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
What LIC’s are you recommending at the moment?
I don’t recommend anything. I’m buying Milton and AFI moving forward for the reasons outlined in this post
AFB — dividend payments are set by default, not the DRP. You have to elect for this if the company offers them, not all do. Even then, I’d be hesitant in advising DRP for those with small portfolios. If there isn’t enough in the dividend to buy another share, it will just sit there in an account until there’s enough to buy a new one.
Roger
I personally think it is important to focus on investment both inside & outside of Super. Given that we are living much longer, the money available in Super will be so valuable. Super can be an easy investment (assuming no SMSF) & the returns in the last few years have been very good. Most importantly, it is also very tax effective. I have never missed any additional money (both concessional & non-concessional) that myself & my husband have contributed to Super.
There is so much information online regarding Super fund ratings.
Hi Firebug, great podcast again, very super heavy but that’s a good thing in someways! Hoping you can get a super expert on at some point!
Had a question which I thought I’d pose to you. Given Labor’s policy of chopping CGT to 25% instead of 50% (as it currently is), if they win the next election will this affect your investing style (eg. A200 instead of MLT or AFI)?
I have a growth portfolio but am looking to include more dividend based shares. My is that given there will be a grandfathering provision would there be some value in putting that dividend based investing off (and maybe even prioritising international exposure balance) until after the election in case Labor win and then rebalancing afterwards to take advantage of a potential CGT benefit?
Potentially.
I’m more concerned about them axing the franking credits refund. That would have BIG implications with my strategy.
.
Hi Mr Firebug, I am so glad that i have found this website. I am quite new in investing. Just few things hoping you could add some lights. Planning to Debt recycle and recently split the comm bank PPOR loan into 3 x$10000 account with 3 offset account linked to each account. Each offset account have $10000 and rest of the home loan $470000 on a fixed loan for 2 years term. Intention was to invest $10000 every 6 months. Opened a commsec chess sponsored account under wife’s name as she is currently earning very little. However after reading all the materials in your website i am thinking to open a Self Wealth account. Questions are-
1. For Debt recycling to work i think i would have to pay off one split Loan account from offset account then redraw to Commsec account. Now would i be able to redraw directly to Self wealth account? If not then redraw back to offset account and then transfer the money to Self wealth? Would that be a right way?
2. I like to follow the $5000 purchase pattern, therefore 2 x transaction in 6 months. So if i were to buy the first lot should i looking at A200. Or international such as IVV or VTS?
3. As an ongoing savings plan- Should i just save and invest every 3 months or contribute in Super as personal contribution(from net income A/Tax) and get more on tax return and then invest? i know the latter will push me a year but i will get super growing faster and better tax return as i am on 37% rate.
Many thanks in advance
Rubel
I think some of the numbers in your first answer are wrong.
“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.”
Think this should be $77,600 a year not $80,000, and you would have contributed $2,040 after the 15% tax not $3k.
Hi Aussie, love the article. I have a beginner question in relation to buying LICs at a discount. Are you using the before or after tax NTA to work out if trading at a discount. Can you explain why? Thanks
Hi Amanda,
I just use whatever is listed on the websites. I think it’s pre-tax.
Hi Aussie,
I’m am curious about the decision of buying a200 vs VAS. While it is true that a200 is cheaper in terms of management fees, the last dividend payment for each ETF was pretty much the same 112.7c per share. Also, the cost of a200 is 92$ per share and VAS is 70$ per share.
If the strategy is dividend driven, wouldn’t it make more sense to buy VAS? It is cheaper by more than 20$ per share, and yields the same in dividends?
Thanks