary reduces borrowing capacity and its preserved. Start small...Invest your salary increases of a modest extra sum each month or at year end using some of a tax refund or bonus.

Then the 85% after tax that is invested leverages and compounds better than external personal savings.

When you build sufficient balances in super it opens more options like a SMSF. A SMSF can invest ns investments specifically chosen to meet your needs incl property. A SMSF can in some cases invest along with the individuals and you can personally neg gear your part and let the fund pay a low tax rate of its share of income. The SMSF can fund deposits in these cases !! (Conditions apply and financial advice is a must)

 

I wouldn't focus on it but definitely give it equal attention as investment outside super. Considering you've both got a $1.6mil cap (yes it's indexed but...)
If you have a combined $80,000 in super at the moment, with a combined salary of $150,000pa your employers will be contributing $1187 per month. If you can sneak in an average 8% return over 30years you're at $2.6mil without contributing anything. An extra $50pw each and you're at over the $3.2mil.
Throw in some variables with unemployment (kids), wage increases, an increase in the SG rate (eventually increasing to 12% from July 2025) and it can be half a million either side.

Play around with some calculators and spreadsheets and see what you come up with..it's fun

Here's a compound annual growth calculator with contributions

Compound Growth Calculator


***Edit...you beat me to it Paul . the calculators really tell the story

 

It's a cap but only in name, you CAN have more than that amount in super but it gets treated differently. If you have more than $1.6m each in super, well that's a different problem.

 

True, not an overly bad problem to have...
There are ways and means but $1.6mil in retirement phase it is. Drawing down the minimum 5% of $3.2mil is a comfortable retirement @ $160,000pa

 

Tax free too.

 

4% is the minimum, increasing progressively as you age