Would You Put Your Savings in Mortgage/Offset Account or Superannuation?

$100 put into mortgage account (Tax 32.5%, Interest 3%) would becomes $141 in 25 years. $100 salary sacrifice put in super account (Tax 15%, long term returns 10%) would become $920 in the same time. The difference is huge and so is the liquidity/lock-in period. Am I missing something? How to find a balance between the two options?

Comments

  • +6 votes

    …put in super account

    Depending on your age, you may never get to use that money if you don't live to the ever-increasing retirement age.

    •  

      But your other half would get it tax free

      • +1 vote

        What other half? :p

        For what you're talking about, the amount of death insurance I have faaaaar outweighs any salary sacrifice contributions I can make. I often think that I'm worth more dead than alive!

        •  

          Yes but ur life insurance will dwindle as u get older, once ur 50 it’s sfa, unless u pay insane premiums, having a nice balance at 50 covers ur future spouse, kids, etc

          If u have no other half why do u have life insurance, even more If your a male and under 30 ur premiums will be high and u r better off without them if no dependents , imho

          And u ever thought you might have other half and kids one day

          • +4 votes

            @unclesnake: Mate it’s “you”, “your” and “you’re” and it’s not bloody hard.

            • -2 votes

              @thrillhouse: its 38 degrees, my y key does not respond on my apple phone after it’s latest iOS upgrade, please forgive me and instead use the wisdom. It’s not that hard to ignore it.

              • +2 votes

                @unclesnake: … and it’s not its, it’s It’s.

                … and it’s not it’s, it’s its.

                Sorry, too hard to ignore, too hard to forgive. Even for the wise.

              •  

                @unclesnake: Except you can spell “yes”, “why”, “pay” and “day” which all subsequently use the letter y which doesn’t seem to work otherwise. Call me crazy but I don’t believe you.

    •  

      Yeah, agreed. There is also the beneficiaries tax. It's basically the Australian version of the "death tax".

  • +5 votes

    M O R T G A G E

  •  

    Whats your age? Old.. maybe uper depending on returns, less than old = mortgage

  • +1 vote

    The balance is that in an offset account you can access the funds at any time.
    In a super account it is locked in until retirement, and (a) the tax rate of 15% could change and (b) a long term return averaging 10% pa is problematic.
    You have also not recognised that income on a super fund is taxed at 15%pa. So your total at the end of 25 years is more like $650

    • +1 vote

      I’m assuming he’s using the published returns of ~10%, which are inclusive of the 15% earnings tax

  • +1 vote

    Not sure about some of the above posters - if the economy crashes yeah, your super might crash, but so would any value in your mortgage, so it's all much of a muchness in that regard.

    I think it ultimately depends on your life goals, where you are at financially and how conservative you are. Super (at least to me) does make the most financial sense but it locks up your money for a very long time, and if you're young it does reduce the amount of fun/experiences you can potentially enjoy. There is also an argument that you could potentially invest that money elsewhere for a higher return (i.e., your own business, investments with higher returns etc.).

    I invested a lot of money myself into super before 30 up to the 25k contributions cap, and also invested money into mortgages early on as well. I realised after 30 or so that I'd likely have far too much savings just from the mortgages and that the super would be nice but wouldn't add that much to my overall life at that stage. In my case, I decided to stop after 200k in super as it meant freeing up a bit more now to have fun while I'm still young but knowing that I'm pretty financially stable either way.

    The 25k contributions cap is a nice balance I find to aim for if you do want to put something in there whilst not going overboard.

  • +1 vote

    It depends on

    What you earn
    What your offset balance is
    How much your mortgage is
    You age
    Will you likely maintain the same wage your whole working life

    In a perfect world you could max out ur super and keeping adding the left overs to ur super

  • +1 vote

    I might be missing something, but why are you paying tax on money off-setting your mortgage?

    Also there are other options besides just those two, such as investing in shares, etc, which will be more liquid/accessible, but with returns similar to super (albeit with a higher tax rate).

  •  

    Mortgage.If the mortgage is for your principal place of residence you should pay that off first, or at the least have the offset before adding more to super. If you have a large mortgage and are in the rarly years of taking it out you are could be paying a lot of interest.
    Super returns aren’t guaranteed, the age you can access it will increase and if you want to access funds early will face penalties.

    There are many factors involved, it’s not a simple calculation that one is ‘better than the other. You might also consider investing in the share market as an alternative.

  •  

    Paying into your super with an average return of 6 percent (modest), will out perform offsetting your mortgage at 5 (inflated) percent, if you are in the tax bracket of 32.5 and above.

    So if have a good 2/3 years of savings up your belt,confident you can get consistent income, then super is better, if you don’t mind locking it away. I think 1 percent of the population would know this.

  •  

    You seem to have missed that a salary sacrifice to super is a concessional contribution. Ie, it’s a tax deductible contribution, so you pay 15% instead of your marginal rate … if you earn above the tax free threshold, you are reducing your tax and getting extra benefit. In your case, if you salary sacrifice $1000, instead of having $675 (after 32.5% tax) in your hand, you’d have $850 (after 15% tax) in your super.

    •  

      Yes and this is where 99% of people don't see the value, that super is better off. People say mortgage is better, but a simple spread sheet proves otherwise with even modest 6% returns in super verse a 5% mortgage rate is better off in the long run.

  •  

    If you pay in to super instead of offsetting your ppr mortgage it is the same as borrowing money to invest in super? Would this be sensible? Maybe st the moment with 18% returns but I don't think this is sensible longterm?