Opinions on overcontributing to super?
Jun 15th 2011 | 11:38 am
#16
(It's not my real name)
Joined: Sep 2002
Posts: 12,469
From: Ilukapool. WA
Re: Opinions on overcontributing to super?
When inflation gets taken into account, Super is not that good at all. A person may come out with $1 million at the end of 40 years but that $1mil won't have the same buying power in 40 years as it does today. Actually, that $1mil would probaby have the same buying power as $100K today. How long would retirement last with $100k?
In 40 years time I wonder how much $1 million will buy. A mars bar will probably cost $20, lettuce $5, bread $30. (just guessing here)
In 40 years time I wonder how much $1 million will buy. A mars bar will probably cost $20, lettuce $5, bread $30. (just guessing here)
Jun 15th 2011 | 11:42 am
#17
Retired
Joined: Apr 2004
Posts: 34,646
Re: Opinions on overcontributing to super?
Hi all,
I was wondering your opinions on over-contributing to superannuation (beyond the usual 9% paid by employers).
I’ve basically got a lot of disposable income at the end of the month so I can afford to throw something extra into my super (say $250-$500 a month).
Some people say put it into a savings account while others say go ahead and put it in the super, save on the tax, invest in your future, etc.
My circumstances:
• Almost 1 year into a 457 Visa, likely to stay for the full term and then get another 457 or even PR.
• Late 20’s, single, renting.
• I have enough at the end of the month to both save and contribute extra to my super
What are your opinions? Wait till i’m older? Stick it in a savings account? Continue?
Do you over contribute?
I was wondering your opinions on over-contributing to superannuation (beyond the usual 9% paid by employers).
I’ve basically got a lot of disposable income at the end of the month so I can afford to throw something extra into my super (say $250-$500 a month).
Some people say put it into a savings account while others say go ahead and put it in the super, save on the tax, invest in your future, etc.
My circumstances:
• Almost 1 year into a 457 Visa, likely to stay for the full term and then get another 457 or even PR.
• Late 20’s, single, renting.
• I have enough at the end of the month to both save and contribute extra to my super
What are your opinions? Wait till i’m older? Stick it in a savings account? Continue?
Do you over contribute?
You should discuss all of this with a good financial planner. However, your first priority should be to clear any consumer/student debt, have a cash emergency fund, and ensure you have a good deposit for a home in due course. Pension investments are not such a good investment for those whose careers may take them across borders.
You can always invest in mutual funds/unit trusts on your own account, ie tax paid but with more flexibility. You have the employer contribution to superannuation in any case.
Jun 15th 2011 | 1:06 pm
#19
Proudly Deplorable
Joined: May 2003
Posts: 24,249
From: Alloha snack bar
Re: Opinions on overcontributing to super?
Hi all,
I was wondering your opinions on over-contributing to superannuation (beyond the usual 9% paid by employers).
I’ve basically got a lot of disposable income at the end of the month so I can afford to throw something extra into my super (say $250-$500 a month).
Some people say put it into a savings account while others say go ahead and put it in the super, save on the tax, invest in your future, etc.
My circumstances:
• Almost 1 year into a 457 Visa, likely to stay for the full term and then get another 457 or even PR.
• Late 20’s, single, renting.
• I have enough at the end of the month to both save and contribute extra to my super
What are your opinions? Wait till i’m older? Stick it in a savings account? Continue?
Do you over contribute?
I was wondering your opinions on over-contributing to superannuation (beyond the usual 9% paid by employers).
I’ve basically got a lot of disposable income at the end of the month so I can afford to throw something extra into my super (say $250-$500 a month).
Some people say put it into a savings account while others say go ahead and put it in the super, save on the tax, invest in your future, etc.
My circumstances:
• Almost 1 year into a 457 Visa, likely to stay for the full term and then get another 457 or even PR.
• Late 20’s, single, renting.
• I have enough at the end of the month to both save and contribute extra to my super
What are your opinions? Wait till i’m older? Stick it in a savings account? Continue?
Do you over contribute?
Jun 15th 2011 | 1:15 pm
#20
BE Enthusiast
Joined: Jan 2010
Posts: 440
Re: Opinions on overcontributing to super?
I agree with most of the posters so far that with your age and current visa status I would wait for a bit before stashing a lot of money into super.
When you are a bit older, like me (I stashed $50k into super this year) then I would recommend it.
However, I disagree with a few of the posters that are suggesting that home ownership is the way to go. I do own my own place (well the bank owns about a quarter of it) but if I was starting from here I don't think I'd be rushing into property. Nobody knows what will happen but it's hard to argue that housing over here is not overvalued.
I would be investing in some boring (blue chip) Australian shares, especially those with relatively stable yields. Sure, they can go down as well as up but this is money it sounds like you can afford to take a bit of a punt on.
When you are a bit older, like me (I stashed $50k into super this year) then I would recommend it.
However, I disagree with a few of the posters that are suggesting that home ownership is the way to go. I do own my own place (well the bank owns about a quarter of it) but if I was starting from here I don't think I'd be rushing into property. Nobody knows what will happen but it's hard to argue that housing over here is not overvalued.
I would be investing in some boring (blue chip) Australian shares, especially those with relatively stable yields. Sure, they can go down as well as up but this is money it sounds like you can afford to take a bit of a punt on.
Jun 17th 2011 | 2:01 pm
#21
UK migrant now in Oz
Joined: Apr 2006
Posts: 56
From: Brisbane
Re: Opinions on overcontributing to super?
Hi Tonyc88
You ask whether in your particular circumstances it is advisable to make extra contributions to your super ("salary sacrifice" contributions).
I think the most important factor which would influence your decision is whether you think you are going to stay in Australia or not. Maybe you can't decide now, but work on the most likely event.
The reason is that if you do leave Australia then since you are under a temporary 457 visa, you will be able to (and should) withdraw all the money in your super after leaving Australia and your visa has expired. However a withholding tax of 35% will be taken from it. See the ATO pamphlet "Working temporarily in Australia - Claim your superannuation after you leave". The ATO say that there will be no further tax consequences arising from the withdrawal of this money, so the 35% withholding tax is effectively the final tax result of this.
You can see therefore, that if you are expecting to leave Australia it is not sensible to make salary sacrifice contributions.
If you think the likelihood is that you will seek to become permanent resident in Australia then different considerations apply.
It sounds as though you probably have a fairly good income, so you will be paying a fair amount of tax.
You are probably aware that salary sacrificing into super is a good way to save tax, since your additional contribution is tax deductible but is taxed on receipt by the fund at 15%.
So suppose your marginal rate of tax is 30% and you salary sacrifice $4,000 per annum. Then, although you won't be able to spend any of this money now, your super fund will receive a net amount of $3,400 ($600 goes to the ATO). If you do not salary sacrifice this money, you pay the ATO $1,200 in tax on this income and you only have $2,800 to spend out of it. If your marginal rate is 37% the saving is even better.
Also it sounds as though you would plan to save your excess income anyway rather than spend it now. So you need to consider the tax saving by putting it in your super fund rather than investing it in your own name now. The income and capital gains deriving from the money within the super fund is taxed at 15% instead of at your marginal rate of tax. So in the long term this is also a tax saving.
But of course if you think you might need this money at some time in the future for example to go towards a deposit to buy a property, or to cover you in case of redundancy or a rainy day, then it might be better for you to keep it where you can get your hands on it.
And you need to be aware of the maximum contribution you are able to make per annum to your super - if you go over that you will be heavily penalised.
It is true as some people have commented, that sometimes super funds perform poorly and they may well have done in the last few years. Some people prefer to make their own investment decisions and have control over their own investments. If this is your view, you might consider starting your own self-managed super fund (SMSF). This also has the advantage that you are not paying someone else to look after your money, although there will be set-up and annual costs involved. You would nominate your SMSF to receive your employer's contributions and to receive any salary sacrifice contributions too.
You ask whether in your particular circumstances it is advisable to make extra contributions to your super ("salary sacrifice" contributions).
I think the most important factor which would influence your decision is whether you think you are going to stay in Australia or not. Maybe you can't decide now, but work on the most likely event.
The reason is that if you do leave Australia then since you are under a temporary 457 visa, you will be able to (and should) withdraw all the money in your super after leaving Australia and your visa has expired. However a withholding tax of 35% will be taken from it. See the ATO pamphlet "Working temporarily in Australia - Claim your superannuation after you leave". The ATO say that there will be no further tax consequences arising from the withdrawal of this money, so the 35% withholding tax is effectively the final tax result of this.
You can see therefore, that if you are expecting to leave Australia it is not sensible to make salary sacrifice contributions.
If you think the likelihood is that you will seek to become permanent resident in Australia then different considerations apply.
It sounds as though you probably have a fairly good income, so you will be paying a fair amount of tax.
You are probably aware that salary sacrificing into super is a good way to save tax, since your additional contribution is tax deductible but is taxed on receipt by the fund at 15%.
So suppose your marginal rate of tax is 30% and you salary sacrifice $4,000 per annum. Then, although you won't be able to spend any of this money now, your super fund will receive a net amount of $3,400 ($600 goes to the ATO). If you do not salary sacrifice this money, you pay the ATO $1,200 in tax on this income and you only have $2,800 to spend out of it. If your marginal rate is 37% the saving is even better.
Also it sounds as though you would plan to save your excess income anyway rather than spend it now. So you need to consider the tax saving by putting it in your super fund rather than investing it in your own name now. The income and capital gains deriving from the money within the super fund is taxed at 15% instead of at your marginal rate of tax. So in the long term this is also a tax saving.
But of course if you think you might need this money at some time in the future for example to go towards a deposit to buy a property, or to cover you in case of redundancy or a rainy day, then it might be better for you to keep it where you can get your hands on it.
And you need to be aware of the maximum contribution you are able to make per annum to your super - if you go over that you will be heavily penalised.
It is true as some people have commented, that sometimes super funds perform poorly and they may well have done in the last few years. Some people prefer to make their own investment decisions and have control over their own investments. If this is your view, you might consider starting your own self-managed super fund (SMSF). This also has the advantage that you are not paying someone else to look after your money, although there will be set-up and annual costs involved. You would nominate your SMSF to receive your employer's contributions and to receive any salary sacrifice contributions too.
