Superannuation Discussion + market volatility

[Gredgy69]

Silly question.

I have around 8 weeks long service leave accrued and for now have used some of it (cashed out annual leave) but would like to leave that in tact. I'll have another 4 weeks long service leave in 3.5 years. I also have around 4 weeks annual leave in the bank for rainy day.

It's not a great deal of money but could be around $40,000-$50,000 gross depending on exactly when I retire.

Can I dump all that amount into super on July 7th 2029 when I retire and pay just 15% contributions tax? I'll more than likely not reach the super threshold in previous years.

JohnK, unfortunately you can't salary sacrifice your unused LSL into superannuation. We have just gone through this scenario with an employee who wished to do exactly that. For a valid salary sacrifice agreement, the agreement has to be entered into prior to the income being earned, which in respect of unused LSL would mean having it in place prior to day 1 of employment. You can however make an after tax contribution to your super fund and claim a tax deduction for it. The down side is you have to wait until you lodge your tax return to see the refund of tax. The one thing to remember if doing this is to advise your super fund that you are intending to claim a tax deduction, as you need to receive confirmation back from them that they acknowledge your intention. Now I'm not providing you with advice as I don't have a financial services licence to provide super advice, but I am an accountant/tax agent. I suggest you speak to your financial advisor/accountant who has a licence to confirm.

 

[Quickstatus]

This will depend on how the numbers turn out. It will be different for every single situation.

Except this is the pension phase.
In pension phase, the asset backing should always be conservative - ie preservation of capital should be paramount.

 

[Quickstatus]

I can instruct employer to salary sacrifice $2000-$2500/week into super for those 17 weeks and worry about tax due at later stage when I do tax return.

No you cant. That would put your total annual concessional super contribution over $30K.
The $30K (for YE 2025) includes super guarantee, salary sacrifice, and any extra consessional super contribution)

If you go on LSL + annual leave holiday then your employer will put in super guarantee payment.
Your employer should put in 11.5% super guarantee - thats good because thats another year of being able to contribute up to $30K in concessional super. especially if the year before you maxed out the $30K concessional contribution limit.

This is what i would do:

Lets say your LSL + annual leave including leave loading = $50K
And lets say your income for 1Jul (when you go on holiday) to 30Jun at end of financial year is $50K

The tax in $50K= $5788
Add 2% medicare levy = $1000
total tax = $6788
Total tax % = 6788/50000 = 13.6%

This is under the 15% tax on concessional super contributions.

This means you should put in the entire amount of $50000-$6788 = $43212 as an After tax Non Concessional contribution because your tax rate is LESS than the 15% super tax. If you send a notice to claim a tax deduction to the super fund in order to put it in as a concessional contribution, you effectively get taxed higher for the part that is concessional contribution.

Now here is the interesting bit:
When would your total tax (not marginal tax) be 15% including medicare levy such that it is equivalent to super contribution tax?
When your taxable income is around $54500.

So if your taxable income while you are on LSL leave is > $55000, put as much as possible as a concessional contribution - do this as a notice of intention to claim a tax deduction and the rest of your contributions as non concessional.
As your employer pays 11.5% x $50000 = $5750, you can put in $24250 as concessional and the rest as non concessional.

Note that the $30K limit will change in future years

The other think I would do is see the financial adviser from your super fund***. Most super funds have this service - there may be a $charge.

 

[andye]

Except this is the pension phase.
In pension phase, the asset backing should always be conservative - ie preservation of capital should be paramount.

It depends how essential your drawdown is to your needs and what you view as conservative. If you have no growth assets, your wealth will be shrunk by inflation
The key thing is having enough in safe assets so that you do not need to sell shares during a downturn.
If you can manage on less than the mandatory drawdown (noting (i) if there is a market slump the actual drawdown amount will fall after the first year (ii) the govt has previously cut the minimum drawdown percentage in similar circumstances and (iii) you might end up eligible for state pension temporarily), it should be reasonably possible to survive on dividends/selling some safe assets until the market picks up.
What you need to decide is what % of safe assets you can cope with.

(This is a little bit out of your control if you don't have an smsf but the rebalancing mechanisms within managed super go some way to achieving it)

 

[andye]

No you cant. That would put your total annual concessional super contribution over $30K.
The $30K (for YE 2025) includes super guarantee, salary sacrifice, and any extra consessional super contribution)

If you go on LSL + annual leave holiday then your employer will put in super guarantee payment.
Your employer should put in 11.5% super guarantee - thats good because thats another year of being able to contribute up to $30K in concessional super. especially if the year before you maxed out the $30K concessional contribution limit.

This is what i would do:

Lets say your LSL + annual leave including leave loading = $50K
And lets say your income for 1Jul (when you go on holiday) to 30Jun at end of financial year is $50K

The tax in $50K= $5788
Add 2% medicare levy = $1000
total tax = $6788
Total tax % = 6788/50000 = 13.6%

This is under the 15% tax on concessional super contributions.

This means you should put in the entire amount of $50000-$6788 = $43212 as an After tax Non Concessional contribution because your tax rate is LESS than the 15% super tax. If you send a notice to claim a tax deduction to the super fund in order to put it in as a concessional contribution, you effectively get taxed higher for the part that is concessional contribution.

Now here is the interesting bit:
When would your total tax (not marginal tax) be 15% including medicare levy such that it is equivalent to super contribution tax?
When your taxable income is around $54500.

So if your taxable income while you are on LSL leave is > $55000, put as much as possible as a concessional contribution - do this as a notice of intention to claim a tax deduction and the rest of your contributions as non concessional.
As your employer pays 11.5% x $50000 = $5750, you can put in $24250 as concessional and the rest as non concessional.

Note that the $30K limit will change in future years

The other think I would do is see the financial adviser from your super fund***. Most super funds have this service - there may be a $charge.

I still stand by planning ahead and salary sacrificing in the 2-3 years before. More tax-efficient to pay in when marginal is 30-37% than putting anything extra into super in a low-income year

 

[Quickstatus]

The other bit about non concessional contributions including recontribution strategies is that if the total super balance is more than the Transfer balance cap in any one year, the non concessional contribution cap will be Zero.

So unless the TSB falls below the transfer balance cap, the beneficiaries of the residual super balance will be looking at a 15% tax at estate distribution.
Gotta keep taking that $$ out and going on Ponant cruises.

I still stand by planning ahead and salary sacrificing in the 2-3 years before

The calculations above were specifically in context for that year when JohnK "has gone on leave" using up his LSL before officially retiring
Agree, planning ahead a lot earlier even better. hence the suggestion to see a financial adviser via the super fund..

More tax-efficient to pay in when marginal is 30-37%

Only if taxable income >$55k
People under this taxable income should not salary sacrifice but put extra super in as Non concessional
(someone please check if this is right)

 

[JohnK]

It's good getting different points of view.

Yes if you have unused concessional contributions cap amounts available from the previous 5 years to accommodate this and your total super balance is less than $500,000 as at 30 June 2029.

Concessional contributions cap | Australian Taxation Office

Keep track of your concessional (before-tax) contributions so you don't exceed the contributions cap.

www.ato.gov.au

This is not financial advice. Laws / limits may change in the meantime.

At the moment only compulsory going in. Maybe $15000-$16000/year. I won't have a lot but hoping it's more than $500000 before 2029.

Plan for super income of $65000-$70000/year for 15 years from around 65 years old to 80 years old which will mean $600000-$700000 super balance if returns are 7%-8%.

If I work longer then super income will be higher. I do no plan on needing much from 80 years old if I reach that far. Will keep topping up Thai retirement account for full time carers if needed.

 

[andye]

It's good getting different points of view.


At the moment only compulsory going in. Maybe $15000-$16000/year. I won't have a lot but hoping it's more than $500000 before 2029.

Plan for super income of $65000-$70000/year for 15 years from around 65 years old to 80 years old which will mean $600000-$700000 super balance if returns are 7%-8%.

If I work longer then super income will be higher. I do no plan on needing much from 80 years old if I reach that far. Will keep topping up Thai retirement account for full time carers if needed.

That's a tight plan if there is a stock crash in first few years of retirement. It would probably work but risky and you would need to be able to live on less if markets went bad

 

[JohnK]

That's a tight plan if there is a stock crash in first few years of retirement. It would probably work but risky and you would need to be able to live on less if markets went bad

We don't need much. We can easily do with less but was just toying with idea of having a higher super income.

Note I'll more than likely continue working until 70 years old where daughter finishes year 12. We don't drink, we don't smoke, we don't eat out. All we want is simple life with cheap trips to Thailand. Simple 2 star hotels, home in ChiangMai.

My current projections are using 4% interest rate. Can play it safe once retired but yeah crash will always be on the mind.

 

[Quickstatus]

We can easily do with less

You might even qualify for the part aged pension

Speak to Centrelink for the income and asset test in context of a couple.

 

[MARTINE]

You might even qualify for the part aged pension

Speak to Centrelink for the income and asset test in context of a couple.

View attachment 418155

Also worth checking how ATO/Medicare/access to Centrelink will play out if you spend time living both here and abroad. Some restrictions apply - where you are domiciled for tax purposes may impact treatment of overseas assets, access to medicare
etc

Worth getting good financial/Centrelink advice

My sibling/her children reside overseas (Australian passports). They cannot access medicare when they visit and there are various other complexities around property etc.

 

[CaptJCool]

You might even qualify for the part aged pension

Speak to Centrelink for the income and asset test in context of a couple.

View attachment 418155

Just remember

Assessable income for Centrelink purposes is (usually higher) than taxable income as lots of super income streams are tax-free and don’t get taxed but they do get counted for Centrelink purposes

Post automatically merged: Yesterday at 9:16 AM

Secondly
Anyone wondered how super balances can get so huge given the rules of what can go in as contributions?

That Bitcoin investment at 10cents
Or those mining shares that boomed … just saying

 

[Quickstatus]

they do get counted for Centrelink purposes

Correct.
The screenshot above uses "assessable income" rather than taxable income. While Super pension phase income is non taxable, the same income is assessed differently in the context of the Aged Pension

 

[Kerrodt]

Except this is the pension phase.
In pension phase, the asset backing should always be conservative - ie preservation of capital should be paramount.

Let’s agree to disagree on this.

 

[andye]

Secondly
Anyone wondered how super balances can get so huge given the rules of what can go in as contributions?

Combination of maximum concessional and non-concessional can mount up. Seem to remember there was a time when you could put $1m in as a lump sum too

On top of that compound interest. If you are reasonably agressive in investment (easier when have a large balance) not weird to get 8.5% in accumulation and 10% in pension. If you withdraw 5% from pension, you are still doubling every 9 years in accumulation and 15 years in pension.

Property in smsf can also show some big capital growth. I also understand defined benefit schemes can also have some pretty high supporting balances

 

[Quickstatus]

Anyone wondered how super balances can get so huge

Many years ago i dumped the "retail" superfund for an "industry" superfund: "All profits go to members"
Have not looked back....

Super needs to be a safe not speculative investment therefore my super is in the hands of people that look after the super of the "little people" - the cleaners, bus drivers etc because their super nest egg is much more precious given their limited incomes. I developed this insight after a chat with a previous CEO of IFM Investors. While some might say that the investment options would be more conservative, my super returns have been remarkable over the years and consistently outperforming the "retails". Other will disagree....

Admin fees as per my 2024 statement = 0.02% of invested capital.
It takes me about 1 hour of work per year to earn the annual admin fee.

 

[Quickstatus]

If you withdraw 5% from pension

Yes and minimum drawdown does not hit 7% until 80yrs and 9% until age 85yrs.
Assuming that minimum drawdown meets all expenses and reasonable returns less inflation, the capital is typically not touched until the retiree is >80yrs.
Actual investment returns are obviously unpredictable and might affect the capital value which is why a lot of "industry" funds also invest in major infrastructure and unlisted assets...

if you use Australian airports, electricity from Ausgrid, drive through WestConnex, visit Kings Cross in UK, you are likely contributing to my super. Thanks again

 

[Happy Dude]

While some might say that the investment options would be more conservative, my super returns have been remarkable over the years and consistently outperforming the "retails". Other will disagree....

It either has or hasn't ...... hasn't it?

 

[Pushka]

Let’s agree to disagree on this.

Except this is the pension phase.
In pension phase, the asset backing should always be conservative - ie preservation of capital should be paramount.

My pension phase assets are mostly in the non conservative area. Not outright risky but certainly not conservative. In an Industry fund for medical people.

 

[Quickstatus]

has

Please don't tell @JessicaTam about the grammar.

As super returns are always in the past the grammar should have be "consistently outperformed the retails".