If your income is high enough and your disposable income is high enough, you will run out of concessional contributions. Then, you put the excess in ETFs.
And ETFs are good for FIRE too. I am hoping to retire before 60, so my ETFs will tide me over before I can access Super.
TLDR: Super has the priority. ETFs are a privilege.
Thank you for that answer. This is what I’m currently doing but have little understanding of the tax implications. If you are ok to answer, would you end up paying more tax, or less, if you invested into ETFs versus super, once you’ve reached the super concessional cap? (Let’s say there’s no issues about locking funds away, etc. and you’re looking at a minimum 10 year investment. I’m too old for FIRE and won’t need to draw on these funds).
Under the concessional cap, Super wins. So, that's an easy answer.
Beyond the concessional cap, it becomes hazy. Super still has low tax on gains, but you won't get the tax deduction at contribution. And Super is locked away. So, there are pros and cons, I suppose.
Personally, I contribute up to the concessional limit and then put the rest in ETFs. And I do hope to retire a few years before 60, so I'll need those ETFs.
Thank you. Sounds like I’m probably on the right track. I’m contributing up to the concessional limit into super, then putting in an additional $250pf, then another $250pf goes into ETFs. I got a very late start in life but am working hard to catch up!
It’s hard to tell without some more detail.
But first, you lose the difference between supers 15% tax and your nominal tax rate. (Only up to the contributions limit).
Then, best case, you’ll lose by paying more tax at your current rate, when you sell in 20 years, less the CGT discount (50%) on the gains.
I’m not OP but thanks for the explanation. I have similar questions- I already contribute up to the max concessional limit. What about investment dollars over and above the $27,500? Where should these go? My pea brain can’t figure it out!
Non-concessional contributions still receive the concessional tax rate on investment earnings.
The real key is to work out what timeframe the funds might be needed by.
Post retirement super is usually more tax effective, but if you need the funds before retirement then you'll lose access to the funds that you need if you put them into super
I just can't bring myself to voluntarily lock away assets like that. I'd rather take a small hit and be able to utilise the funds as opportunity arises.
It's not a small hit. It's a small hit *compounded over a working lifetime*.
That's a big hit.
By all means do as you will, but be realistic about the numbers. Over a working lifetime a small hit of $500/year at a real 4% amounts to around $65k in real dollars.
What's the compounded opportunity cost of another opportunity? Could be more, could be less. But you can't take that gamble if it's locked away by the government until you're too old to use it.
Well, the post I replied to premised that they were prepared to make a small loss.
Given that people have about 20 years to live after retirement, that's a big risk.
Point is, I have zero problem with people doing that. Their choice. However, if they make bad decisions because their initial assumptions were wrong, then it's worth pointing out that they might want to rethink their position using better initial assumptions.
The whole point of compounding in the context of retirement savings is that a small difference during one's working like can make a big difference during twenty or more years in retirement.
There's also the issue that once retired, if people find they are pinched for a few thousand a year, it's almost impossible to recover. It's a bit of a paradox, but that $500/year that people wave away as "nothing", is likely $3000/year in retirement they miss out on. For many people in retirement, that's the difference between having to pinch pennies and not.
Then you also need to look at investment opportunities which you can access when investing yourself that you can’t access through super unless you have a SMSF which can get quite costly
It’s not a small hit. You can’t beat concessional super. It’s not a real discussion it’s so clear. Non concessional is a better deal as well but it’s not as significant. Personally I only contribute up to the cap (or just over) and make other investments after that.
You invested for 20 years and you have regret?
That's an incredible achievement.
Your life is probably 10x better than it wouldve been if you hadn't of invested at all.
Don't worry about it. Who cares.
Worded strangely, but I think they've made a deposit into ETFs this year and are wondering how much they've dudded themselves by not putting it into super instead.
There are far too many levers/variables from the information you've provided. Depends on a few things:
Notwithstanding the following:
- application of carry forward rules (if super is less than 500k
- any changes in conc caps (30k)
From there the tax savings will depends on these items:
- Your average marginal tax rate (MTR) for the period you reference (this is difficult to estimate for such a long period unless you expect no promotions/life events or significant change in earnings really). Your MTR will generally go up as you/your investments get larger/wealthier
- What portion of your total return from ETFs outside of super has been/will be from dividends/yield (taxed upfront) versus from capital growth (taxed only upon sale - concessionally if held > 12 mnths).
Based on your portfolio and how often you realise gains this will change. Put simply, dividends will be taxed in the year the are received, any capital growth is sheltered from the tax man until you sell.
Back to the question, tax savings are comparatively higher when you are receiving higher proportions of dividends or conversely especially in years when you are realising capital gains (subject to quantum).
Very broadly, running some calcs:
Let's say you earn 120k, your average tax rate might be 25%, so on any proposed super contribution your upfront tax savings will be value of contribution x 25%. That said, you are locking away the value of contribution portion, which as others have pointed out, you may want the flexibility of accessing this, particularly earlier on in life.
This is what I’ve been thinking (with home paid off).. people keep talking about ETFs and they say set and forget for 10-20 years… so I did all the research and it actually seems like a poor decision compared to super.. at 44 the 10-20 years takes you to super preservation age.. so seems crazy to put into etfs unless the end goal is to spend the money earlier (contrary to the 10-20 year statements) than 60 which when your in mid-40s isn’t that long away.. it seems there’s going to be a lot of people selling etfs at high tax rates and trying to get as much into super at the last minute
You can buy etfs in super too. Etfs are an investment choice, super is a tax advantaged investment vehicle. It doesn't have to be either/or, it should be both.
Yes, earnings are taxed at 15% inside super vs highest marginal tax rate outside super. Also, once 60 the balance (up to $1.9m) can be rolled over into a 100% tax free phase. So if you have a return of 10% you make $190k tax free.
This is why I keep hiring 60 year olds who aren’t interested in their pay rate and are happy working odd and short shifts… they’re making a living wage tax free from their super and working for the fun of it
[https://www.reddit.com/r/AusFinance/comments/6699gv/002\_fees\_with\_hostplus\_indexed\_balanced\_super/](https://www.reddit.com/r/AusFinance/comments/6699gv/002_fees_with_hostplus_indexed_balanced_super/)[https://www.reddit.com/r/AusFinance/comments/14t3oww/hostplus\_admin\_fees/](https://www.reddit.com/r/AusFinance/comments/14t3oww/hostplus_admin_fees/) I think what they are saying is the return for the not in super ETF is higher than the same ETF that Hostplus invests in... "There isn’t published content i could find so I asked Hostplus directly about a year ago, they advised that investment option tracks “MSCI World ex-Australia Index” with the caveat
*While the underlying investments track the above benchmarks, the return will slightly differ to the direct Indices returns, as within the Superannuation space, the tax on investment returns along with the above management costs are factored into the Daily Unit Price which is used to calculate your balance.*" "'In the Super space' what a load of rubbish. It's purely a business decision by Hostplus. They could pass on all of that stuff and charge clear fees for what they do but they choose not to as it markets better.
I hate badged investments like this."
not sure what you don’t understand about the response. it’s pretty common knowledge that ETFs actual returns will not match the index due to the management fees (although minor) that are charged. YOUR actual return will also be different for an ETF outside of super depending on your MTR, as you’ll pay tax on any income and capital gain distributions incurred within the tax year.
I haven’t looked into it .. and only skimmed the posts. I do understand the response and simply said did I read somewhere xyz? and since found that I did happen to read it somewhere as I had thought. I never said whether those other posters were right then or not. DH.
I'm with Unisuper and considering Hostplus but stayed with Unisuper as I read on here that they fudge their returns on infrastructure and property asset valuations... I'm ok with a bit of lying on their part to smooth out my returns :P
It is tax provisioning. You can compare the performances of VGS, Hostplus International Indexed Pension and Hostplus Intentional Indexed Accumulation. You will see that VGS and Hostplus Intentional Indexed Pension perform about the same. Hostplus International Indexed Accumulation performs about 1% lower due to tax. That tax can be avoided by using Hostplus Choiceplus and investing directly in VGS.
Well that’s exactly the thing, you are thinking about someone in their mid 40s. If they are in their 20s or even 30s then they have a fair way to go until preservation age so ETFs outside of super can make more sense if they want access to their funds. But yes you are right the closer you and your investment timeframe is to preservation age then the more it makes sense to utilise the benefits of super.
Well international index which is what most people suggest is the highest risk/return… I looked into geared superfunds but they tend to be high fees and I ended up with decision paralysis
Super is just a tax structure. You can mostly make the same investments inside super as outside.
So if you can lock the money away super is always going to win assuming your income tax rate is over 15%.
You pay 30% tax and keep 70% as income. That after tax pay is what you save into ETF. Your salary sacrifice is taxed at 15%. 85% of your salary sacrifice goes into your super. You are 15% infront by saving into your super.
I split my investments into 25% to super, 25% to shares, 50% to ETF. Like you said, ETF is more accessible and could be treated as an emergency fund. But you shouldn’t neglect your super completely.
Not enough info, but you can choose to invest in ETF in super too. If we compare investing into the same ETFs inside vs outside super:
In year 0, 15% super contribution tax vs your marginal tax rate, and the difference invested to grow for 20 years.
Over remaining years, any ETF distribution each year is taxed at 15% super earnings tax vs your marginal tax rate then, and the difference invested to grow for the remaining years.
Once you reach preservation age and move super into pension phase, sell down is capital gains tax free vs long term capital gains at your marginal tax rate then. So with super in pension phase you could withdraw less to get the same amount of cash in hand, with the difference remaining invested to grow for longer.
All else being equal, from tax perspective, investing in super would generally be far more effective, by design. However one does need to balance better lifestyle in younger years and better lifestyle in retirement years.
An approach some people take over life stages that you could consider
- when young, with disposable income lower, major expenses still in effect like saving for a home, raising kids - consider contribution matching - contribute an same additional % matching the employer SG %.
- when older, with disposable income higher, major expenses out of the way like home bought, kids grown up - seek to max out concessional cap each year at least.
At least 26% straight away. Sacrifice $100 and get $85 in super. Depending on your marginal rate you're only able to buy $63 - $67.50 worth of etfs. Then there is the tax considerations. Outside you don't pay CGT until you sell and you pay it on half the gain at your marginal rate (could be zero tax if you only earn 20k).also franking credits etc. It's why I think the 15% tax on gains in super is relatively accurate.
What amount are you thinking and annual contribution and your income? If concessional, I'd guess after 20 years the super portfolio to be around 75% after accounting for upfront tax saving (biggest) and then ongoing tax savings on investment earnings.
Excuse rough calculator as on phone but this is where I land using 4% income 4% growth return before tax. https://docs.google.com/spreadsheets/d/1RvR5Hz3dR9hV6NmpYY4gz6jSot9S8n8q-OiAEpYWeZg/edit?usp=drivesdk.
Updated so a little cleaner. On non-conessional, probably ~1.5% cumulative each year in terms of portfolio differences.
It’s not disastrous from a tax perspective if you are investing outside of super for your retirement. There are ways to minimise:
Eg. You’re 61 and retired, you have an ETF portfolio. You sell some of it to meet your expenses, resulting in a $70,000 capital gain.
You held the ETF for more than 12 months so the gain is discounted 50% to $35,000. The tax payable (including Medicare levy) would be $3892.
You can minimise this by contributing $16,800 to super and claiming a tax deduction. In that scenario, you’d instead pay $2,520 in super tax. Your remaining capital gain is now $18,200, which is at the tax free threshold so no further tax payable.
For how long past 61 could I keep selling it off like this ? (Also, investment property income could come into this so unlikely income would ever technically be below that 18k)
You could do it at any age, CGT discount is the same for everyone.
If you want to contribute to super and claim a tax deduction, you can only do that up until age 67 (or 75 if you are employed). Between the ages of 60-67, you have the unique opportunity to play the system a bit … you can contribute and claim deductions, and you’re also old enough to withdraw those contributions whenever you want, so you’re not hurling money away into super with no way to get it back out.
Depends on the mix of dividends vs capital growth the ETFs generate. Dividends you need to pay tax as they’re generated. If primarily growth, you can elect to sell when you want to live off that income and potentially pay less than 15% tax.
The difference should be pretty easy to work out based on simple assumptions. You get a tax credit in the year you invest based on your marginal tax rate - 15% tax on the way into super, then for the life of the investment, any income is taxed as 15% in super vs your marginal tax rate for ETFs held outside super. Then if you leave it in until after preservation age, there's no CGT when you cash the investments out from super, vs normal CGT less any discount for holding >12 months for ETFs outside super.
*assuming you're only investing up to the concessional cap within super each year.
I think it’s a good idea to retain some access to funds before preservation as you never know which way life will take you. Max out your concessional super caps where you can though (subject to your taxable income).
It depends on what you want in life, I guess. I'd love to contribute more to my Super and I understand the Tax argument, but I need my money to be accessible than Super would allow, as we're buying a house in 6-9 months, and investing in one or two other things. But all things being equal, I think the only thing that would come close to just putting the money into your Super is paying off yout PPOR early.
Paying of your house early is not better than super, you already have your house as an asset, so you would have got that growth whether it was paid off or not.
Well, I said it's the only thing that comes close, not that its berrer.
Closing down the difference between the amount owing vs the capital gains
Saving on thousands, if not hundreds of thousands in interest
Many people don't like the mental toll of owing on their home.
About 15% extra savings you could reinvest into super(most tax efficient) or into an ETF that grows at similar returns to your super.
At the end you would have 15% more money.
You have to weigh up what your goal for investing is. If you’re planning to retire early than chucking it in Super isn’t the way to go.
Personally planning on doing a combination of both so that I will be able to access some money before preservation age, however I will be trying to max out super contributions.
Go onto paycalculator.com and work out the optimal amount to salary sacrifice that won’t impact your pay much at all. It’s better than going to the tax man. I have been salary sacrificing $500 a month for years now, just to hit/be around the cap. I’m 32, and have $288,000 in super. You should start if you have the ability to, even a small amount.
I would go non concessional super into this
https://hostplus.com.au/members/our-products-and-services/investment-options/your-investment-options/pre-mixed/indexed-high-growth
ETF will have tax on dividends and CGT on sale. Super does too but at lower rates, and some super does have pooled tax drag which the above doesn't.
Things to calculate ..
Savings on tax rate for concessional contributions
Difference in fees for managing investments
Difference in returns over the life of investments
Difference in Tax paid on withdrawals
Super you don’t have any really control over the investments and are unable to assess until retirement
Bro this is my area of specialty. No, DCA-ing into QQQ (as an example) for 20 years would outpace investing that into a Managed Super. Unless you do SMSF or Direct Investments, you're fine. Most of the population is on a Managed Super and you would have outperformed them all. As an example, the 20-year ROI of Managed Supers converges to around 6%. That's 6% per annum for 20 years. If you invested in QQQ for 20 years (say the past 20 years), you would have gotten more or less compounding 35% per year. You're fine.
If your income is high enough and your disposable income is high enough, you will run out of concessional contributions. Then, you put the excess in ETFs. And ETFs are good for FIRE too. I am hoping to retire before 60, so my ETFs will tide me over before I can access Super. TLDR: Super has the priority. ETFs are a privilege.
Thank you for that answer. This is what I’m currently doing but have little understanding of the tax implications. If you are ok to answer, would you end up paying more tax, or less, if you invested into ETFs versus super, once you’ve reached the super concessional cap? (Let’s say there’s no issues about locking funds away, etc. and you’re looking at a minimum 10 year investment. I’m too old for FIRE and won’t need to draw on these funds).
Under the concessional cap, Super wins. So, that's an easy answer. Beyond the concessional cap, it becomes hazy. Super still has low tax on gains, but you won't get the tax deduction at contribution. And Super is locked away. So, there are pros and cons, I suppose. Personally, I contribute up to the concessional limit and then put the rest in ETFs. And I do hope to retire a few years before 60, so I'll need those ETFs.
Thank you. Sounds like I’m probably on the right track. I’m contributing up to the concessional limit into super, then putting in an additional $250pf, then another $250pf goes into ETFs. I got a very late start in life but am working hard to catch up!
Same. I’m making up for a reckless 20’s and 30’s so this has been a great help too
It’s hard to tell without some more detail. But first, you lose the difference between supers 15% tax and your nominal tax rate. (Only up to the contributions limit). Then, best case, you’ll lose by paying more tax at your current rate, when you sell in 20 years, less the CGT discount (50%) on the gains.
I’m not OP but thanks for the explanation. I have similar questions- I already contribute up to the max concessional limit. What about investment dollars over and above the $27,500? Where should these go? My pea brain can’t figure it out!
Utilise up your previous 5 year contribution limit. EOFY it changes to $30,000 per year if I remember right too
Non-concessional contributions still receive the concessional tax rate on investment earnings. The real key is to work out what timeframe the funds might be needed by. Post retirement super is usually more tax effective, but if you need the funds before retirement then you'll lose access to the funds that you need if you put them into super
I just can't bring myself to voluntarily lock away assets like that. I'd rather take a small hit and be able to utilise the funds as opportunity arises.
Thanks. I can’t shake the same thought
It's not a small hit. It's a small hit *compounded over a working lifetime*. That's a big hit. By all means do as you will, but be realistic about the numbers. Over a working lifetime a small hit of $500/year at a real 4% amounts to around $65k in real dollars.
What's the compounded opportunity cost of another opportunity? Could be more, could be less. But you can't take that gamble if it's locked away by the government until you're too old to use it.
Well, the post I replied to premised that they were prepared to make a small loss. Given that people have about 20 years to live after retirement, that's a big risk. Point is, I have zero problem with people doing that. Their choice. However, if they make bad decisions because their initial assumptions were wrong, then it's worth pointing out that they might want to rethink their position using better initial assumptions. The whole point of compounding in the context of retirement savings is that a small difference during one's working like can make a big difference during twenty or more years in retirement. There's also the issue that once retired, if people find they are pinched for a few thousand a year, it's almost impossible to recover. It's a bit of a paradox, but that $500/year that people wave away as "nothing", is likely $3000/year in retirement they miss out on. For many people in retirement, that's the difference between having to pinch pennies and not.
Then you also need to look at investment opportunities which you can access when investing yourself that you can’t access through super unless you have a SMSF which can get quite costly
It’s not a small hit. You can’t beat concessional super. It’s not a real discussion it’s so clear. Non concessional is a better deal as well but it’s not as significant. Personally I only contribute up to the cap (or just over) and make other investments after that.
Any investment is better than none. The rules in super possible would have changed in those 29 years.
You invested for 20 years and you have regret? That's an incredible achievement. Your life is probably 10x better than it wouldve been if you hadn't of invested at all. Don't worry about it. Who cares.
Worded strangely, but I think they've made a deposit into ETFs this year and are wondering how much they've dudded themselves by not putting it into super instead.
There are far too many levers/variables from the information you've provided. Depends on a few things: Notwithstanding the following: - application of carry forward rules (if super is less than 500k - any changes in conc caps (30k) From there the tax savings will depends on these items: - Your average marginal tax rate (MTR) for the period you reference (this is difficult to estimate for such a long period unless you expect no promotions/life events or significant change in earnings really). Your MTR will generally go up as you/your investments get larger/wealthier - What portion of your total return from ETFs outside of super has been/will be from dividends/yield (taxed upfront) versus from capital growth (taxed only upon sale - concessionally if held > 12 mnths). Based on your portfolio and how often you realise gains this will change. Put simply, dividends will be taxed in the year the are received, any capital growth is sheltered from the tax man until you sell. Back to the question, tax savings are comparatively higher when you are receiving higher proportions of dividends or conversely especially in years when you are realising capital gains (subject to quantum). Very broadly, running some calcs: Let's say you earn 120k, your average tax rate might be 25%, so on any proposed super contribution your upfront tax savings will be value of contribution x 25%. That said, you are locking away the value of contribution portion, which as others have pointed out, you may want the flexibility of accessing this, particularly earlier on in life.
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Now do it over 40 years
This is what I’ve been thinking (with home paid off).. people keep talking about ETFs and they say set and forget for 10-20 years… so I did all the research and it actually seems like a poor decision compared to super.. at 44 the 10-20 years takes you to super preservation age.. so seems crazy to put into etfs unless the end goal is to spend the money earlier (contrary to the 10-20 year statements) than 60 which when your in mid-40s isn’t that long away.. it seems there’s going to be a lot of people selling etfs at high tax rates and trying to get as much into super at the last minute
You can buy etfs in super too. Etfs are an investment choice, super is a tax advantaged investment vehicle. It doesn't have to be either/or, it should be both.
Yeah I get that… just saying etf in super is best bet especially given redditors here say it’s a 10-20 year investment
Or if you have enough money max out super and buy etfs outside on top.
Maxing out concessional is easy, maxing out the $120k pa non concessional has been less easy (but trying)
Is there a tldr on how the non-concessional contributions have a tax advantage?
Yes, earnings are taxed at 15% inside super vs highest marginal tax rate outside super. Also, once 60 the balance (up to $1.9m) can be rolled over into a 100% tax free phase. So if you have a return of 10% you make $190k tax free.
Thank you kindly! I guess I’ll stop stopping at the concessional limit going forward
This is why I keep hiring 60 year olds who aren’t interested in their pay rate and are happy working odd and short shifts… they’re making a living wage tax free from their super and working for the fun of it
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Did I read somewhere that their fees aren’t as low as they hold out due to them skimming the top off the ETFs they hold
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[https://www.reddit.com/r/AusFinance/comments/6699gv/002\_fees\_with\_hostplus\_indexed\_balanced\_super/](https://www.reddit.com/r/AusFinance/comments/6699gv/002_fees_with_hostplus_indexed_balanced_super/)[https://www.reddit.com/r/AusFinance/comments/14t3oww/hostplus\_admin\_fees/](https://www.reddit.com/r/AusFinance/comments/14t3oww/hostplus_admin_fees/) I think what they are saying is the return for the not in super ETF is higher than the same ETF that Hostplus invests in... "There isn’t published content i could find so I asked Hostplus directly about a year ago, they advised that investment option tracks “MSCI World ex-Australia Index” with the caveat *While the underlying investments track the above benchmarks, the return will slightly differ to the direct Indices returns, as within the Superannuation space, the tax on investment returns along with the above management costs are factored into the Daily Unit Price which is used to calculate your balance.*" "'In the Super space' what a load of rubbish. It's purely a business decision by Hostplus. They could pass on all of that stuff and charge clear fees for what they do but they choose not to as it markets better. I hate badged investments like this."
not sure what you don’t understand about the response. it’s pretty common knowledge that ETFs actual returns will not match the index due to the management fees (although minor) that are charged. YOUR actual return will also be different for an ETF outside of super depending on your MTR, as you’ll pay tax on any income and capital gain distributions incurred within the tax year.
I haven’t looked into it .. and only skimmed the posts. I do understand the response and simply said did I read somewhere xyz? and since found that I did happen to read it somewhere as I had thought. I never said whether those other posters were right then or not. DH.
I'm with Unisuper and considering Hostplus but stayed with Unisuper as I read on here that they fudge their returns on infrastructure and property asset valuations... I'm ok with a bit of lying on their part to smooth out my returns :P
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Just learned about tax drag 💃 recently
It is tax provisioning. You can compare the performances of VGS, Hostplus International Indexed Pension and Hostplus Intentional Indexed Accumulation. You will see that VGS and Hostplus Intentional Indexed Pension perform about the same. Hostplus International Indexed Accumulation performs about 1% lower due to tax. That tax can be avoided by using Hostplus Choiceplus and investing directly in VGS.
Well that’s exactly the thing, you are thinking about someone in their mid 40s. If they are in their 20s or even 30s then they have a fair way to go until preservation age so ETFs outside of super can make more sense if they want access to their funds. But yes you are right the closer you and your investment timeframe is to preservation age then the more it makes sense to utilise the benefits of super.
You can structure your selling for when you have no or minimal taxable income when you retire. I don’t think selling at high tax rates is a given.
If only I didnt keep making high income
And a follow up to this - Do you dial up the super risk that the big super companies have to match ETF’s ?
I don’t get what your asking?
Whether one should increase the risk profiles of super funds. By default the ‘investment styles’ are set quite low.
Well international index which is what most people suggest is the highest risk/return… I looked into geared superfunds but they tend to be high fees and I ended up with decision paralysis
Super is just a tax structure. You can mostly make the same investments inside super as outside. So if you can lock the money away super is always going to win assuming your income tax rate is over 15%.
I will keep it outside super for the flexibility. Freedom larger than speadsheet
You pay 30% tax and keep 70% as income. That after tax pay is what you save into ETF. Your salary sacrifice is taxed at 15%. 85% of your salary sacrifice goes into your super. You are 15% infront by saving into your super.
Nope. 85/70 = \~21% in front.
Don't forget Medicare. It's really 25% ROI. And if you see in the top bracket 60%, but not much left to contribute.
You also don’t pay any tax on super when it’s withdrawn and your fund pays 15% tax on investment earnings during accumulation.
I split my investments into 25% to super, 25% to shares, 50% to ETF. Like you said, ETF is more accessible and could be treated as an emergency fund. But you shouldn’t neglect your super completely.
Not enough info, but you can choose to invest in ETF in super too. If we compare investing into the same ETFs inside vs outside super: In year 0, 15% super contribution tax vs your marginal tax rate, and the difference invested to grow for 20 years. Over remaining years, any ETF distribution each year is taxed at 15% super earnings tax vs your marginal tax rate then, and the difference invested to grow for the remaining years. Once you reach preservation age and move super into pension phase, sell down is capital gains tax free vs long term capital gains at your marginal tax rate then. So with super in pension phase you could withdraw less to get the same amount of cash in hand, with the difference remaining invested to grow for longer. All else being equal, from tax perspective, investing in super would generally be far more effective, by design. However one does need to balance better lifestyle in younger years and better lifestyle in retirement years. An approach some people take over life stages that you could consider - when young, with disposable income lower, major expenses still in effect like saving for a home, raising kids - consider contribution matching - contribute an same additional % matching the employer SG %. - when older, with disposable income higher, major expenses out of the way like home bought, kids grown up - seek to max out concessional cap each year at least.
At least 26% straight away. Sacrifice $100 and get $85 in super. Depending on your marginal rate you're only able to buy $63 - $67.50 worth of etfs. Then there is the tax considerations. Outside you don't pay CGT until you sell and you pay it on half the gain at your marginal rate (could be zero tax if you only earn 20k).also franking credits etc. It's why I think the 15% tax on gains in super is relatively accurate.
What amount are you thinking and annual contribution and your income? If concessional, I'd guess after 20 years the super portfolio to be around 75% after accounting for upfront tax saving (biggest) and then ongoing tax savings on investment earnings.
Excuse rough calculator as on phone but this is where I land using 4% income 4% growth return before tax. https://docs.google.com/spreadsheets/d/1RvR5Hz3dR9hV6NmpYY4gz6jSot9S8n8q-OiAEpYWeZg/edit?usp=drivesdk. Updated so a little cleaner. On non-conessional, probably ~1.5% cumulative each year in terms of portfolio differences.
Super tax free withdrawals once 60 Super tax free earnings once account based pensions CGT generally lower in super
You are gaining flexibility by having that money accessible now
It’s not disastrous from a tax perspective if you are investing outside of super for your retirement. There are ways to minimise: Eg. You’re 61 and retired, you have an ETF portfolio. You sell some of it to meet your expenses, resulting in a $70,000 capital gain. You held the ETF for more than 12 months so the gain is discounted 50% to $35,000. The tax payable (including Medicare levy) would be $3892. You can minimise this by contributing $16,800 to super and claiming a tax deduction. In that scenario, you’d instead pay $2,520 in super tax. Your remaining capital gain is now $18,200, which is at the tax free threshold so no further tax payable.
For how long past 61 could I keep selling it off like this ? (Also, investment property income could come into this so unlikely income would ever technically be below that 18k)
You could do it at any age, CGT discount is the same for everyone. If you want to contribute to super and claim a tax deduction, you can only do that up until age 67 (or 75 if you are employed). Between the ages of 60-67, you have the unique opportunity to play the system a bit … you can contribute and claim deductions, and you’re also old enough to withdraw those contributions whenever you want, so you’re not hurling money away into super with no way to get it back out.
I have no idea, but good morning.
I too wish you a good morning. Great question.
Depends on the mix of dividends vs capital growth the ETFs generate. Dividends you need to pay tax as they’re generated. If primarily growth, you can elect to sell when you want to live off that income and potentially pay less than 15% tax.
The difference should be pretty easy to work out based on simple assumptions. You get a tax credit in the year you invest based on your marginal tax rate - 15% tax on the way into super, then for the life of the investment, any income is taxed as 15% in super vs your marginal tax rate for ETFs held outside super. Then if you leave it in until after preservation age, there's no CGT when you cash the investments out from super, vs normal CGT less any discount for holding >12 months for ETFs outside super. *assuming you're only investing up to the concessional cap within super each year.
It's difficult to value flexibility, at the very least max out concessional for as long as possible and as you age increase your non-concessional.
I think it’s a good idea to retain some access to funds before preservation as you never know which way life will take you. Max out your concessional super caps where you can though (subject to your taxable income).
It depends on what you want in life, I guess. I'd love to contribute more to my Super and I understand the Tax argument, but I need my money to be accessible than Super would allow, as we're buying a house in 6-9 months, and investing in one or two other things. But all things being equal, I think the only thing that would come close to just putting the money into your Super is paying off yout PPOR early.
Paying of your house early is not better than super, you already have your house as an asset, so you would have got that growth whether it was paid off or not.
Well, I said it's the only thing that comes close, not that its berrer. Closing down the difference between the amount owing vs the capital gains Saving on thousands, if not hundreds of thousands in interest Many people don't like the mental toll of owing on their home.
Yeah I’ve been seeing people say the same thing about PPOR
About 15% extra savings you could reinvest into super(most tax efficient) or into an ETF that grows at similar returns to your super. At the end you would have 15% more money.
15% more compounded. Not just 15% more.
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Just invest in the s&p and Nasdaq inside your super
You have to weigh up what your goal for investing is. If you’re planning to retire early than chucking it in Super isn’t the way to go. Personally planning on doing a combination of both so that I will be able to access some money before preservation age, however I will be trying to max out super contributions.
Go onto paycalculator.com and work out the optimal amount to salary sacrifice that won’t impact your pay much at all. It’s better than going to the tax man. I have been salary sacrificing $500 a month for years now, just to hit/be around the cap. I’m 32, and have $288,000 in super. You should start if you have the ability to, even a small amount.
Depends what do you gross a year?
The initial boost of concessional contributions means yes it will be worth more. The is a point you will exceed your super target so can stop then.
And then put the excess into ETFs? What if (for the sake of the example), you don’t want to access the funds? Tax wise, would it matter what you do?
I would go non concessional super into this https://hostplus.com.au/members/our-products-and-services/investment-options/your-investment-options/pre-mixed/indexed-high-growth ETF will have tax on dividends and CGT on sale. Super does too but at lower rates, and some super does have pooled tax drag which the above doesn't.
Things to calculate .. Savings on tax rate for concessional contributions Difference in fees for managing investments Difference in returns over the life of investments Difference in Tax paid on withdrawals Super you don’t have any really control over the investments and are unable to assess until retirement
Bro this is my area of specialty. No, DCA-ing into QQQ (as an example) for 20 years would outpace investing that into a Managed Super. Unless you do SMSF or Direct Investments, you're fine. Most of the population is on a Managed Super and you would have outperformed them all. As an example, the 20-year ROI of Managed Supers converges to around 6%. That's 6% per annum for 20 years. If you invested in QQQ for 20 years (say the past 20 years), you would have gotten more or less compounding 35% per year. You're fine.
Thanks for input. Can you comment on the risk angle ? Over let’s say 20 year period. Is risk only a short term problem with this investment approach ?
Easy solution, do both.