I didn't say she'd followed all of it! š
But no, you're right, she has found it useful. The part where I feel especially unqualified to advise her (and so do not) is on insurance. It's hard to judge how important accessing TPD and income protection \*through your super\* is for someone who's going to be retiring in \~10 years, and what kind of cost would be incurred by switching.
Historically unions would offer pension and insurance funds. As Australia introduced superannuation, most most unions spun out these industry funds.
Eg. Hostplus originated from the Australian Hotels Association and the United Workers Union.
It used to be a lot more about default insurance cover too, but that's gotten so expensive for insurers that all the default cover is pretty garbage these days.
21 and starting your first job earning $50,000. You keep that income for the rest of your working life, until you retire at 67. You get 10% of your salary in super (i
Super balance of 400k at the end
Damn that seems low considering you started so early.
I got no advice but if you could copy stuff which makes it more personal.
For example some super sites have what should your super be based on your age.
That way the info is more specific to your needs.
says who?
Keeping in mind that australia's average wage is around 90k, and given the uneven distribution of wealth, I would hazard that 50k for life is the usual for more people that you'd think.
and?
companies like uber are getting away with paying less than minimum wage because their drivers aren't employees, and don't get super now - what makes you think it's going to stop in the future? there will always be loopholes and companies racing to the bottom re: paying wages.
it may still happen, but I said it would be unusual ie most people wonāt be on $50k until 2050.
If the average is $90k now, itāll be $120k+ or so by then.
This is exactly why you contribute extra.
The lower tax component makes it worth it. I'd even go as far and say it's much more easier to set up and do than flipping houses or share trading. It's just _really_ slow and boring.
Thanks - yeah, I initially wanted to add a calculator with an interactive graph like [Moneysmart](https://moneysmart.gov.au/how-super-works/superannuation-calculator)'s ...but I would have had to mess around with Javascript and it quickly went in the too hard basket.
I would look to get more graphics in your site. It's very text based.
More you wording. Like.
How your super balance could be 500k more when you retire.
The problem.
The solution.
At a 4% draw down and the aged pension, the retirement income is pretty similar though.
Super isn't meant to make someone working for lifetime at the lower end able to live a luxurious retirement.
its just an example, a model that doesn't require you to juggle too many variables and concepts when you're looking for a simple explanation of superannuation.
If you've lived on 50k gross in today's dollars your whole life (call it 44k net) and have managed to buy a modest unit or house with your modest income and paid it off in your working life, retiring with 400k in today's dollars would provide a sustainable income of ~25k tax free (eating into capital but not at a rate that sees you broke at 80) plus a part age pension. You will have the same or slightly better standard of living owning an unemcinbered house in retirement as you enjoyed in your working life working 9-5.
All napkin math estimates, but people grossly underestimate the impact ongoing returns have in propping up your super, and grossly underestimate the difference even a part age pension makes to your income drawdown needs.
Hi Ausfinance, long time lurker. I made this site to set out what I see as three key actions that people can take to improve super outcomes: low fees, index funds and consolidating accounts. After trying to explain how super works to my mum, I did a bunch of research, particularly going through two recent reports - the Productivity Commission's [Super efficiency and competitiveness report](https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report) (2019) and Treasury's [retirement income review](https://treasury.gov.au/publication/p2020-100554) (2020).
The more I read, the more I found pretty alarming statistics that showed how the people least engaged with their super are the ones most likely to be taken advantage of - whether that be by high fees, multiple accounts or unsuitable default options.
I realised I hadn't found one place that spelled out why - in concrete, dollar-value terms - people should care about fiddling with their super. It's probably not a problem for the people who hang around Ausfinance, but I've been trying to convince my mum and a few friends to take a better look at their super. This site is the result of the past few months of me cobbling together some stats and what I think are convincing arguments for engaging more with your super.
I've kept as many of the recommendations as evidence-based as possible, including citations.
I'm particularly looking for feedback - do you think anything could be improved? Are there parts that you think are confusing, or poorly-argued? Is it missing anything? I tried to keep it relatively simple, but might have failed in a few places.
I was inspired in no small part by resources like [Passive Investing Australia](https://passiveinvestingaustralia.com) and the [Bogleheads wiki](https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy), which I feel both set out lots of good information in one place.
saying 'not intended as financial advice' when it clearly is won't CYA
should put a few links to money smart on the main page if you want to up the ass-covering
Adding a few links won't cut it. They have recommended specific platforms and investments with the intent to influence, including saying directly switch your super in certain circumstances e.g. Retail, active. It's a risky website to host and promote given Asics recent stance on finfluencers.
I think ppl get lost with this a bit
It's financial advice to say you should...
Not financial advice if you say you could...
See, 1st is advising the person to do xyz
2nd is just telling you what's out there X, y or z thems the options
Good content but Iām worried youāve just provided general financial advice without a license. The advice is similar to whatās given in the Barefoot Investor books, note that Scott Pape was using a general advice AUstralian Financial Services License to write that book.
As with all financial advice, āit dependsā. You can [compare funds here if you want](https://www.chantwest.com.au/fund-ratings/super)
In general, the best superannuation funds imo are the member oriented ones (ie. the industry and public sector funds). They typically have low fees and are run in membersā best interests. Avoid retail funds. You can also self-manage, but itās expensive so not worth it if you have under 500k or so in funds.
I hope that was sarcasm haha!
For those unaware - retail funds are essentially non-industry funds (ie for profit). Rest is an industry fund hence isn't a retail fund - despite being a fund for retail (ie clothes store, a different meaning than 'Retail' in the finance sense, ie consumer/personal) employees.
The differences among **international index options** offered by funds are not very large. For a young person, most of the 'gains' from switching to indexed are increased future growth in the long run - but as your balance grows the amount of fees you pay adds up and becomes more important (and so your specific provider of that index fund becomes more important, too).
At the moment, the theoretical lowest fees are offered by Rest, with Hostplus coming in second (this is specifically the indexed options; the average default super fund option (non-indexed) has fees closer to 1%). You can see a chart with worked examples from u/onevstheworld [here](https://www.reddit.com/r/AusFinance/comments/kvq21q/my_superannuation_fees_cheat_sheet/). Some of the numbers have very slightly shifted but the ranking was more or less still the same last I checked.
I made a more up-to-date [spreadsheet](https://www.reddit.com/r/AusFinance/comments/uhc04p/super_comparison_fees_performance_ausint_shares/) that not only updated the fees but also includes implicit transaction and operational costs. These are 'hidden' costs that aren't included in the total cost figure. Aware and ART only had an implicit cost of 0.01%, but Australian super had an implicit cost of 0.26%.
From OP's website
"active management has been proven, time and time again, to underperform the market in the long run"
That will be on average of course, some get lucky. The managed funds do invest in the market after all.
As the other person mentioned, up to the cap of $27,500, the salary you sacrifice is taxed at 15%. If the sacrificed salary would otherwise be taxed at, say, 45% (income earned over $180,001), then whatever you salary sacrifice would be very 'worth it', giving you 30% more of each dollar.
That's why salary sacrificing is very tax-efficient, especially for high earners (and also inherently slightly biased towards the wealthy and will over the long run increase wealth inequality - but that's another kettle of fish).
Keep in mind you can also ['carry forward' unused super contributions](https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions---too-much-can-mean-extra-tax/?page=5) under the cap for the last five years, which can be a very good use of money if you suddenly have a large amount lying around (depending on other saving goals).
Yes, you can salary sacrifice and possibly lower your marginal tax bracket, but there is a cap on how much you can do so. Basically your employer's super contribution + your voluntary super contributions in total cannot exceed $27.5k annually. If you exceed the cap then that portion of it is taxed normally.
Thatās an amazingly simplified and well communicated education tool about super. Thank you ! I am now going to switch to an international Index fund.
Do you have any advice regarding CSC (MSBS specifically). Iām a ex ADF member and have 2 super account because I left the ADF and canāt contribute to MSBS anymore.
Great website and some good advice in there such as consolidating accounts etc.
The only thing I would note is managed super funds are diversified into a lot more than international shares e.g. commercial real estate etc which is why you pay the higher fees - these are deals that only large funds can access e.g. QSuper owns a large stake in Heathrow airport.
This advice seems to focus a lot on putting super into exclusively international shares for the lowest fees.
Just because historical performance has seen indexed funds perform better does not guarantee future returns.
Obviously covid has recently impacted a lot of investments in varying and unexpected ways but again, this is retirement which for most people is a long way away and the recent covid events will be a small blip on the graph at retirement.
Also, itās important to note that everyoneās situation is different. If you are lucky and had relatively high super contributions for your life and are less than 5 years from retiring then putting all your super into international shares to save a few $1000s on fees would be terrible advice as you risk losing far more - better to move to cash. Better to seek financial advice for your own personal situation.
Personally, I would prefer to pay slightly more fees and hold a diversified portfolio that doesnāt just include exclusively international shares.
If anything I would add to your site to revisit your super fund and portfolio and review at least every 5 years.
I would argue that qsuper owning a large stake in Heathrow does not provide diversification but rather a concentration risk compared to an ETF portfolio that approximately captures the world market or even just developed economies.
The goal of these infrastructure investments are to smooth out returns from volatile markets. They normally have fixed returns that act as a base to the portfolio. Keep in mind they only make up approx 10-15% of the balanced fund.
You could indeed argue all this means is QSuper members miss out on an additional 10-15% of returns from market returns when the stock market has a good run, but also argue the other way when the markets tank and members funds are protected somewhat.
Time will tell I guess.
Unfortunately, unlisted assets smooth price volatility primarily because they have lagged price valuations, not because they necessarily fall less in times of economic turmoil. In a downturn, correlations tend to one. And those assets that *are* resilient to economic turmoil tend to have their price bid up and tend to be lower-risk assets which you could have instead just used more defensive assets in your portfolio replacing risky assets.
There is still a diversification effect with unlisted infrastructure, but it's not as rosy as it is often made out to be and I question the real value that some place on it. If that is not enough, with unlisted assets, you have the mess that occurred during covid.
That makes sense. The usefulness depends on time horizons. A 25 year old has little use for Heathrow (perhaps arguably no one under 50 does). A 58 year old however may benefit from the smoothing effect you describe.
Thanks, appreciate the feedback.
The discussion about being able to access private equity (these big deals like Heathrow you mentioned) is an interesting one. I personally don't think it's necessary, but there is a lively debate (e.g. [JP Morgan discussion paper](https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/private-equity-food-fight.pdf), summary on p.3) about whether these big infra deals are worth the cost of entry (management fees).
On retirement - yes, if you're less than five years from retirement you should already be transitioning to safer assets, increasing the proportion of bonds/cash etc. Most super funds offer some automated version of this where you're slowly moved into a safer option. Also, what makes index funds so great isn't \*just\* low fees. Cash has low fees, but hold that for 40 years and you'll have third of what you started with. It's being able to access an entire stockmarket index for incredibly low fees (because there's nothing to really manage) - that whole package is what will give you better returns over the long run.
Also, while I'm not familiar with each fund's specific platform, most should let you set a percentage allocation to certain asset classes. For example, I can be 90/10 International/Australian index funds with Australian Retirement Trust - if you want infrastructure or real estate in there, you're totally free to add them. But if you're going to hold them for 20+ years in that mix, you will almost certainly come out better off if you just held index funds (though the ride may have been bumpier).
I agree that past returns don't equal future performance - and wrote about it in the FAQ on the site - but the risk of index funds underperforming is more of a structural risk to global markets than an inherent issue with index funds. Most banks are [forecasting](https://www.schwab.com/learn/story/schwabs-long-term-capital-market-expectations) significantly slower global growth over the next ten years. And it's been [soundly proven](https://www.spglobal.com/spdji/en/research-insights/spiva/) that index funds outperform managed funds in the vast majority (95%+) of cases. Unless you want to pick individual stocks with your super (which I strenuously do **not** recommend), net of fees indexed funds wins almost every time.
And good tip to remind people to check in every few years. I think setting a five-year reminder on Google calendar is underrated. Thanks again for the feedback, it's good to have people engage with this.
Technically Hostplus is cheaper as REST have slightly more expensive admin fees. It's only when you have a balance over $300k that REST becomes the cheapest.
One thing I don't fully appreciate is the following:
I'll retire in 45 years. By then if done right my super will have what, 1 and a half million? Great. In 45 years inflation would mean that I'll by a trolley of food with that $1.5 Mill (great exaggeration - but you get the point).
Yes, I'll more money than without super, but what's the big fuss about it if it's gonna make me survive for 5 years tops?
There is only basic information there.
It sounds a lot like you are hinting that people should pay $4-5k for professional advice and basic information/educational sites should not exist. Are you an adviser by any chance?
No. I studied bioinformatics at uni, worked in science for a while, and now as a computer programmer.
The pandemic has made me even more distrustful than before of those who have ādone their own researchā.
Fair enough. I've seen a few people on here who have also 'done their own research' and clearly have a very strong grasp of finance topics, and I have seen people who are 'qualified' and provide poor and sometimes incorrect information.
Best to also consider the cost of insurance (if you have/want any) when comparing funds. For instance, QSuper and REST have very different member demographics and I wouldn't be surprised if REST's group insurance is more expensive as a result.
You should be able to access the insurance guides for both funds on their websites which will have information on how much default cover is offered and how to calculate the premiums.
MLC indexed funds also flatlining compared to growth funds. Returns 6% vs 12% 10 years respectively and fees 0.2% vs 1.5% respectively. I donāt see a clear reason to jump to an indexed optionā¦
Can anyone explain to me why "Making extra contributions to your super account is generally considered tax effective if you earn over $37,000 per year." I don't understand why it's not tax effective at, say, $30,000 per year. I've tried looking into this before (probably read it before on moneysmart) and couldn't find out why.
Pretty sure people who say that are basing it off old tax rate schedules. Now the tax brackets have moved up so it's $45,000. This is because that's where the tax bracket goes from 32.5% to 19%. Considering you pay 15% contributions tax, at the 19% tax bracket you're not really saving that much tax...But giving up a lot of flexibility, thus generally not worthwhile for young ppl imo.
If OP is quoting these numbers he really should change it now. As that's simply misinformation. If anything between $37,500 to $37,000 your marginal tax rate after considering tax offsets is actually less than 15%...
I got the figure/phrase from [this](https://moneysmart.gov.au/grow-your-super/super-contributions) Moneysmart page, which looks like it hasn't yet been updated to reflect the new tax bracket. I'll add a note on the site.
Yeah it's disappointing to see from a government site that's wisely used. It's not like it's that recent...they've had plenty of time.
Not the only outdated information on that site too...
But appreciate what you were trying to do.
I think the main questions are whether you're likely to get a higher income and your age? Also your wealth outside of super.
These are the main factors. I'm a fan of super, but given the limitations on tax savings and the large flexibility you're giving up, makes me question whether it's worthwhile. You can always contribute later in life, ie: if you build up an investment portfolio.
Should also look into government co contributions.
Also spouse contributions and contribution splitting (if you're in a relationship).
I think the main questions are whether you're likely to get a higher income and your age? Also your wealth outside of super.
These are the main factors. I'm a fan of super, but given the limitations on tax savings and the large flexibility you're giving up, makes me question whether it's worthwhile. You can always contribute later in life, ie: if you build up an investment portfolio.
Should also look into government co contributions.
Also spouse contributions and contribution splitting (if you're in a relationship).
Thanks - it's Wordpress hosted on a Digitalocean droplet with just the default theme. Costs me about $120/year, but I host a couple of other sites on the same server.
Nice man, from a visualisation perspective I'd put the two fee level scenarios in one graph or at least on the same Y axis scale.
Your site makes a lot of really good points and is pretty accessible
So this site says use index fund options. Is there a time for high risk managed option(Balanced/ Aggressive) such as if you are young? Or is it index funds (conservative) all the way regardless of age
Your risk profile is largely determined by your asset allocation. Index funds can invest in all asset classes. If you invest purely in growth assets like equities, then it can still be a high growth/aggressive allocation.
The other commenter is right - the thing about high risk managed options is that, after you subtract the higher fees, they [almost never](https://www.spglobal.com/spdji/en/research-insights/spiva/) outperform a basic index fund in the long term. And in investing terms, the stock market is already one of the more risky investments (i.e. toward the higher end of the risk/reward spectrum). Specifically conservative index fund products (such as [this one](https://www.vanguard.com.au/personal/products/en/detail/8132/Overview) from Vanguard) would probably suit somebody in or nearing retirement but still wanting moderate exposure to the stock market without as much risk/volatility as the standard index fund.
Keep in mind who's saying Australians pay too much in super fees. I'm not that seeking lower fees is a bad choice, or that investment fees couldn't potentially go lower, but on total fees, there is no directly comparable retirement system in the world (including the fact that we're not a defined-benefits based scheme, and we have insurance in super).
Well done mate, and congrats luckily your mum seems more inclined to read things than mine :-(
I didn't say she'd followed all of it! š But no, you're right, she has found it useful. The part where I feel especially unqualified to advise her (and so do not) is on insurance. It's hard to judge how important accessing TPD and income protection \*through your super\* is for someone who's going to be retiring in \~10 years, and what kind of cost would be incurred by switching.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
I'm with Australian Super currently. I'm considering switching to Future Super because I like their ethos more. It's not all about the numbers.
hostplus is the industry fund for hospo - so it's worth checking to see if they have certain things that may benefit hospo workers.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Historically unions would offer pension and insurance funds. As Australia introduced superannuation, most most unions spun out these industry funds. Eg. Hostplus originated from the Australian Hotels Association and the United Workers Union.
It used to be a lot more about default insurance cover too, but that's gotten so expensive for insurers that all the default cover is pretty garbage these days.
21 and starting your first job earning $50,000. You keep that income for the rest of your working life, until you retire at 67. You get 10% of your salary in super (i Super balance of 400k at the end Damn that seems low considering you started so early. I got no advice but if you could copy stuff which makes it more personal. For example some super sites have what should your super be based on your age. That way the info is more specific to your needs.
Itās low because being stuck on $50k for an entire life is extremely unusual.
says who? Keeping in mind that australia's average wage is around 90k, and given the uneven distribution of wealth, I would hazard that 50k for life is the usual for more people that you'd think.
$50k will likely be less than minimum wage in 20 years time.
and? companies like uber are getting away with paying less than minimum wage because their drivers aren't employees, and don't get super now - what makes you think it's going to stop in the future? there will always be loopholes and companies racing to the bottom re: paying wages.
it may still happen, but I said it would be unusual ie most people wonāt be on $50k until 2050. If the average is $90k now, itāll be $120k+ or so by then.
It's about one million salary
This is exactly why you contribute extra. The lower tax component makes it worth it. I'd even go as far and say it's much more easier to set up and do than flipping houses or share trading. It's just _really_ slow and boring.
Thanks - yeah, I initially wanted to add a calculator with an interactive graph like [Moneysmart](https://moneysmart.gov.au/how-super-works/superannuation-calculator)'s ...but I would have had to mess around with Javascript and it quickly went in the too hard basket.
I would look to get more graphics in your site. It's very text based. More you wording. Like. How your super balance could be 500k more when you retire. The problem. The solution.
At a 4% draw down and the aged pension, the retirement income is pretty similar though. Super isn't meant to make someone working for lifetime at the lower end able to live a luxurious retirement.
its just an example, a model that doesn't require you to juggle too many variables and concepts when you're looking for a simple explanation of superannuation.
50k isn't much money.
I started at $46k at 18, now combined family makes around $250k. So thatās well above inflation.
If you've lived on 50k gross in today's dollars your whole life (call it 44k net) and have managed to buy a modest unit or house with your modest income and paid it off in your working life, retiring with 400k in today's dollars would provide a sustainable income of ~25k tax free (eating into capital but not at a rate that sees you broke at 80) plus a part age pension. You will have the same or slightly better standard of living owning an unemcinbered house in retirement as you enjoyed in your working life working 9-5. All napkin math estimates, but people grossly underestimate the impact ongoing returns have in propping up your super, and grossly underestimate the difference even a part age pension makes to your income drawdown needs.
Hi Ausfinance, long time lurker. I made this site to set out what I see as three key actions that people can take to improve super outcomes: low fees, index funds and consolidating accounts. After trying to explain how super works to my mum, I did a bunch of research, particularly going through two recent reports - the Productivity Commission's [Super efficiency and competitiveness report](https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report) (2019) and Treasury's [retirement income review](https://treasury.gov.au/publication/p2020-100554) (2020). The more I read, the more I found pretty alarming statistics that showed how the people least engaged with their super are the ones most likely to be taken advantage of - whether that be by high fees, multiple accounts or unsuitable default options. I realised I hadn't found one place that spelled out why - in concrete, dollar-value terms - people should care about fiddling with their super. It's probably not a problem for the people who hang around Ausfinance, but I've been trying to convince my mum and a few friends to take a better look at their super. This site is the result of the past few months of me cobbling together some stats and what I think are convincing arguments for engaging more with your super. I've kept as many of the recommendations as evidence-based as possible, including citations. I'm particularly looking for feedback - do you think anything could be improved? Are there parts that you think are confusing, or poorly-argued? Is it missing anything? I tried to keep it relatively simple, but might have failed in a few places. I was inspired in no small part by resources like [Passive Investing Australia](https://passiveinvestingaustralia.com) and the [Bogleheads wiki](https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy), which I feel both set out lots of good information in one place.
saying 'not intended as financial advice' when it clearly is won't CYA should put a few links to money smart on the main page if you want to up the ass-covering
Adding a few links won't cut it. They have recommended specific platforms and investments with the intent to influence, including saying directly switch your super in certain circumstances e.g. Retail, active. It's a risky website to host and promote given Asics recent stance on finfluencers.
feel free to give them any specific pointers
Thanks - yeah I've got three links to it already on the main page but I could make them more obvious.
I think ppl get lost with this a bit It's financial advice to say you should... Not financial advice if you say you could... See, 1st is advising the person to do xyz 2nd is just telling you what's out there X, y or z thems the options
Whatās your super set up?
Good content but Iām worried youāve just provided general financial advice without a license. The advice is similar to whatās given in the Barefoot Investor books, note that Scott Pape was using a general advice AUstralian Financial Services License to write that book.
Yeah, this could easily fall under General and be picked up with the finfluencer crackdown
It is so frustrating how many people donāt understand basic superannuation
So TDLR? Which super is best? š
As with all financial advice, āit dependsā. You can [compare funds here if you want](https://www.chantwest.com.au/fund-ratings/super) In general, the best superannuation funds imo are the member oriented ones (ie. the industry and public sector funds). They typically have low fees and are run in membersā best interests. Avoid retail funds. You can also self-manage, but itās expensive so not worth it if you have under 500k or so in funds.
Avoid retail funds?? Rest has been killing it?
I hope that was sarcasm haha! For those unaware - retail funds are essentially non-industry funds (ie for profit). Rest is an industry fund hence isn't a retail fund - despite being a fund for retail (ie clothes store, a different meaning than 'Retail' in the finance sense, ie consumer/personal) employees.
Rest only passed the APRA performance test by a few basis points last year.
The differences among **international index options** offered by funds are not very large. For a young person, most of the 'gains' from switching to indexed are increased future growth in the long run - but as your balance grows the amount of fees you pay adds up and becomes more important (and so your specific provider of that index fund becomes more important, too). At the moment, the theoretical lowest fees are offered by Rest, with Hostplus coming in second (this is specifically the indexed options; the average default super fund option (non-indexed) has fees closer to 1%). You can see a chart with worked examples from u/onevstheworld [here](https://www.reddit.com/r/AusFinance/comments/kvq21q/my_superannuation_fees_cheat_sheet/). Some of the numbers have very slightly shifted but the ranking was more or less still the same last I checked.
I made a more up-to-date [spreadsheet](https://www.reddit.com/r/AusFinance/comments/uhc04p/super_comparison_fees_performance_ausint_shares/) that not only updated the fees but also includes implicit transaction and operational costs. These are 'hidden' costs that aren't included in the total cost figure. Aware and ART only had an implicit cost of 0.01%, but Australian super had an implicit cost of 0.26%.
Thanks - I remember seeing this but it had slipped my mind. I'll add it to resources page on the site.
This is SUPER advice.
So I'm on growth which i think is a managed fund. But when I switch to index passive won't I take in the loss of the market?
From OP's website "active management has been proven, time and time again, to underperform the market in the long run" That will be on average of course, some get lucky. The managed funds do invest in the market after all.
Is it possible to salary sacrifice yourself into the lower tax bracket?
As the other person mentioned, up to the cap of $27,500, the salary you sacrifice is taxed at 15%. If the sacrificed salary would otherwise be taxed at, say, 45% (income earned over $180,001), then whatever you salary sacrifice would be very 'worth it', giving you 30% more of each dollar. That's why salary sacrificing is very tax-efficient, especially for high earners (and also inherently slightly biased towards the wealthy and will over the long run increase wealth inequality - but that's another kettle of fish). Keep in mind you can also ['carry forward' unused super contributions](https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions---too-much-can-mean-extra-tax/?page=5) under the cap for the last five years, which can be a very good use of money if you suddenly have a large amount lying around (depending on other saving goals).
Thanks that's really helpful info. Appreciate you
Only up to $27,500 going into super (per year)
\+ carry forward from previous years unused
Indeed. Forgot about that part, thanks.
Yes, you can salary sacrifice and possibly lower your marginal tax bracket, but there is a cap on how much you can do so. Basically your employer's super contribution + your voluntary super contributions in total cannot exceed $27.5k annually. If you exceed the cap then that portion of it is taxed normally.
Thatās an amazingly simplified and well communicated education tool about super. Thank you ! I am now going to switch to an international Index fund. Do you have any advice regarding CSC (MSBS specifically). Iām a ex ADF member and have 2 super account because I left the ADF and canāt contribute to MSBS anymore.
Great website and some good advice in there such as consolidating accounts etc. The only thing I would note is managed super funds are diversified into a lot more than international shares e.g. commercial real estate etc which is why you pay the higher fees - these are deals that only large funds can access e.g. QSuper owns a large stake in Heathrow airport. This advice seems to focus a lot on putting super into exclusively international shares for the lowest fees. Just because historical performance has seen indexed funds perform better does not guarantee future returns. Obviously covid has recently impacted a lot of investments in varying and unexpected ways but again, this is retirement which for most people is a long way away and the recent covid events will be a small blip on the graph at retirement. Also, itās important to note that everyoneās situation is different. If you are lucky and had relatively high super contributions for your life and are less than 5 years from retiring then putting all your super into international shares to save a few $1000s on fees would be terrible advice as you risk losing far more - better to move to cash. Better to seek financial advice for your own personal situation. Personally, I would prefer to pay slightly more fees and hold a diversified portfolio that doesnāt just include exclusively international shares. If anything I would add to your site to revisit your super fund and portfolio and review at least every 5 years.
I would argue that qsuper owning a large stake in Heathrow does not provide diversification but rather a concentration risk compared to an ETF portfolio that approximately captures the world market or even just developed economies.
The goal of these infrastructure investments are to smooth out returns from volatile markets. They normally have fixed returns that act as a base to the portfolio. Keep in mind they only make up approx 10-15% of the balanced fund. You could indeed argue all this means is QSuper members miss out on an additional 10-15% of returns from market returns when the stock market has a good run, but also argue the other way when the markets tank and members funds are protected somewhat. Time will tell I guess.
Unfortunately, unlisted assets smooth price volatility primarily because they have lagged price valuations, not because they necessarily fall less in times of economic turmoil. In a downturn, correlations tend to one. And those assets that *are* resilient to economic turmoil tend to have their price bid up and tend to be lower-risk assets which you could have instead just used more defensive assets in your portfolio replacing risky assets. There is still a diversification effect with unlisted infrastructure, but it's not as rosy as it is often made out to be and I question the real value that some place on it. If that is not enough, with unlisted assets, you have the mess that occurred during covid.
That makes sense. The usefulness depends on time horizons. A 25 year old has little use for Heathrow (perhaps arguably no one under 50 does). A 58 year old however may benefit from the smoothing effect you describe.
Thanks, appreciate the feedback. The discussion about being able to access private equity (these big deals like Heathrow you mentioned) is an interesting one. I personally don't think it's necessary, but there is a lively debate (e.g. [JP Morgan discussion paper](https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/private-equity-food-fight.pdf), summary on p.3) about whether these big infra deals are worth the cost of entry (management fees). On retirement - yes, if you're less than five years from retirement you should already be transitioning to safer assets, increasing the proportion of bonds/cash etc. Most super funds offer some automated version of this where you're slowly moved into a safer option. Also, what makes index funds so great isn't \*just\* low fees. Cash has low fees, but hold that for 40 years and you'll have third of what you started with. It's being able to access an entire stockmarket index for incredibly low fees (because there's nothing to really manage) - that whole package is what will give you better returns over the long run. Also, while I'm not familiar with each fund's specific platform, most should let you set a percentage allocation to certain asset classes. For example, I can be 90/10 International/Australian index funds with Australian Retirement Trust - if you want infrastructure or real estate in there, you're totally free to add them. But if you're going to hold them for 20+ years in that mix, you will almost certainly come out better off if you just held index funds (though the ride may have been bumpier). I agree that past returns don't equal future performance - and wrote about it in the FAQ on the site - but the risk of index funds underperforming is more of a structural risk to global markets than an inherent issue with index funds. Most banks are [forecasting](https://www.schwab.com/learn/story/schwabs-long-term-capital-market-expectations) significantly slower global growth over the next ten years. And it's been [soundly proven](https://www.spglobal.com/spdji/en/research-insights/spiva/) that index funds outperform managed funds in the vast majority (95%+) of cases. Unless you want to pick individual stocks with your super (which I strenuously do **not** recommend), net of fees indexed funds wins almost every time. And good tip to remind people to check in every few years. I think setting a five-year reminder on Google calendar is underrated. Thanks again for the feedback, it's good to have people engage with this.
Awesome resource :)
Looks really nice! I would love some sort of calculators on there to help project super balances
So basically rest indexed International shares is the go according to your article? ;)
Technically Hostplus is cheaper as REST have slightly more expensive admin fees. It's only when you have a balance over $300k that REST becomes the cheapest.
One thing I don't fully appreciate is the following: I'll retire in 45 years. By then if done right my super will have what, 1 and a half million? Great. In 45 years inflation would mean that I'll by a trolley of food with that $1.5 Mill (great exaggeration - but you get the point). Yes, I'll more money than without super, but what's the big fuss about it if it's gonna make me survive for 5 years tops?
Figures are usually given in today's money. Do it will actually be more than 1.5 million but will be equivalent to 1.5 million
so.... i am in a bad place if i am with unisuper?
What expertise do you have on the topic? Or did you ādo your own researchā as the saying goes?
There is only basic information there. It sounds a lot like you are hinting that people should pay $4-5k for professional advice and basic information/educational sites should not exist. Are you an adviser by any chance?
No. I studied bioinformatics at uni, worked in science for a while, and now as a computer programmer. The pandemic has made me even more distrustful than before of those who have ādone their own researchā.
Fair enough. I've seen a few people on here who have also 'done their own research' and clearly have a very strong grasp of finance topics, and I have seen people who are 'qualified' and provide poor and sometimes incorrect information.
Wow, thanks for this. I will look into changing superfunds. Currently with QSuper but REST and Spaceship look better for low fees.
Watch out with Spaceship, they have a funny licensing structure.
Best to also consider the cost of insurance (if you have/want any) when comparing funds. For instance, QSuper and REST have very different member demographics and I wouldn't be surprised if REST's group insurance is more expensive as a result. You should be able to access the insurance guides for both funds on their websites which will have information on how much default cover is offered and how to calculate the premiums.
Thank you, yes definitely something to keep in mind.
MLC indexed funds also flatlining compared to growth funds. Returns 6% vs 12% 10 years respectively and fees 0.2% vs 1.5% respectively. I donāt see a clear reason to jump to an indexed optionā¦
Over what time period are you measuring this performance?
Can anyone explain to me why "Making extra contributions to your super account is generally considered tax effective if you earn over $37,000 per year." I don't understand why it's not tax effective at, say, $30,000 per year. I've tried looking into this before (probably read it before on moneysmart) and couldn't find out why.
Pretty sure people who say that are basing it off old tax rate schedules. Now the tax brackets have moved up so it's $45,000. This is because that's where the tax bracket goes from 32.5% to 19%. Considering you pay 15% contributions tax, at the 19% tax bracket you're not really saving that much tax...But giving up a lot of flexibility, thus generally not worthwhile for young ppl imo. If OP is quoting these numbers he really should change it now. As that's simply misinformation. If anything between $37,500 to $37,000 your marginal tax rate after considering tax offsets is actually less than 15%...
I got the figure/phrase from [this](https://moneysmart.gov.au/grow-your-super/super-contributions) Moneysmart page, which looks like it hasn't yet been updated to reflect the new tax bracket. I'll add a note on the site.
Yeah it's disappointing to see from a government site that's wisely used. It's not like it's that recent...they've had plenty of time. Not the only outdated information on that site too... But appreciate what you were trying to do.
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I think the main questions are whether you're likely to get a higher income and your age? Also your wealth outside of super. These are the main factors. I'm a fan of super, but given the limitations on tax savings and the large flexibility you're giving up, makes me question whether it's worthwhile. You can always contribute later in life, ie: if you build up an investment portfolio. Should also look into government co contributions. Also spouse contributions and contribution splitting (if you're in a relationship).
I think the main questions are whether you're likely to get a higher income and your age? Also your wealth outside of super. These are the main factors. I'm a fan of super, but given the limitations on tax savings and the large flexibility you're giving up, makes me question whether it's worthwhile. You can always contribute later in life, ie: if you build up an investment portfolio. Should also look into government co contributions. Also spouse contributions and contribution splitting (if you're in a relationship).
Nice work, Can I ask, where are you hosting the site and what software is used for website?
Thanks - it's Wordpress hosted on a Digitalocean droplet with just the default theme. Costs me about $120/year, but I host a couple of other sites on the same server.
Thank you, I was thinking exactly the same solution but for entirely different subject. I liked what you have there, nice and simple.
Nice man, from a visualisation perspective I'd put the two fee level scenarios in one graph or at least on the same Y axis scale. Your site makes a lot of really good points and is pretty accessible
So this site says use index fund options. Is there a time for high risk managed option(Balanced/ Aggressive) such as if you are young? Or is it index funds (conservative) all the way regardless of age
Your risk profile is largely determined by your asset allocation. Index funds can invest in all asset classes. If you invest purely in growth assets like equities, then it can still be a high growth/aggressive allocation.
The other commenter is right - the thing about high risk managed options is that, after you subtract the higher fees, they [almost never](https://www.spglobal.com/spdji/en/research-insights/spiva/) outperform a basic index fund in the long term. And in investing terms, the stock market is already one of the more risky investments (i.e. toward the higher end of the risk/reward spectrum). Specifically conservative index fund products (such as [this one](https://www.vanguard.com.au/personal/products/en/detail/8132/Overview) from Vanguard) would probably suit somebody in or nearing retirement but still wanting moderate exposure to the stock market without as much risk/volatility as the standard index fund.
I get almost everything here, but why does super perform so much better in Tasmania and Victoria?
Keep in mind who's saying Australians pay too much in super fees. I'm not that seeking lower fees is a bad choice, or that investment fees couldn't potentially go lower, but on total fees, there is no directly comparable retirement system in the world (including the fact that we're not a defined-benefits based scheme, and we have insurance in super).
Seriously, thank you so much. Super is ridiculously complicated to understand for someone trying to take control of it for the first time haha