Can I use Super to save for my first house?
To my dearest Rask Finance reader,
Christmas has come early to the Raszkiewicz household.
Because as much as the next finance guy or gal, I’m all about paying less tax.
That’s why, when news of this thing called the “First Home Super Saver Scheme” emerged in May, my heart fluttered.
Could it be?
Oh. My. God.
Unfortunately, I was made to wait until last week to get confirmation from Parliament that it would go ahead, along with the Super Downsizing Strategy for those over 65.
So what the heck is it?
The Super Saver strategy allows young (or old!) Aussies to put extra dollars into their Super then withdraw it to buy their first home. It’s capped at $15,000 per year in extra contributions and $30,000 in total, per person. Meaning, a super-savvy (get it?) couple could pocket up to $60,000 in Super.
Put another way, because I’ve never bought a house I could invest $10,000 extra in Super this year, on top of what my employer puts in, and again for the next two years ($30,000 in total) then pull it out when the time is right. ‘The withdrawal’ is limited to $30,000 plus a little bit extra for growth.
If you’ve taken our free Superannuation video course (it’s about 25min in total), you will know that money inside Super is generally taxed at a reduced rate of 15%. That’s a lot less than someone who earns, say, $65,000 and pays 32.5% tax for every extra $1 of income they earn.
(For those in the back row just remember “potential tax saving” and you might pass the test.)
At the bottom of this blog post, I’ve included a link to a Government calculator which estimates how much a person stands to save.
For example, Harry and Hermione both earn $60k and chuck $10k away each year inside their Super funds. They will have $25,882 each to buy a home since they will have saved $6,210 in tax. (note: the calculator assumes they add to Super using “before tax” contributions like “salary sacrifice“.
Is it worth it?
Who doesn’t like saving more money and paying less tax on investments?
According to the Government, for young people, “the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account.” This is, “…due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.“
I added the bold.
It sounds like the Government is giving us financial advice.
And I wouldn’t trust a pollie as far as I could throw one, especially when it comes to financial advice. Because as any decent finance guru should, we need to discuss the risks of using the Super Saver strategy.
Aside from the forced tax savings — which is the only positive I can think of — there are some risks.
According to most financial experts and writers (including yours truly), it’s a bad idea to invest ‘savings’ in shares, Bitcoin or anything other than guaranteed savings accounts and term deposits. Why?
Ask your grandparents who relied on Super during the global financial crisis (GFC) of 2008. I’m willing to bet they had some sleepless nights — and they didn’t need to pop a pill to stay up all night.
Technically, the maximum amount you can withdraw using Super Saver is $30k plus a bit extra for the growth in the value of your money.
But what happens if the stock market crashes?
Let’s imagine your Super’s “index growth” investment strategy turns into a “flippin’ nightmare” strategy in 2019. Super balances could get slammed by 50%. What then?
Super Saver might allow a person to pull a big chunk of their Super out at the bottom of the market — which could be the worst possible time to sell the investments.
Meaning, a young saver’s Super balance might miss out on a massive recovery in financial markets because they bought a house, ultimately pulling a big handbrake on their retirement. Admittedly, it might be the best time to buy the house. But still, you get my point – there’s always a risk in investing.
So is it worth it?
I can’t offer tips or advice to readers in this blog (or my newsletter) – although that could be about to change.
In the meantime, I’m not in a rush to do anything.
My M-O: Patience has never lost me money.
Cheers to your financial future!
Owen Raszkiewicz, H, FTTR, F
p.s. I’ll cover the Downsizing strategy in one of my next newsletters.
p.p.s. What the heck is “H, FTTR, F”? Nothing. I just wanted to make myself look important (everyone on LinkedIn does it!).