"If you have a mortgage at age 60, you can retire and take your super and repay the mortgage with it. It’s an asset swap that doesn’t change your net balance sheet position."
Why is this only allowed at 60? Why not earlier? Most analyses focus on younger people and assume they have very little in their Super accounts. But what if you are in your early 40s and due to some good decision making now have more than enough, for a home and for retirement, and it is locked away?
There are many scenarios where accessing super is good. For example, after divorce and remarriage and trying to buy a home again in your 40s. These age groups do have super, but then some people (I know a few) get stuck renting for a decade because they can't access super for the security today.
So true! Even reading ATO guidance on early release of super is filled with negative language - extreme penalties apply, do it only for extreme hardship, don't you dare even think about it or else etc.
The logic of being able to buy an investment property through an SMSF, but not invest that money into your primary residence - that one really confuses me! Seems like a lot of outdated thinking. Any reform on the radar for this Government or shall we kick the can down the road?
Super is always a better investment than paying out your housing loan. Assuming housing loan interest is 5.2%. and super return is 7% (after tax).
$1 earned after tax is 67.25cts in housing loan @ 5.2% =3.5%
$1 salary sacrifice after tax is 85cts @ 7%= 6.0%. Almost twice as good
First Home Super Saver Scheme is a very good scheme and if you want to create a $50,000 deposit over a 4 year period it will save you $20,000.
If you are close to retirement and still have a home loan, pump as much into super as you can.
Investments are always enhanced and diversified by tax deductible investment loans. Home loans are bad loans. See my strategies at www.hat.house under " Sessions"
Thanks for the comment. I completely get your calculations, but would add a few extra details:
1. The sequence of buying assets over a lifetime (buy a house first then get other tax advantages in super). A home earlier provides long term advantages by removing the renting liability.
2. The advantages of getting the age pension from investing in your own home instead of super. Whether this is important at the margin depends on the age and income of a household.
3. The free capital gains on your own home (which are a big part of the total return to housing).
"If you are close to retirement and still have a home loan, pump as much into super as you can."
Of course, the tax incentives all point this way! I don't think this is a great way to use the tax system, however. This also points to my argument that superannuation doesn't smooth lifetime incomes. https://www.fresheconomicthinking.com/p/another-superannuation-lie
"If you have a mortgage at age 60, you can retire and take your super and repay the mortgage with it. It’s an asset swap that doesn’t change your net balance sheet position."
Why is this only allowed at 60? Why not earlier? Most analyses focus on younger people and assume they have very little in their Super accounts. But what if you are in your early 40s and due to some good decision making now have more than enough, for a home and for retirement, and it is locked away?
Great point.
There are many scenarios where accessing super is good. For example, after divorce and remarriage and trying to buy a home again in your 40s. These age groups do have super, but then some people (I know a few) get stuck renting for a decade because they can't access super for the security today.
So true! Even reading ATO guidance on early release of super is filled with negative language - extreme penalties apply, do it only for extreme hardship, don't you dare even think about it or else etc.
The logic of being able to buy an investment property through an SMSF, but not invest that money into your primary residence - that one really confuses me! Seems like a lot of outdated thinking. Any reform on the radar for this Government or shall we kick the can down the road?
Excellent piece Cameron!
Getting closer.
Best regards,
Simon Jones
Super is always a better investment than paying out your housing loan. Assuming housing loan interest is 5.2%. and super return is 7% (after tax).
$1 earned after tax is 67.25cts in housing loan @ 5.2% =3.5%
$1 salary sacrifice after tax is 85cts @ 7%= 6.0%. Almost twice as good
First Home Super Saver Scheme is a very good scheme and if you want to create a $50,000 deposit over a 4 year period it will save you $20,000.
If you are close to retirement and still have a home loan, pump as much into super as you can.
Investments are always enhanced and diversified by tax deductible investment loans. Home loans are bad loans. See my strategies at www.hat.house under " Sessions"
Hi Peter,
Thanks for the comment. I completely get your calculations, but would add a few extra details:
1. The sequence of buying assets over a lifetime (buy a house first then get other tax advantages in super). A home earlier provides long term advantages by removing the renting liability.
2. The advantages of getting the age pension from investing in your own home instead of super. Whether this is important at the margin depends on the age and income of a household.
3. The free capital gains on your own home (which are a big part of the total return to housing).
"If you are close to retirement and still have a home loan, pump as much into super as you can."
Of course, the tax incentives all point this way! I don't think this is a great way to use the tax system, however. This also points to my argument that superannuation doesn't smooth lifetime incomes. https://www.fresheconomicthinking.com/p/another-superannuation-lie