Ask the Expert: Super or mortgage? Making the most of savings in your 30s
It’s a dilemma many of us face – are we better off directing extra money to our mortgage or super?
Question 1
I am 33 and my wife is 32. I earn $180,000 a year and my wife has started a business so she will not receive an income for roughly two years.
We owe $250,000 on an investment property valued at $350,000. We also owe $380,000 on our house, valued at $950,000.
I have $200,000 in super and my wife has $100,000.
I have been salary sacrificing $600 a week to catch up on carry-forward contributions.
My question is, given we are 30 years from retirement, should I put that money into my mortgage instead of super?
Although pre-tax super contributions (salary sacrifice) will highly likely provide the best long-term financial results, the downside is that it’s locked away at least until age 60.
In nearly 30 years, life can brings lots of financial ups and downs, including losing your job, additional expenses if kids come along and business expenses. Locking away money for 30 years is a very high-risk strategy.
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For that reason, I would look to pay down debt at your age.
Start with the debt associated with your family home first, since it’s not tax deductible. Having no, or only a small, debt will provide you flexibility and confidence in years to come, especially if any unexpected financial obstacles come your way.
You already have solid super balances for your age. You can use the concessional “catch up” contributions up until you have a total super balance of $500,000, so you can re-visit that in a few years time.
Question 2
Can couples combine their superannuation into one account?
While some think tanks, super funds and industry associations have called for this, currently the answer is no – superannuation accounts are held on an individual basis and can’t be joined with anyone else.
Some things to consider though:
Spouse contributions
You can make contributions on behalf of your spouse. There might even be a tax incentive to do so, depending on your income.
For spouses earning less than $40,000 a year:
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- the contributing spouse may be able to claim a tax offset of up to 18 per cent on the first $3000 they contribute to their spouse’s super account;
- This could result in a maximum offset of $540 each year.
The tax offset is available for receiving spouses earning under $40,000 a year but gradually decreases for every dollar earned over $37,000.
Super splitting
Contribution splitting is when you transfer part of your concessional contributions (before-tax contributions) into your spouse’s super account.
The types of contributions you can split include:
- Super guarantee
- salary sacrifice
- employer voluntary
- personal deductible contributions
Contribution splitting is different from spouse contributions, which allow you to make an after-tax contribution to your spouse’s super account.
Cash out and re-contribution
Some couples, when they are approaching or just after retirement, look to somewhat even up their super balances. They do this by cashing out some of the super from the larger balance and then re-contributing it back to the spouse with the lower balance. There are restrictions and caps on this, though.
I suggest speaking with you fund or a financial adviser should you wish to explore these options.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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