Is Super really that Super?

So just fishing for anyone who thinks Super is a decent deal?

I once invested a lot myself and made a bit here and there, but due to work and family I decided to push pre tax contributions into Super to bump up the balance as the tax on investment gains seemed to be a constant kick in the guts..

My strat so far was to sell the IP and sit in some cash, going to upgrade a future PPoR and try 'extract' from equity from a beater over the next few years..

I have personal fx investments but it is quite small less than 100k and i reinvest pretty much all of it.. I figure i can withdraw it one year in the future if my income is much smaller or to top up at the end of the financial year..

does this seem reasonable? once i took risks with money but can't afford to these days so this is my rough plan... we are salary sacrificing car and pushing max super contributions, while still being able to live reasonably, but sometimes i wonder if it works out on paper, not just in my head. I guess i am now pursuing tax minimisation? what else could i do? or is my 180 turn flawed?

 

We are retired, drawing down from our super.
Six figure income tax free and our super balance is still increasing.
Timing for us has been good - seven years retired, our super has returned over 10% p.a.

 

Hey there,
Like you, it's all a bit of hit and miss learning from experience as life goes on.
One thing I learnt, holding onto IPs (unless they are a real dud) seems best - especially if you can pay them off so you can have a regular income later, and they also capitalise over time. Of course, this might incur taxes...

Cash needs to be monitored carefully. Right now, with almost zero % rates it's not great, so until interest rates go back up to a decent return, putting money in super makes sense - although the market is taking a battering at the moment and I shudder as I see our balances dropping like a stone.

So... salary sacrifice is still one of the most effective tax minimisation strategies. We made use of maximising our contributions, albeit a bit later in life and the balance grew surprisingly quickly. Depending on your age and family commitments, salary sacrifice is a good strategy BUT keep in mind the money is locked in until you reach retirement age! so your life stage needs to be considered. Check your super charges ... Like all investments, super also goes up and down, and it's at the mercy of government changes as well, often beyond our control.

As the saying goes: "you can't making an omelette without breaking an egg" - I take this to mean whatever option you take, crunch the numbers because taxes will be unavoidable in one form or another: whether you positive or negative gear, gain interest in an IBD, or sell assets at a profit, the ATO always seems to win a little bit.

Money comes and goes, but a good property makes a solid long term investment that can always be realised as long as you are not in a hurry.
Just my thoughts based on experience...

 

Is super that super?

Absolutely! It's a fantastic system! Well over 90% of the population it's an excellent system of building up savings for retirement.

I'm personally in the small minority (and would expect many forum members also to be in this miniority) that would be better off if there was no super and if instead my PAYG was 9.75% (or whatever it is) higher. I could put the money to better use. But most people either can't or wouldn't.

If you're serious about investing, super may not be the best vehicle, but if investing is not something you want to think of for more than 15 minutes a year, absolutely, pump as much as you can into super!

 

1. Is super that super?
   
   To some it's a fantastic system! Well over 90% of the population it's an excellent system of building up savings for retirement.
   
   I'm personally in the small minority too (and would expect many forum members also to be in this minority) that would be better off if there was no super and if instead my PAYG was 9.75% (or whatever it is) higher. I could put the money to better use. But most people either can't or wouldn't.
   
   I had super but cashed it in at the first opportunity (In NZ we had it , then cancelled it then started it again) . The proceeds and any surplus savings I put into properties.

The result is an income I am certain exceeds what super would have created .

 

With the income still increasing is it likely your tax free income will reach seven figure ?

 

Curious now but are there many PC person's with seven figure tax free super income ?

I know there are many PC persons (maybe 5% maybe 10% of us ?) with net tax paid rents/income in the seven figures but with just super ???

 

I like it. Tax free income and a return much more than I'm drawing down. And I don't need to do anything.

 

Won’t happen for us.
There are limits that can be transferred to the tax-free stream.

And, along with the fund earnings, there are compulsory annual drawdowns according to age.

 

There are now limits to the amount that can be transferred to the tax free income account, was $1.6m but may have increased. At that amount 5% would give an income of around $80K. Of course, you can withdraw more if you want.

 

If you paid out everyone's super today though, how many people do you think would be better off by the time they reach 65? I wouldn't be surprised if it was in the single-digit percentage wise!

 

Regurgitation of a concept which has been around for more than 20 years.

What Would Happen If We Redistribute Wealth Equally To Everyone?

 

It has been indexed so now depending on individual circumstances, could be anywhere between 1.6M to 1.7M. But that is the transfer limit not the balance limit. So hypothetically (as you point out), you could end up with a balance in Pension phase that well exceeds the transfer cap due to investment earnings exceeding drawdown.

Hence, to maximise the Super advantages, it would seem logical to aim for maxing out your transfer balance cap at age 60, and drawing down minimum % with a view to earnings far exceeding drawdown, further increasing the amount in pension account & therefore increasing the minimum drawdown in dollar terms. Ie. 4% of 2M is a lot better than 4% of 1.6M….. obviously many other considerations, but just on this basis alone is what I am referring.

 

Give the cap on Super, I would not have thought income that high was possible...?

 

That transfer balance cap is per person (so double that for a couple) & only for transfer into a pension account…. You can still have more in your accumulation account. Obviously there are taxation differences / issues to contend with.

I do doubt though, that a 7 figure income would be feasible (in today’s dollar terms) purely from Super….. I also doubt that this is any concern for 99.9% of the population, myself included.

 

Yeah, I am curious about what the maximum possible (worthwhile) contributions and balance could be - maybe someone making a ton of contributions before the cap and limitations were brought it could have a huge balance, but someone starting today wouldn't be able to accumulate enough to generate a 7 figure income (without touching principle) I am thinking.

 

Is that $1.6m per year ?

 

All the people on PC
One percent of the others

 

$1.6m per person account balance both CGT and Income tax free (nil tax on drawings)

Outside that you still have the accumulation benefits of 10% CGT and 15% income tax which is then taxed as ordinary income in hands of beneficiary. There is no cap on this account. Hence SMSFs with 10s to 100s of millions.

 

Many two million property portfolio started in the mid 90's now generate 60% on cost .
So it can be done