Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The below questions and answers are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

 

Question


Hey mate,

Loving the Q & A episodes 🙂

A boomer said to me the other day that if you salary sacrifice 2-3% you won’t notice a difference in your take-home. This is a load of crap right?

Any chance of covering why it’s not worth salary sacrificing into super?

Cheers 🙂

Shea

Firebug’s Answer


Hi Shea,

This really depends on how much you make and what you consider to be a noticeable difference. The beauty of salary sacrificing into Super is that you’re using pretax dollars.

If you earn $80,000 a year, your take-home pay after taxes would be around $61,383.

You might think 3% of $80k ($2,400) into Super would mean a take-home pay cut of 3%…But it doesn’t work exactly like that because Super SS is using pretax dollars.

What actually happens is your taxable income of $80,000 is reduced by 3% which brings it down to $77,600. Your taxes are then calculated using that number ($77,600) and taken by the tax man.

If you earn $80,000 a year, your take-home pay after taxes would be around $59,811.

So essentially you have contributed $3K (less 15% tax) into your Super and lost $1,572 of post-tax income.

That’s a pretty good deal if you ask me.

So why don’t I do it? Because it won’t help me retire early! As I get closer to my preservation age, you better believe I’ll be maxing out my Super contributions each year. But I plan to live off a portfolio outside of Super decades before my preservation age. Which is a real shame because there’s no better tax vehicle then your Super for Australians.

-AFB

 

Question


Hi FB,

I’ve been reading a lot of your stuff lately, and as a result have switched over from a manger fund and invested in A200 + VGS. You speak about switching on DRP, I’m just wondering how you do that…is it automatically selected when you buy through the broker or will these funds contact you and ask for your preference.

Cheers, and keep up the good work.
Brad

Firebug’s Answer


Hi Brad,

I can’t remember 100% but I’m pretty sure DRP is not enabled by default. You need to log into the registrar for your fund which might be different depending on what you’re invested in.

Check out the below video from my YouTube channel that shows you exactly to change DRP settings for my VAS ETF.

Hope that helps 🙂

-AFB

 

Question


Hi,

What are your thoughts on choosing a superfund? Is it best to do the same as an ETF and simply go with the one with the lowest fees or are there other factors to consider? I’m looking at switching to either Hostplus or AustralianSuper, leaning towards the latter.

– Charles

Firebug’s Answer


Hi Charles,

Super is not really on my radar right now because it’s not going to help me reach my goal of early retirement.

There’s no best answer here but I consider management fees to be an extremely important factor when deciding what I invest in. EFTs and LICs have a very easy way to figure out management fees through the listed MER. Super, on the other hand, is a bit more convoluted because there are more factors at play that will affect the overall fee of a fund.

Things like:

  • The investment option you choose
  • What insurance cover you need/have within your Super
  • Have you joined your Superfund through your employer or indirectly
  • Advice fees
  • Are you taking a pension from your fund

All play a part in determining the true overall costs of a Superfund. So what’s right for person A might not be right for person B.

Hostplus and AustralianSuper have very competitive fees and are constantly listed as one of the better Super funds.

Sorry if this wasn’t as helpful as you might have wanted. Super is not really my strong point.

Always do your own research!

-AFB

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