Superannuation and stuff

Thinking to voluntary contribute to superannuation but then i read this https://rogermontgomery.com/dear-under-50-investor.

Am age 29.

How did you guys get around this conundrum?

Comments

  • +2 votes

    Depends on your tax situation. If you are getting reamed with 37% 45% tax rate + medicare at high amounts I might invest a tiny little bit and or find some tax savings

    Otherwise too early, you can't access that money

  • -1 vote

    Do you really want to voluntarily lock money away knowing that you may potentially never see that money again?

    •  

      Unless you're an idiot taking big risks or have tiny amounts that are whittled away by expenses, how can you potentially never see that money again?

      •  

        I think they're be referring to potential legislative changes.

        •  

          Why would legislative changes not let you see your money again? And drive millions onto social security?

          • +4 votes

            @ihbh: If you die before you reach the age required to access your super.

            • +1 vote

              @HighAndDry: then your dependents receive it. would you be happy on your death bed knowing your wife/husband is taken care of.

              • -1 vote

                @unclesnake: Superannuation funds would have some death benefit cover by default.
                As long as this hasn't been cancelled by the account holder and there are enough funds in your super account to pay those premiums, your dependants will receive the same payout based on your agreed premiums and terms.

                The rest of it can come from my bank account.

              •  

                @unclesnake: That's what life insurance is for. Plus, not everyone has dependents, or dependents they want looked after. That's not an assumption you can make. AND EVEN THEN: if the funds were available, you can still leave it to your dependents, you only gain the option not to.

                •  

                  @HighAndDry: im pointing out that just because you may not see your supperannuation, your other half will, or someone will, but if you dont have kids then you take the risk to get to 70 and have little super.

                  if you only putting in 10k a year its not a big deal.

                  • +1 vote

                    @unclesnake:

                    im pointing out that just because you may not see your supperannuation, your other half will, or someone will

                    Except with super, that someone might be the government. Whereas outside of super, you can still give your savings to anyone you want. Having your money locked up has no benefits.

                    • +1 vote

                      @HighAndDry:

                      you can still give your savings to anyone you want.

                      ..with the added benefit of not needing to consider the tax implications for a person classified as a non-dependant.

      •  

        Are you guaranteed your principal back with any superannuation fund?

        •  

          That's a clueless question about investing in general. Superannuation is the vehicle that allows you to invest in the underlying assets.

          If you invest in penny stocks or junk bonds, then yep, you could loose it all. Same thing happens if you did this outside of superannuation.

          If you invest in an index fund for the long term, then yes, over the long term you will get your principal back and lots more. If you're ignorant and stick your money under the mattress, then the risk is inflation will eat away at your spending power over the long term.

          • +1 vote

            @ihbh: Long story short, I would rather stick my money under a mattress or in an account earning 3% pa, as opposed to pouring my hard earned into a system that I only partially have control of and that doesn't guarantee my principal back. At least if I leave my money under a mattress or in a bank account, I won't ever lose more than what I initially put into it.

            •  

              @KaptnKaos: u have a $1000 x 3

              a.) $1000 under matress

              b.) $1000 on asx 200

              c.) $1000 in 3% bank

              in 40 years which one is worth more going off past data?

              •  

                @unclesnake: Past indicators should never be used as a prediction of future performance.

                Hence, I will go for the most secure option of the three listed - c.

                Reasons being -

                1. I will never lose my principal, which is somewhat possible if the funds were under my mattress (eg. robbed) or in shares
                2. I will always receive something in return for my principal (money in mattress = $0 return, money in shares = could lose 100%)
                •  

                  @KaptnKaos: u wont lose 100% for gods sake. hedge your bets and keep 70% in shares, 30% in cash.

                  unless your 55 why do you care what it worth anyway, its only matters whe you sell whats its worth

                  your money doesn't increase, its just keeping up with inflation.

                  • +1 vote

                    @unclesnake:

                    u wont lose 100% for gods sake.

                    Thank you unclesnake. I shall use your statement in my defence if I ever lose all my money in shares or superannuation.

                    •  

                      @KaptnKaos: but you cant sue me because i will have lost 100% too

                    •  

                      @KaptnKaos: when the gfc hit and every person panicked, i kept buying and buying, and it went down more, and i bought more and more…

                      it had probly double and more now.

                      •  

                        @unclesnake: For you, and only for you unclesnake, I wish for another GFC so you can spend your hard-earned on more shares and houses.

                        •  

                          @KaptnKaos: man you sound bitter, u would love a gfc because your cash assets are safe

                          •  

                            @unclesnake: A GFC means my savings account and term deposit rates go from 6% pa to 2.5% pa.

                            So no, I wouldn't want a GFC just for my sake.

                            •  

                              @KaptnKaos: yes and inflation goes down the same rate, you do realise that right

                              you know interest rates in argentina are 40%, but inflation is the same, so no one is any better off.

                              •  

                                @unclesnake: Inflation might go down at the same rate, but electricity, gas, water and public transport costs don't.

                                And don't forget the unions rallying down CBD streets demanding a 4% pa pay rise.

                                •  

                                  @KaptnKaos: what if the financial institution your cash is in goes tits up.

                                  anyway invest in cash its safe but your doing yourself an injustice long term.

                                  unless you 50 who gives a rats a$$ if it goes down for a while.

                                  and even if your shares go down 20% the tax refund you get will make it equal.

                                  if they go down 40% the economy would be utter hell, and you will lose your job and your bank may go bust and you lose your cash anyway.

                                  • +1 vote

                                    @unclesnake:

                                    what if the financial institution your cash is in goes tits up.

                                    https://www.fcs.gov.au/

                                    Sorry, I couldn't find the link for the scheme which guarantees your money invested in shares and superannuation.
                                    Please let me know if you do.

                                    •  

                                      @KaptnKaos: and what if the government goes bust?

                                      and trust me its not as simple as that, i lost a fair bit of coin in iceland.

                                      •  

                                        @unclesnake:

                                        and what if the government goes bust?

                                        Smaller chance of that happening as opposed to losing it all in volatile investments and economic roller-coasters that I can't touch until I'm in an aged care home.

                                        •  

                                          @KaptnKaos: or you could be fit and healthy at 70 and retire with next to nothing because all you did was keep up with inflation, and drink $2 pots in mt druitt for fun.

                                          your choice, nothing wrong with it, just think your selling yourself short, at least go 50 / 50

                                          •  

                                            @unclesnake:

                                            or you could be fit and healthy at 70 and retire with next to nothing

                                            You realise you can have savings outside the super system, right? Why do people think that if you don't put money into super, you have to have zero savings?

                                            •  

                                              @HighAndDry: i never said that, but you can generate a sh*t tonne more inside super, because its tax effective

                                              if you think keeping cash in your bank is going to be the wealth creator for you then do it.

                                      •  

                                        @unclesnake:

                                        i lost a fair bit of coin in iceland

                                        do elaborate!?

              •  

                @unclesnake: Past events is not a good prediction of future events.

  • +1 vote

    How much do you make?
    What is your annual taxable income (should you have other passive income / expenses)?
    Are you doing this to save for the future or as a tax minimisation strategy?

  • +2 votes

    I've been working in the industry for the last 20 or so years - and I have about 30 years to retirement. Even then, there's no way I'd lock away more money that I have to in super regardless of the upfront tax benefits.

    The retirement age continues to increase and tax "benefits" are continuing to decrease. If you think about it, the Super system was designed so that we can be 'self sufficient' in our retirement years. While the tax concessions make it look like we're the ones benefitting, it is the government that actually benefits because those concessions only represent a small amount of the age pension they no longer have to pay when we retire. The pension will no longer exist by the time retirement age hits (for the people who are relatively younger right now).

    The thing that scares me most is in relation to the constant changes. In the previous years, any changes that were implemented included grandfathering clauses - ie, the change only only took effect from a particular date onwards and any prior was locked in. Lately, a few changes have come in that were made retrospective and applied to blanketly on everything from the beginning of time.

    I highly doubt that I'd even make it to retirement age. And if I do, I probably won't even be in a state to be able enjoy the money as much as I am enjoying it in my earlier years.

    •  

      Hey.
      I’m 54 this year and plan to retire at 60.
      I am planning to build up my super over the next 6 years.

      What do you think the chances are the aged pension will be moved from 67 (for me) out to say 70 (for me) before I am 60?

      Similarly what do you think the chances are that the 60 super release age may also be increased?

      The latter would be very disappointing.

      Please speculate. Thanks.

  • +3 votes

    The article you link to is very long and any comprehensive answer to the points it raises and the implications of your question would also be very lengthy.

    That said, I'll make a few points …

    1. The article is just on six years old. How much has changed since then?

    2. Roger is without doubt a smart guys and very knowledgeable on investment, however is also known for being a pot stirrer. By his own admission, many of the points he raised are to challenge, rather than assert.

    3. The golden thread in this is that Roger (obviously) advocates lifelong investment … it's just that he's challenging the concept of doing any more than the compulsory minimum via superannuation. It's the lifelong investment part that is key in the long run. If you have the discipline to do this (and I mean every week/month without fail for the entirety of your working life) then keeping it outside super will still generate significant wealth.

    4. It is therefore incumbent upon you to educate yourself broadly on this topic and determine the right path for you weighing up the pros and cons of various approaches. Ultimately, it is the discipline of lifelong investment and the ensuing power of compounding returns that will be the primary determinant of outcome, not whether or not you do it via super or not.

  • +1 vote

    Super is the best game in town for those near retirement, the wealthy (which I will define for convenience as $1,000,000 investible assets outside the paid off family home) OR those on high incomes (taxable income $180,000+).

    So while government will tinker with the rules and tighten things up, its still VERY good for anyone in those categories and will likely remain so. Its the 15% tax rate on earnings that is the main benefit since this allows for faster compounding over long periods, which is very significant.

    If you are on $180,000+ I would go for it. Otherwise save for a house deposit (outside super) or pay of your mortgage (if you have one).

    A little bit of a side point, but if the government really wanted to make the system more sustainable (by reducing the number of people going on to the aged pension) they would
    1. tax contributions more progressively (e.g. your marginal tax rate less 15%)
    2. outlaw volunatary contributions once the fund was a certain size (e.g. $500,000 per member).
    3. offer a government run alternative (similar to the Future Fund) with annual fees of 0.1% (vs ~1.2% currently).

  • +1 vote

    He's correct on baby boomers being the major benefactors of super. When Peter Costello announced people could put up to $1M each into super, it showed the system was designed for baby boomers who have enjoyed the most privileged government handout life in history

  •  

    How about in public service?

    I know in Queensland the government matches your "voluntary" contribution above the minimum compulsory 2%. Hard to explain, see below

    Example 1: No contribution other than compulsory
    Earn $50,000 per annum
    Compulsory sacrifice 2% = $1000 p.a.
    Receive Minimum super contribution 9.75% = $4875 p.a.
    Net pay received p.a. (before tax) = $49,000
    Total earned before tax including all super = $54,785

    Example 2: Contribute max (5%)
    Earn $50,000 per annum
    Voluntarily sacrifice 5% = $2500
    Receive max contribution (12.75%) = $6375
    Net pay received p.a. (before tax) = $47,500
    Total earned before tax including super = $56,375

    Example 2 doesn't take into account the tax breaks you receive due to the salary sacrifice, so there are further benefits.

    I just want to know how people feel about this situation

    •  

      The above form part of the older style Defined Benefit plans. They were quite generous with the Fund designs in the early years when Super was one of the incentives used to try and retain staff.

      The final benefit payable is always compared to an SG Minimum Benefit that equals what your benefit would have been had it been in an accumulation style account that received your own and the minimum employer contributions over the period.

      Nowadays, Defined Benefit plans are rarely offered to new employees (if at all). They cost a lot to administer and the investment risk lies with the employer. Most people will be joining super funds in an accumulation style plan now (which works just like a bank account). They cost a lot less to maintain and the investment risk lies with the member.

      • +1 vote

        I can assure you that this style plan is the standard for anyone working in the Queensland Public Service. All expressions of interest job postings I've seen for public service jobs in Queensland include this super style benefits plan.

        My question is , with this kind of plan is it worth now sacrificing into your super?

        •  

          Sorry - I was wrong!

          I'm not familiar with the actual QLD gov't plan, but from re-reading what you wrote, it sounds more like an accumulation style benefit, with employer-matched salary sacrifice contributions and not the more generous Defined Benefit type.

          Is your final Benefit equal to the sum of your account? If it is, it's an accumulation plan.

          My question is , with this kind of plan is it worth now sacrificing into your super?

          I'm always a bit iffy about the companies that offer high % superannuation contributions. For example, there are companies that advertise a 15% superannuation contributions for all staff, blah blah. Then when you come negotiate on salary, they negotiate based on a "total package" and your base salary turns into Total Package, minus 15% super contributions.

          In other words, you have no choice, but to contribution 15% of your salary into Super. That extra 5.5% contribution over the 9.5% SG actually is funded by your pay packet and not the employer.

          •  

            @bobbified: In the QLD public service, in most cases if you contribute 5% of your income to super, the employer will add a further 3% to their contribution (12.75% in total), so the total benefit going into super is 17.75%.

            I think it's definitely worthwhile as the minimal contribution of 5% pre-tax (with sacrificing) equals a much better outcome in the long term.

            In the Police and other services, this is even better.

            •  

              @doweyy: Worth it or not is a personal decision and how much excess cash there is floating around.

              If it was the case of a good "matching rate", I may look at commencing additional contributions as I near retirement age.

          •  

            @bobbified: It is an accumulation fund, but I'm talking less about the fund itself and more about the employment scenario where contributing more pays you more money in super and also some tax benefits.

            Contribute: Receive: Total:
            2% 9.75% 11.75%
            3% 10.75% 13.75%
            4% 11.75% 15.75%
            5% 12.75% 17.75%

            I just want opinions on whether or not in this case people think it may be worth contributing more to super.

  •  

    Good discussion peeps got a bit of thinking to do!

  •  

    Interesting article but quite dated (2013). I would like Monty to draft an updated version.

    It has made me reconsider the six per cent I am currently contributing on top of the SG.

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