Superannuation/Salary Sacrifice

[Sydney Kicker]

I am pretty sure that is capped to a 5 year period so in effect $125k over any 5 year period

Sent from my SM-G981B using Tapatalk

Correct. But if you haven't used all your 25k allocation in the previous 4 years, it's a good opportunity to catch up in a tax effective way if you have a bit of spare cash.

 

[Mikey13G]

I'm 29 years old and contributing an extra $300 a fortnight into super pre-tax. I have a mortgage but due to the low interest rates it's more effective for me to use that $300 a fortnight to put it into super due to higher returns and compounding interest. Markets will go up and down, as they have been for the last 100 years but they will give a nice return over the long term. There's no guarantee that I'll live to 60+ but statistically it's more likely than not with the average male life expectancy in Australia being 80. Ideally I plan to retire at 60 self-funded.

 

[Tasmaniac]

Hi Guys,

Doesn't look like there's been enough emphasis on the tax advantages of Super sacrificing. That's where the win is.

Think of it as gardening. Now you can choose to garden inside the hothouse (super sacrifice) or outside the hothouse. But the super tax rules inside the hothouse are so favourable it will be almost impossible to match the growth.

Lets say you were looking at investing or sacrificing 10 k (before income tax) over the year.

Do it yourself. Taxman takes say 32.5% + medicare (2.5%) = Invest 6,500.

Salary sacrifice: Taxman takes 15% = Invest 8,500. You can see where this is going.

First year of investing. Both investments make 10% (round numbers make it easy).

DIY 6,500 + 10% (650, but taxman will end up taking some of this in the long run, so take off 35%, it won't actually happen in the first year but they will end up getting you for your gains) = 422.50 so a total of $6,922.50

Super 8500 + 10% (the other tax bonus is if you obey the super rules and don't take it out until (generally 60 y.o.+), then you pay no more tax on this when you take it out (pretty sure)).

So super after one year is 9,350.


From there, you are never looking back, and the DIY option will only fall further behind.

Of course the downer is you are saying bye to your money until you hit 60+, so it has to be money you can 'afford' to sacrifice.

If you can afford it, do it.

Maximum limit of 25 k, that your own 9.5% plus whatever else you sacrifice can only equal 25k.

 

[The Scube]

seems stupid as his tax would be going through the roof on his contributions over $25k. Anything over that limit he should have invested somewhere else

My guess is he would be making Non-concessional contributions after the $25k, which come out of your post tax income. By doing this he doesn't get hit with the 15% contributions tax and any earnings on these contributions are tax free, as he paid tax on this income when it came into his account. You can make a non-concessional contribution of $100k per year, or $300k using the bring forward rule (cant contribute again in the next 3 years if you use it).

 

[Nothing]

Something like that would make sense.

Prior to FY2018 if you turned 50 or older during the financial you could salary sacrifice $35k.

Thus if the person in the story did full salary sacrificing for the years FY2019 to FY2015 inclusive, then he could have salary sacrificed $145k less his SG contributions.

see:https://www.ato.gov.au/Individuals/...-extra-tax/?page=2#Concessional_contributions

In addition he could have make an $800k non concessional contribution in the same period, if he had the available funds lying around.

That’s up to $945k plus what ever he had initially in his super, say $400k which might around which would start to approach the tax free Super limit of $1.6 million per person. Almost enough to live on for a single person!

However, for couples to live comfortably they’d need around 3 million in super as self funded retirees, and they have to be bloody sharp with their super investments to maintain their capital, let alone grow it, in today’s “debase the currency at all costs” economic environment. People are going to be in for a nasty shock when this idiocy finally blows up.

Anyway, once you hit or intend to hit 60 having as much of your money in super as you can cram in there, is the only sensible thing to do from a taxation perspective. Your super earnings in pension mode are around 98% tax free and you can draw a tax free pension up to $100k.

If super and particularly SMSFs were not such a great deal the government would not be savagely clamping down on how much you can top up, i.e. $540k over three years down to $300k for non concessional contributions, and $35k down to $25k for concessional contributions, plus capping the tax free component of your super at $1.6 million.

Hmmm .... interesting times.

$3m for a couple to live comfortably? They could draw ~$200K a year forever which is a long way above comfortable. $1M for a couple will provide a comfortable lifestyle.

 

[Nothing]

Forever?

Really?

History speaks otherwise.

If you had exactly 3 million dollars as of 1 July 2001, invested in an average growth fund and paying out 200k every year, then using the averaged annual returns per financial year, for Australian Super Growth Funds, set out here:

Super fund performance: Annual returns to December 2025

Super funds hit the trifecta in 2025, with strongly positive returns for the third year running, despite rising geopolitical tensions and volatile investment markets.

www.superguide.com.au

Then running the figures forward through a full 18 odd year stock market cycle until 30 June 2019 (Equivalent year to FY200/01 which returned 6% against FY2018/19's 7%), you will have $2,090.007 dollars in your account.

That is significantly less than your starting 3 million.

Additionally in real dollars terms your $$2,090.007 2019 dollars has the purchasing power of $1,347,217 of 2001 dollars.

For the CPI figures used see: https://www.ato.gov.au/Rates/Consumer-price-index/

Thus whilst the super returns have allowed you to pay out $200k pa for 18 years you have lost in real dollars terms 55% of your real capital.

If you are 65 (retiring) in July 2001 you are now 85, with $2M in the bank still (or $1.3M if you want to adjust for inflation). If you are 85 and still spending $200K per year, the hookers and blow will probably kill you before you run our of money. Ergo, your money will last forever.

There's a small percentage of the population who would have $3m as a couple for retirement.

 

[cairo tiger]

anyone using smsf to buy property good idea or not?

 

[cairo tiger]

I presume you mean direct ownership of residential propertiesouses, units etc., and not commercial, industrial and retail properties which you may gain exposure to via REITS etc..

1. No never. I can’t stand the lack of liquidity and granularity. Thus if you have 100,000 shares you can always sell 15,000 of them in a normal market, at a keystroke, whereas try selling 15% of a flat or unit. Sure blockchain technologies will come and fix this sooner than you think but that is not in the now.

2. It all depends on where you think you are in the economic cycle and super cycle. Thus if you bought a house and put in your smsf in the late 90s early 2000s or again in the early 2010s you’d be laughing. If bought now you should be good for the next 5 years but after that things could get distinctly bad especially if we have another GFC2 style event. The economic super cycle is markedly deflationary and that is not great for property unlike say inflationary boom times like the 80s where property was running at 20% over an inflation rate real (not bs ABS nonsense) of ~10%.

3. Only ever invest in residential property with a large land content like single dwelling properties, hence development potential down the track or at worst, units that have a reasonable land footprint i.e. private strata titled front and back yards. Remember only land ever appreciates whereas all buildings depreciate and fall apart. Older buildings may have a heritage appeal and taste value from being somehow desirable e.g. Victorian and Federation, but I can assure you they will bankrupt you fixing them up properly, especially the Victorians. They are purely a labour of love and only for millionaires who don’t really give a flying feck for a million plus here or million plus there.

I am sure if you bought an older house on at least 600 m2 within 15km if Melbourne with some public transport and amenity say Preston etc. as an investment and flogged it at the top of the market say 26, then you’d come out well in front.

There you go. It may not be wanted you wanted to hear put it is pretty spot on the money.



At least property is an investment that to some degree, people can understand and as the Sage of Omaha said “don’t invest in companies you don’t understand” and this is equally as true for asset classes. However, there is a world of difference between buying a home, some place you might love if you affluent enough, and the cold calculations involved in acquiring an investment property where emotion is better left out of consideration.

Good luck.

pk good comments. You are spot on about land, whilst apartments promise lifestyle they do not appreciate. We are looking and educating us about some investment properties, in south east qld and reigional parts of melb, but may wait until after job keeper goes. Been renting for too long have an investment property in coastal area our of melb one year but had renters from hell so there is equity there. Dont want to throw it away though. May PM you. cheers.

 

[JohnW]

seems stupid as his tax would be going through the roof on his contributions over $25k. Anything over that limit he should have invested somewhere else

Funds called constitutionally protected funds have a lifetime limit and no yearly based limit.

Some government worker could have them prior to a certain date.

 

[JohnW]

I've put 3% extra into super since I started work 12 years ago. Can't help but feel dollar-cost averaging that money into ETF or something would be smarter? Similar returns but the money is actually accessible when I need it, not 35ish years from now...

IF (big if) it worked out to be similar returns and I grew the pot to be the same as my super fund is currently I could go to 4 days work per week with the earnings in this fund making up the difference. Now sure how this would actually work in practicality however

The other thing is using the money to pay down your mortgage, grow equity and use that. Real estate returns beat the stock market don't they? Rental income on a property bought with this money + rise in house prices should far exceed Super.

Dude pat your self on the back.

If you do the math contributing early is always the best option.

A like for like person who starts putting in at age 50 would need to do so a a massive rate to catch up with you.

Compounding interest is the greatest thing ever.

 

[Jordie_tackles]

My only thoughts on the subject is that super is great but only goes so far.

That is yiu gain nothing in overall retirement income between 400K to 1M due to your pension reducing in this range. I fact I even believe yours worse off at some points above 400K saved.

So unless you can get to 1M saved then why invest extra in it? Better off spending the money on house/car/holiday.

 

[JohnW]

My only thoughts on the subject is that super is great but only goes so far.

That is yiu gain nothing in overall retirement income between 400K to 1M due to your pension reducing in this range. I fact I even believe yours worse off at some points above 400K saved.

So unless you can get to 1M saved then why invest extra in it? Better off spending the money on house/car/holiday.

This is 100% incorrect.

No Pension offsets are dollar for dollar. Its like saying you don't want to earn $1 because you pay 50c in tax.

The age pension reduces at the rate of $78 pa for every $1,000 of assets you have above your specific threshold.

 

[Jordie_tackles]

This is 100% incorrect.

No Pension offsets are dollar for dollar. Its like saying you don't want to earn $1 because you pay 50c in tax.

The age pension reduces at the rate of $78 pa for every $1,000 of assets you have above your specific threshold.

The Retirement Sweet Spot: When Less in Super can be More | Canstar

It may seem like a no-brainer that the more we have in super, the higher our income in retirement will be. New research reveals that’s not always the case.

www.canstar.com.au

 

[JohnW]

The Retirement Sweet Spot: When Less in Super can be More | Canstar

It may seem like a no-brainer that the more we have in super, the higher our income in retirement will be. New research reveals that’s not always the case.

www.canstar.com.au

View attachment 1025110

Again that is the stupidest thing I have read. And is misleading if the takeaway is that having more money is a penalty.

Getting less age pension because you have more assets is a good thing. Yes the government decreases your age pension if you have over a certain amount but guess what YOU STILL HAVE THAT CERTAIN AMOUNT.

More so if you do what we all enjoy and spend the amount that is causing you to see a reduced age pension you will be back at your desired starting point and have got to spend some money.

Aiming to have less assets with the goal of getting more age pension is crazy. That article is correctly illustrating that there is a sweet spot for age pension entitlement, but to not attempt to exceed the sweet spot because you will have too much money shouldn't be the takeaway.

You should be aiming to have as much money as possible and then optimize for age pension. Not the other way around.

Go and find a self funded retiree, a partially funded retiree, and a age pension funded retiree and talk to them look at their lifestyle and then pick which one you would want.

 

[JohnW]

Also for some reason they decide to talk about 'income' what makes it even crazier. As it totally excludes to possibility of spending your capital by selling some of it.

 

[Jordie_tackles]

Again that is the stupidest thing I have read. And is misleading if the takeaway is that having more money is a penalty.

Getting less age pension because you have more assets is a good thing. Yes the government decreases your age pension if you have over a certain amount but guess what YOU STILL HAVE THAT CERTAIN AMOUNT.

More so if you do what we all enjoy and spend the amount that is causing you to see a reduced age pension you will be back at your desired starting point and have got to spend some money.

Aiming to have less assets with the goal of getting more age pension is crazy. That article is correctly illustrating that there is a sweet spot for age pension entitlement, but to not attempt to exceed the sweet spot because you will have too much money shouldn't be the takeaway.

You should be aiming to have as much money as possible and then optimize for age pension. Not the other way around.

Go and find a self funded retiree, a partially funded retiree, and a age pension funded retiree and talk to them look at their lifestyle and then pick which one you would want.

It is just another thing to consider, why dump all that money into a superannuation you may not use until your 70 when you can get the same retirement amount by not saving as much.

I agree saving extra is great, and spend it after retirement is good to. But maybe people think they will have all this extra money at retirement that they maybe won’t?

People tend not to spend down that amount don’t they? Saving it and passing down a generation ect?

I find it an interesting topic and am obviously in no means a financial expert.

And not to be pessemiwtic but how many people don’t make it to that age? Maybe we do gain (something) by enjoying it while we can.

For most people having that money in super is the best option just trying to put forward something different.

 

[JohnW]

It is just another thing to consider, why dump all that money into a superannuation you may not use until your 70 when you can get the same retirement amount by not saving as much.

I agree saving extra is great, and spend it after retirement is good to. But maybe people think they will have all this extra money at retirement that they maybe won’t?

People tend not to spend down that amount don’t they? Saving it and passing down a generation ect?

I find it an interesting topic and am obviously in no means a financial expert.

And not to be pessemiwtic but how many people don’t make it to that age? Maybe we do gain (something) by enjoying it while we can.

For most people having that money in super is the best option just trying to put forward something different.

There is no scenario where you should be convinced that having more assets which results in less age pension is worse that having less assets because it gives you more age pension. It would be like a full age pension recipient turning down a $100,000 lotto win because it reduces their age pension by $7,800 pa.

100% agree with the idea that you need to enjoy today and not just focus on tomorrow.

But the original point was that having extra in super wasn't a great idea because it reduces your age pension entitlements which in my opinion is not a great way to plan for things. It should be what we all aim for.

 

[NonPhixion]

Thoughts on a SMSF?

 

[JohnW]

Thoughts on a SMSF?

For the right person great. For the average Joe terrible.

 

[Angus Young]

Good conversation. Interesting.

 

[Jordie_tackles]

What I find crazy is the politicians telling me that increasing the super guarantee will stop me getting pay rises! Nobody in my team has had a pay rise unless they increase their qualification in 3 years or longer.

Atleast with super I am guaranteed this cash and it will benefit from the 8th wonder of the world, compound interest.

 

[JohnW]

I can see some employers not offering pay increases due to the increase in their business costs.

You can really see the government mandate is to get people to be self sufficient in retirement. But they also walk this tightrope of not wanting to make it too attractive. It's a really interesting dynamic.

I have a personal view that they are moving toward including the family home in the age pension assets test. In some way i.e. the portion above the median perth house price or something. Lots think this would be toally unfair but do not know about the pension loan scheme where if your assets dictate you get a $50 pension you can opt to take the full pension but it accrues as a debt against your property. Then when no longer around the house is sold and the debt is cleared.

So adding the family home into the pension assessment shouldn't equal forcing people out of there homes. It would be forcing the estate to sell the home to clear the debt, which would generate stamp duty etc for the government.

 

[iluvparis]

It's just basic economics - your total compensation package is wages + super. It's just most people don't even think about the super component. If the government forces your employer to pay your more super if you don't get an offsetting wage cut you are receiving more compensation. It's just that you receive it in the future.

So for the same growth in compensation your employer was going to pay you it will just all go in the form of increased super - so no wage growth.

 

[Jordie_tackles]

It's just basic economics - your total compensation package is wages + super. It's just most people don't even think about the super component. If the government forces your employer to pay your more super if you don't get an offsetting wage cut you are receiving more compensation. It's just that you receive it in the future.

So for the same growth in compensation your employer was going to pay you it will just all go in the form of increased super - so no wage growth.

Was your employer going to pay it though? to me it sounds like a lot of people will miss out on both. Maybe we arnt getting pay increases because employers have been planning for this. I see them pocketing it rather than being generous and oaykng is all now they don’t have the super to pay.

 

[iluvparis]

Was your employer going to pay it though? to me it sounds like a lot of people will miss out on both. Maybe we arnt getting pay increases because employers have been planning for this. I see them pocketing it rather than being generous and oaykng is all now they don’t have the super to pay.

I'm sure plenty of employers tried to hold back on increasing wages with an eye on the forthcoming increase in compulsory super. To be fair wage growth has been anemic anyway for years - bit hard to blame all that on super contributions going up.