How much to contribute to super?

Hi all,
Firstly I have no idea which topic to post this in so mods please feel free to move if appropriate..

I work in a gov. dept which has a minimum 2% super contribution to PSS and I am currently paying 5% ($120ish) per fortnight based on wages of approx $57k. Partner is on slightly lower wage of approx $46k & contributes $40 fortnight to their 'industry' super.We are both in our early - mid 40's (although it doesn't feel it )

We have PPOR & 1 IP (neg geared by about $80pw after tax which we plan to hold long term) and plan to purchase 1 more IP within the next 12 months and hopeully 1 a year after that. We have no other debts apart from these 2 mortgages & live off a LOC.

Considering our ages & our plan to purchase more IPs, are we better off reducing my contribution to improve cash flow & savings or leave it going into super & pick up as much govt co contributions as possible now while we have the funds?

Opinions please?
Cheers
Stella

I'm in no position to advise you on this, but personally I think super is there to cover the governments a$$, so that when people retire the govt doesn't have to support them.

Some people need it and some wont. If you think you can do better than a super fund can, then pay as little as possible into it. But you have to take into account the tax benefits of super.

Of course the worst aspect of super is you have to wait until 60 to get it back. Locks you into the workforce don't you think? If you have an aggressive plan that could see you retire in 10 years and you need every spare $ to get there, then reduce your super contributions.

If you can afford to hedge your bets a little, you could build up your super such that if you do stop working early, you could only have to be financially independant until you hit 60 when your super kicks in.

I would prefer not to pay super at all and take care of myself. However some people really need it.... and them some.

Hi Stella,

My wife is the high income earner in our family and she was salary sacrificing extra into her supa each month .... We already had some investment properties, but I convinced her that we would be better off buying more IP's as it gives us greater leverage instead of the extra money going into supa.

We made that decision 18 months ago, and in that time we have bought 4 more IP's to add to our portfolio. The money she was using to salary sacrifice is now being used to cover any shortfall between rent return and loan repayments.

The upside is that we have recently had the properties revalued as part of refinancing and the new valuations for those 4 properties show a growth of approx $160,000 in the past 18 months. We give thanks everyday that we put the extra money into well positioned property instead on her superannuation fund as their is no way her contributions would have returned anything like that figure.

Not sure this is exactly what you were asking, but it may give you a different perspective.

Martin

PS ... we are in our late 40's, so its not to late

Stella,

Ditto as Gooram and Mystery said: Know your strategy, know your performance and decide for yourself: If you are confident you can outperform the super return then do it yourself is a sensible option.

Remember to consider all facets like entry / exit taxes, super in-built life insurance, benefit type (defined benefit or contribution), your personal likes or dislikes, your time availability.

Hi Stella,

I am in almost in the same boat as you. I am with PSS and have other top up Super fm the Commonwealth Super funds. My partner is on about $45K paying into an industry fund, without much super at all.
I did quite a few sums a while ago and showed them to my financial planner, who even said, go buy somes IPs, so I went and bought 3.
The cap gains we get with the 3 IPs will be my Partner's Super, which is better than Salary sacraficing the holding costs.
In 10 years time when we want to retire, depending on the holding costs of the IPs will determine whether we live off equity, or sell and put into Super and drawdown a pension tax free??

mystery said:

Hi Stella,

My wife is the high income earner in our family and she was salary sacrificing extra into her supa each month .... We already had some investment properties, but I convinced her that we would be better off buying more IP's as it gives us greater leverage instead of the extra money going into supa.

We made that decision 18 months ago, and in that time we have bought 4 more IP's to add to our portfolio. The money she was using to salary sacrifice is now being used to cover any shortfall between rent return and loan repayments.

The upside is that we have recently had the properties revalued as part of refinancing and the new valuations for those 4 properties show a growth of approx $160,000 in the past 18 months. We give thanks everyday that we put the extra money into well positioned property instead on her superannuation fund as their is no way her contributions would have returned anything like that figure.

Not sure this is exactly what you were asking, but it may give you a different perspective.

Martin

PS ... we are in our late 40's, so its not to late

Click to expand...

AN interesting question and response.

Can i clarify.
You have made a gain of $80,000 after CGT, should you sell but also this is reduced by the interest payments and expenses to cover the loan.
Income from rent is added as well.
Would you be able to post the details, as on face value it looks like you are $160,000 ahead ......which of course you aren't.

What would have been the super salry scarifice contribution +government contribution +earning rate of fund for 18 months
knowing these would be a useful guide I would think.
I apologize if this is too upfront.

redsquash said:

AN interesting question and response.

Can i clarify.
You have made a gain of $80,000 after CGT, should you sell but also this is reduced by the interest payments and expenses to cover the loan.
Income from rent is added as well.
Would you be able to post the details, as on face value it looks like you are $160,000 ahead ......which of course you aren't.

What would have been the super salry scarifice contribution +government contribution +earning rate of fund for 18 months
knowing these would be a useful guide I would think.
I apologize if this is too upfront.

Click to expand...

Redsquash,

I'll do my best, ... firstly we don't intend paying capital gain as we don't ever plan to sell, so we have access to the full amount gained for further investment. We plan to use the built up equity to help fund our retirement when that time comes, but in the meantime allowing the portfolio to continually grow and provide ongoing equity, .. well that is the plan. Also you have deducted 50% of the total for CG, .... this is incorrect by my understanding.

The point you may be missing is that although as you say we aren't actually $160k ahead, .... well we are, as we can access that equity to leverage and buy further property which compounds the growth further giving us a greater return on investment. This is an important fact.

Whereas when we were salary sacrificing it was increasing the total supa amount and the past couple of years it returned an average of around 12%-14%, .... but we can't access those funds to leverage against them until retirement age, so we get say 14% on the total supa funds which is a nice return. With the four IP's (we have 7 in total) we have done well with growth in the 18 months giving us a similar return but because of leveraging it returned a greater amount and we can access those funds giving us greater flexibility.

Salary sacrifice contribution for 18 months (not including the standard 9%) would have been approx $25,000-$30,000 with interest approx 14% or around $4200 interest on that amount. Zero Govt contribution as she is in the top tax bracket, ... plus she gets hit with the fourth supa tax for earning over a certain amount PA.

The same amount that we would have placed into supa as salary sacrifice covers our shortfall easily for the four IP's especially after our tax return. This gives us a much greater return due to the leveraging effect and a more effective use of those funds in our view.

I've probably confused everyone with the above, but I'm not a maths genius and have tried to explain it as I understand it to be.

Martin

I'm not an FA and this isn't advice, but I think Mystery has hit the nail on the head.

Fwiw, imho the answer to the question of whether you should put more $ into super is the opposite of the answer to this question -

Are you prepared to drive your private investing activities (IPs, equities, etc) harder?

If the answer to that is no, then further investment in super is probably for you.

And vice-versa - if you are prepared to continue to work hard at IPs and other investments, then why give any more of your hard earned $ to someone else to manage than you have to?

M

The trouble with Super is that you can't get to it until retirement age.

Work hard at your investing and achieve the goal of retiring from the workforce (not necessarily sitting back and playing bowls though) a lot earlier through your own achievements.

I think of Super as a bonus that will be accessable 'somewhere in the future'. That's if the gov don't keep on pushing back the age requirements.

So, in a nutshell, I'd be putting my hard earned into other investments outside of super that I had a bit more control over.

Regards
Marty

Stella said:

Hi all,
Firstly I have no idea which topic to post this in so mods please feel free to move if appropriate..

I work in a gov. dept which has a minimum 2% super contribution to PSS and I am currently paying 5% ($120ish) per fortnight based on wages of approx $57k. Partner is on slightly lower wage of approx $46k & contributes $40 fortnight to their 'industry' super.We are both in our early - mid 40's (although it doesn't feel it )

We have PPOR & 1 IP (neg geared by about $80pw after tax which we plan to hold long term) and plan to purchase 1 more IP within the next 12 months and hopeully 1 a year after that. We have no other debts apart from these 2 mortgages & live off a LOC.

Considering our ages & our plan to purchase more IPs, are we better off reducing my contribution to improve cash flow & savings or leave it going into super & pick up as much govt co contributions as possible now while we have the funds?

Opinions please?
Cheers
Stella

Click to expand...

if your department is like mine, they won't pay into PSS if yo aren't making voluntary contributions. mine is 2%.

I contribute the minimum possible to super (still about 16k per year), figuring that I plan to retire LONG before the minimum age at which I can access my super.

I'm with Kissfan - I figure if I get my super sometime down the track it'll be a bonus. I'm currently 32 and I'm hearing stories of minimum retirement age being increased (I heard 67 the other day!), so I figure I'd rather keep control myself. Also, super can't borrow to invest, whereas I can!

I contribute the minimum to super and use all our spare cash and then some (equity ) to hold property.

I contribute as little as I can get away with legally. At my age (30) and the fact that I can save and am interested in investing, the opportunity cost of putting money into super and locking it away until 60 is too high.
Alex

I don't contribute one red cent to super. I believe through property (+ shares) and all the benefits such as leverage that come with it, I can do much better over the years.

I have the luxury of not having to pay any super at all, which I like! The little super I do have from previous jobs will just tread water or slightly increase over the years as I use it to pay my Death & TPD insurance etc.

If you have an employer paying compulsory super for you as well, all the better - but I wouldn't contribute extra myself, unless like Mark said, you aren't confident in your own skills with investing.

different people have different circumstances , i contribute about 25% of my wage into super at the moment , and will continue to for the next couple of years , then i will stop and just let it take care of itself.

if circumstances were different , i wouldnt be putting any in that i didnt have too , but you have to be investing what you would have put in to super into something else

Ok general opinion seems to be put the $ where I have control and make use of the money now - not in ? years time when I retire.
Thats what I was thinking to do because with the rules changing so often who knows how/when I'll be able to access my super anyway.

As long as I make sure the extra is just not absorbed into our day to day living, we should be better off using the extra to invest in more IP's.

Thanks everyone for your thoughts - I'm off to drop my contribution to the minimum 2% (at least for awhile anyway).

Cheers
Stella

Dropping to a minimum amount makes sense so long as you invest the extra cashflow and don't just spend the extra on 'stuff'.

I think it also depends on one's situation.

I may decide to salary sacrifice into Super this year because i will fall under the top tax bracket. I dont want to leverage that amount cause if my circumstances change in the future years and my salary drops then i might be stuck.

One good thing about putting extra in Super is that it is very flexible alongwith a good return (in my case an instant 30%). If i buy an IP i will need to find that cash every year even if my salary drops. however with super i can simply stop making the extra payments into super.

Good point.

A property is more liquid than super, and there's no reason why you have to leverage up to max capacity.

Or you could simply put it into managed funds or direct shares, and maintain a 50% margin on top of your contributions, so that you only increase your margin by the amount you are contributing. This gives you growth, yeild flexibility and liquidity. If you put it into super it's gone till your sixty.

traveller said:

One good thing about putting extra in Super is that it is very flexible alongwith a good return (in my case an instant 30%). If i buy an IP i will need to find that cash every year even if my salary drops. however with super i can simply stop making the extra payments into super.

Click to expand...

Money is being rushed into super funds on the assumptions that (1) This is a tax effective way to save, (2) Stellar sharemarket performance will continue, and (3) Money is available to take out when people become eligible.

So far the first two assumptions work quite well.

It's interesting to see how assumption (3) will fan out in the 2010's, considering the likelihood of a coming Western world recession, coupled with a run of money from sharemarkets when the super funds cashing out en-masse to meet Baby Boomers draw-down requests.

The chance is, the super dollar amount will shrink when the market contracts.

Would I feel happy to pay management fees to lose money?

*Pfffffff, <spit, spit> Naaaaaaaaaaah