Salary Sacrifice Into Super Or Pay Down Debt? What’s The Best Option?
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- Опубликовано: 22 июл 2024
- Learn how to easily compare the financial outcome of paying down debt against salary sacrificing into super and arrive at the net benefit of each.
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⏱ Timestamps
00:00 - Salary Sacrifice Into Super Or Pay Down Debt?
00:49 - Good Position - Building Wealth or Reducing Debt
01:35 - Comparing the Allocation of Surplus Income
01:56 - Effective Return of Paying Down Debt
03:45 - Effective Return of Salary Sacrificing
06:55 - Comparison Outcome of Salary Sacrifice vs Paying Debt
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Should I Salary Sacrifice Or Pay Down Debt?
Understanding which option is best for you can be confusing, but using a formula to closely compare each option from a financial perspective can go a large way towards helping you determine which option is more suitable for your situation.
Ultimately, there is no right or wrong answer between salary sacrificing to super or paying down debt - just different levels of risk and effective net returns. Each strategy is its own approach to building wealth and equity.
In this video, I’m going to talk through a working example of how you can calculate and compare the financial outcome of salary sacrificing to super versus paying down debt. The figures I use can be replaced by your specific figures to give you a more personalised outcome.
#SuperGuy #ChrisStrano #Superannuation #RetirementPlanning
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General advice is provided by Toro Wealth Pty Ltd trading as SuperGuy Retirement Experts as an Authorised Representative of Core Value FA Pty Ltd (AFSL 480387).
Before acting on any information, you should seek professional advice and verify our interpretation/s before relying on the content or calculators within this website or on the videos, while also considering its appropriateness in relation to your personal situation.
Ive contributed to super my whole working live but i hate debt and have always been paying off my mortgage as soon as possible
This was really helpful! Thanks.
Very useful video.
Thanks for the feedback, Gwyn. Glad you found it useful.
I do both, salary sacrifices and paid Homeloan, I just cut down on my spending 🎉
Nice!
Thank you
You're welcome, Scott. Thank you for taking the time to comment.
Very well explained ❤
Glad you liked it
I’ve been trying to do both , but salary sacrificing more, I’m hoping that over time the compounding interest on my super would provide me with a much better super amount than it would normally at retirement and the small amount of debt at time of retirement that I may perhaps be able to pay out or draw down through transition to retirement.
What about when you already maxed concessional contribution? Would it still be worth doing non concessional over mortgage?
do you also get a government extra payment into your super if you salary sacrifice?
Hi, great content. Thank you. Just a question for you.
Is it a great strategy to salary sacrifice into your SMSF and then try paying down home loan SMSF debt (currently interest rate of 7.69%). Also, there is no earning tax, as I'm essentially just paying down the debt. There are unrealised gains as the property grows which i understand isnt taxed until i sell? Wont these be the best results? Your expert thoughts?
There's no right or wrong approach, just pros and cons of each. A great strategy is one that you are comfortable with and works towards your objectives.
Hi SuperGuy - I love your work!
But wondering why your calcs don't include the tax saved on your gross wage due to the before tax salary sacrifice of $15990pa (so pay tax on the lesser amount, saving tax paid = savings on the difference between full wage and sal-sac wage). This would be addition to the interest on the sal-sac info super... wouldn't it? 🤔
Good point! I might re-do this one!
I have practiced strict salary sacrifice since 2011 (when I was 21) always earning a fairly average income I was also able to add a little more sacrifice each pay rise without hitting my yearly limits,
Recently I have stoped contributing extra, I have also stoped a small weekly after-tax BPAY I had set up into super and reduced my weekly contribution to my after-tax brokerage accounts and I have been putting extra towards my mortgage .
I think I might be overeating to the fear and rate rises, I am quite young and the investing mathematically makes far more sense put I hate my large mortgage payments.
Thanks for sharing Harley. There is no right or wrong answer. Reducing debt is generally a more risk-averse strategy and has a lot of merit, especially with higher interest rates and the fact that it effectively provides a guaranteed return.
I'm about to pay off all my debt and recently enquired about paying the Max to my super ( maximizing Salary sacrifice to Super ).
Nice!
You realise that the max is more than 27k as it is measured off the last 5 years-likely you could contribute somewhere around 100k in a year.
I decided to pull 2/3rds of my super to payout my homeloan (16 years in).
I figured the rates I was paying on the loan was and almost 50% a month interest grab from payments was taking me nowhere.
I can now use all that saved payment and contribute back to my Super to get better returns than the negatives on standard deposits.
How did you manage to withdraw super before retirement?
@@theowenssailingdiary5239 over 60
Would I be right in saying this applies up to the concessional contribution limit - $27,500pa? Beyond that the 15% contribution tax applies after income tax at marginal rate is deducted? The calculation beyond the $27,500 limit is a little different. Finally, if investing in a higher capital growth, lower income approach (say non-dividend paying shares - lets not debate the wisdom of otherwise of that), and capital gains are not realised (shares not sold), then you enter into pension phase, is CGT avoided? Or does a sale event happen at the transfer date and CGT becomes liable (at a reduced rate for share held longer than 2 yrs)?
I don't completely follow your question regarding the $27,500 and 15%. Salary sacrifice contributions incur 15% contributions tax, but are not taxed at marginal tax rates. CGT is only payable when an asset is sold and the tax rate applied will be based on the phase the fund is in when the asset is sold. CGT may occur during the transition between accumulation and pension phase - usually depending on whether or not the asset needs to be sold to transfer to pension phase. Hope that helps!
Sorry Chris, a quick question on pre tax sal amount. Tax rate of 32.5% means 67.5% leftover of $12k. Therefore grossing this up ie 12000/0.675= $17,778 would be the pre tax sal and not $15,900? Am i missing something?
You're missing nothing! Only that I clearly had a very amateur moment that day!
Hi, I understand that super earnings are taxed at 15% but does that include unrealized capital gains inside super? I thought that earnings in this context mean dividends and such. If that is the case and they are taxing unrealized capital gains wouldn't that be a massive tax drag and significantly reduce the compounding affect? Could you please clarify. Thanks for the content.
Yes, to clarify, super income earnings (dividends/distributions/interest/rent) are taxed at 15%. Unrealised capital gains are not taxed. Realised capital gains are taxed at 15%, but a 1/3rd CGT discount is applied if the asset sold was owned for longer than 12 months (i.e. ~10% tax). Hope this helps.
@@SuperGuyAu Thanks for your reply. So in your super calculation example, should we deduct 15% earnings tax from $811, as majority of it will be unrealized capital gains?
@@DM-ud7je It depends how it is invested. In most cases, around half of the return would be income (distributions, dividends, interest, etc.) which is taxed at 15% in that year. Realised CG are taxed at 15% (or 10% if owned for >12 months). So, everyone will be different. You can obviously modify this comparison calculation to your specific situation.
What about the$1,515 that wasn’t paid to the ATO and is now invested in the super? Should that be included to your net benefit?
Yes, that's right. It is invested in super and is included the net benefit calculation. $13,515 x 6% = $811.
You are correct-when you turn 60 you can turn around and dump that extra 1515 on your mortgage, as well as having had the opportunity for that to grow inside super. So, you got 6% earnings, plus the initial 1515. Basically, you are 1515 in front before you even start calculating anything in his table.
Can I get your advice ?
Certainly. Please get in touch with us here www.torowealth.com.au
Pretty rare that super earnings attract 15% tax..
Hi Chris - what about money over and above the maximum salary sacrifice limit - is it better to add this post-tax money as non-concessionary contribution to super or pay as additional home loan repayment? Thanks!
Hi Jojo, the same principles apply, but I cannot answer what is best for you personally. This article may help superguy.com.au/superannuation/non-concessional-contributions. If you would like personal advice, feel free to get in touch with us here www.torowealth.com.au/
If your average returns are higher than your interest rate then you are better off contributing to super, but it might be a lot more market risk for only minor gain. At least with concessional cont. you are already in front by getting to invest 17% more, which gives a buffer against market risk, to a degree.
Just turned 60 150k in super, single, own nothing, owe nothing.. Is there any other option but to party for a yr then die?
Go to Asia and make it last 7 years then get your pension and continue partying (plenty of expats living off pension alone over there. Work 2 more years then party harder even.
You have to spend most of the time in Australia for the 2 years leading up to receiving the pension.@@theowenssailingdiary5239
You forgot to add that when you salary sacrifice, you also reduce the PAYG tax when you get paid. In essence, you will also save that money especially when you are in the higher tax rate.
Thats double counting mate- the amount of tax you save was already counted in his grossed up amount in super.
Hello Is it worth contributing to salary sacrifice of which i am taxed 15%?
The benefits of salary sacrifice are determined by the difference between the contribution tax rate (generally 15%) and the tax that would otherwise be payable had the amount not be salary sacrificed.
Soooo.. If you had $12,000 sitting in an account, that you have earnt after tax, and you put it into super you would get a tax return of 32.5% (assuming you earn in to this bracket) of the amount (+$3900). But you also pay 15% super tax (-$1800).
So straight away you gain you get a $2,100(17.5%) benefit and will have $10,200 in super gaining interest and have $3,900 in your bank account again come tax time, ready for your next investment, leaving you a total of $14,100 off your initial $12,000 after tax money.
I get we are talking salary sacrifice etc. But the benefits really stick out when you just do it as "I have a lump sum here what should i do with it."
Love the content! Keep up the good work, not enough aussies doing this
Thanks for the feedback, Nick. Glad you're getting value. Yes, your calculations are correct.
Oh this is interesting as I was wondering about this, and I was thinking I could, as I’m turning 60 next year withdraw this and pop it on my mortgage?