Superannuation Discussion + market volatility

[lovetravellingoz]

Getting to $3.2 million in superannuation as a couple is a starting target and then earning about $200,000 a year off this capital should be ok for most.
.

With respect, while many on this forum will be able to to achieve this, in terms of the bulk of the population, I doubt that most will retire on $200,000 + pa as an income stream for a couple.

 

[Buzzard]

If you want to be hands on and have control but without the costs of seting up a SMSF I would also recommend taking a look at ING Living Super - lots of flexibility with regards to share trading etc.

ING Living Super is an SMSF Lite fund (I mentioned these earlier).
Very similar to the Hostplus offering however my latest info shows the annual fee is about $120 higher and you can't participate in DRP's. That's not to say the ING offering isn't any good.

 

[Deleted member]

....And while TPD Premiums inside super are tax deductible, so are the proceeds then taxable

With regards to insurance, the TPD definition in super is now legally 'any occupation' which makes the insurance cheaper but it means you have to be unable to work in any occupation (that is, be very disabled) to claim the benefit. The insurance offerings outside super allow you to choose 'own occupation' which pays out if you can't work in an occupation you are qualified for by training or experience.

Also, insurance premiums inside super are tax deductible at the rate of tax paid by super funds (15%) which works for life and TPD insurance since these are not tax deductible as a retail insurance product. Income protection insurance outside super (ie normal retail insurance) on the other hand is tax deductible at your marginal tax rate which may make it cheaper to hold outside super.

Please take any tax and financial advice as general advice, as your situation is your own.

 

[Deleted member]

After 32 years in this business, the responses to the OP I am reading are echos of past conversations I have had with many people (including clients) over that time.
What is undeniable is that Opinions are like Noses.... everybody has one. Further more as I expected there are as many opinions and answers as there are respondents to this thread.
The most succinct and balanced view (as advice) I have seen so far is the one expressed by voulez.
I personally don't have as much faith in Industry super funds as many here do. my main reason is the one size fits all approach (which is fine up to a point) but more importantly the big issue many ignore is the generally poor manner in which the " life risk" aspects are dealt with.
I too have a SMSF and I only decided I needed one less than 10 years ago.
Those who choose a SMSF thinking they can do it all themselves, are more often overwhelmed by the experience, and are frankly not equipped to properly deal with it.
A few are however capable and have the time to do it. so when considering the "fees" also consider what your own time is worth, that is a cost and you need to factor it in when comparing the options.
The reality for me (and my fussiness) as advisers is that we generally don't like to get involved with the true DIY client unless they are looking for advice and product they are unable to source themselves, and even then we work on a one off fee arrangement.
I suppose what I am saying is that what ever you do, it is almost certain that your solution will differ somewhat from what others are looking for.
the final point I would make is that Superannuation is NOT a product, but actually a set of rules (legislation and tax) .
as far as tax goes, super is still the best game in town.
my last point on a SMSF is that if you are looking at it, first think of all the reasons you shouldn't have one.
One area where a SMSF stands out from the crowd is the Estate planning side.

I wish you good fortune in your endeavors and I hope your plans and aspirations come to bear fruit.

 

[burmans]

With respect, while many on this forum will be able to to achieve this, in terms of the bulk of the population, I doubt that most will retire on $200,000 + pa as an income stream for a couple.

Haven't seen more recent figures but the figures I saw a year ago had the average balance at retirement at about 160K per retiree, i.e. about 10% of this!

 

[lovetravellingoz]

Haven't seen more recent figures but the figures I saw a year ago had the average balance at retirement at about 160K per retiree, i.e. about 10% of this!

https://www.solepurposetest.com/articles/average-superannuation-balance-by-age/

In the future will most likely go up as there will be more people who have actively contributed for longer. But yes, for most will be well short of a $200K income stream for a couple.

 

[voulez]

At this stage of life I don't have signifcant tax benefits from investing in to super, and I've been putting excess income into an offset account to minimise interest costs on my mortgage. I'm mainly looking at my existing balance and compulsory contributions - am I doing this right?

Depositing into your home (non-investment) offset account earns you an after-tax, risk-free return equivalent to your mortgage rate. The alternative is only more attractive if it provides a better risk-adjusted after-fee, after-tax return. E.g., on a 4% mortgage rate and 40% marginal tax rate, the alternative investment has to return at least 6.67% pre-tax - does your risk profile prefer a guaranteed 6.67% return on your offset account, or a volatile 9.5% p.a. in shares (historical ASX300 returns over the past 30 years)? I'd apply the same concept to contributing additional into super, but also factoring in the added tax benefits (potentially upon entry and ongoing) as well as the access issues. Hope that helps!

 

[cove]

We have encouraged our adult children to salary sacrifice so that their annual contribution to superannuation is more than double the 9.5% statutory employer contribution. They have learned to live without their full wage.
If you know mathematics for this approach early in life you will know that the compound earnings will create a nest egg that will be worthwhile.

 

[Scarlett]

Wise words Cove. Sounds like you've set your kids up well (including passing on sufficient financial wisdom - have you passed on the travelbug? I suspect the two go rather hand in hand).

Concur on the salary sacrifice option as being an excellent choice. As someone with a defined benefit scheme super there's not much I can tinker with (don't really need, to as it's a generous scheme) but adding to it via salary sacrifice contributions only makes it better.

 

[cove]

Scarlett you are a lucky doer with a defined benefit scheme super.
Ways of saving money include travelling on points so that fits pretty well for our two sons. I think they get a bit shocked when they have to buy a ticket.

 

[serfty]

... shows the annual fee is about $120 higher ...

What annual fee?

There is no fee for the basic product; only an interest reduction against the cash rate on a proportion of the balance, and capped to a notional max cost of ~$185 pa (for $1m+).

Check the following - Basic ING may indeed be cheaper - but it depends on your desires.

HOSTPLUS Superannuation Fund Superannuation Fund | RateCity

ING DIRECT Living Super Superannuation Fund | RateCity

Of course, this type of fund may not be suitable for everyone.

 

[get me outta here]

I wonder if in a defined benefit fund, could it be better to sal sacrice to say something AusSuper.

Wise words Cove. Sounds like you've set your kids up well (including passing on sufficient financial wisdom - have you passed on the travelbug? I suspect the two go rather hand in hand).

Concur on the salary sacrifice option as being an excellent choice. As someone with a defined benefit scheme super there's not much I can tinker with (don't really need, to as it's a generous scheme) but adding to it via salary sacrifice contributions only makes it better.

 

[travelislife]

Maxing out the $30k (or what will now be $25k) contributions on the 15% tax rate going in seems a no brainer. If on the 37% rate it is an instant 35% return. $1000 earnt is $630 invested outside super, or $850 invested inside super.

 

[exceladdict]

We have encouraged our adult children to salary sacrifice so that their annual contribution to superannuation is more than double the 9.5% statutory employer contribution. They have learned to live without their full wage.
If you know mathematics for this approach early in life you will know that the compound earnings will create a nest egg that will be worthwhile.

Depositing into your home (non-investment) offset account earns you an after-tax, risk-free return equivalent to your mortgage rate. The alternative is only more attractive if it provides a better risk-adjusted after-fee, after-tax return. E.g., on a 4% mortgage rate and 40% marginal tax rate, the alternative investment has to return at least 6.67% pre-tax - does your risk profile prefer a guaranteed 6.67% return on your offset account, or a volatile 9.5% p.a. in shares (historical ASX300 returns over the past 30 years)? I'd apply the same concept to contributing additional into super, but also factoring in the added tax benefits (potentially upon entry and ongoing) as well as the access issues. Hope that helps!

I think I need to reconsider!

At present I'm faced with the double whammy of being locked in to a major lender, due to my particular property, and the wonderful Perth property market that's cut in value by 10% in the three years since we purchased. If I'd rented and put the difference into super I'd be better off.

The main reason two reasons for not deferring earnings into super were to build capital for our next (more long-term) house purchase, and lower tax savings given my current career stage. But you've demonstrated now that savings might be able to be realised even now.

 

[burmans]

I think I need to reconsider!

At present I'm faced with the double whammy of being locked in to a major lender, due to my particular property, and the wonderful Perth property market that's cut in value by 10% in the three years since we purchased. If I'd rented and put the difference into super I'd be better off.

Super is a long term not a short term investment, your idea that you'd be better off putting the money into super seems to be based on the concept that the past is a the best predictor of the future. Aside from Fixed Interest where its a somewhat reasonable measure, basing your prediction on the immediate past would seem to be a very poor indicator, neither property or shares have much of a correlation of year on year performance.

 

[lovetravellingoz]

I think I need to reconsider!

If I'd rented and put the difference into super I'd be better off.

.

A wise and much older gent gave me some good advice many, many years ago when I was seeking his advice on what to invest in.

His advice was not to be too hung-up on exactly what you invested in as long as you were investing over time.

We have all had misses, and wins, but if you keep investing over time (and super is is one such way, but certainly not the only way) you will end up a long way in front of those that do not do so.

 

[Jeffrey O'Neill]

Thanks so much everyone for the responses so far. It sounds like my balance (and level of skill) is too low for an SMSF at this stage.

some what a halfway point to an SMSF

https://www.ingdirect.com.au/superannuation/living-super.html i know a few people who are happy with the extra options without the hassles of being a trustee for an SMSF

https://www.australiansuper.com/investments-and-performance/member-direct.aspx - how I cut my teeth before starting my own SMSF

 

[JohnK]

Anyone utilising salary sacrificing to top up their superannuation? If salary sacrificing say $10,000/pa would you still be able to withdraw at age 60 without paying additional tax or does the amount that is salary sacrificed get treated differently?

Need to start reading up on options to try and reduce tax and save for retirement.

 

[PLANT]

22k last two years..... No additional tax at 60. No1. Thing to do to get biggest FREE(15% TAX) BOOST!

 

[Pushka]

Anyone utilising salary sacrificing to top up their superannuation? If salary sacrificing say $10,000/pa would you still be able to withdraw at age 60 without paying additional tax or does the amount that is salary sacrificed get treated differently?

Need to start reading up on options to try and reduce tax and save for retirement.

Yes - we have been doing this for years. At 55 we started a super stream and now we are able to draw down between 4 - 9%? annually, tax free.