So, how can a 40-year-old garnish the nest egg?
WHAT do the Budget changes to super mean for people who don’t live in Toorak? Barefoot Investor has some ideas.
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WHAT do the Budget changes to super mean for people who don’t live in Toorak?
Well, for starters, the new limit of $1.6 million on tax-free pension balances is about as relevant to 96 per cent of the population as Donald Trump’s fairy floss hair. Sure, something needs be done about it, but it’s not going to change your life.
The other changes to super — dropping the maximum before-tax contributions to $25,000 a year, and capping after-tax contributions to a lifetime $500,000 — will affect people in their 50s who were playing catch-up in the last 10 years of their working life.
Bottom line: from now on you can’t let retirement ‘creep up on you’.
You have to start earlier.
So let’s look at some of the wealth-building options for an average 40-year-old bloke earning $59,000 a year, with $50k in super, who is currently on track to retire with a balance of $309,000.
Now he could choose to begin increasing his super contributions to 15 per cent of his income, by way of making an extra, tax-deductible payment of $270 a month. That will boost his balance by $118,000 to $428,000.
Still not enough?
Well, a change in the Budget means he can keep working and contributing to super ’til he’s 75 without having to satisfy a work test.
Joy!
What else could he do?
Well, in light of all the stuffing around in the Budget, he could write super off as not being worth the hassle.
It’s a common concern: super laws are about as reliable as Trump’s ‘Mexican wall’ promise.
The rules are complicated and confusingly named, the fees are too high, and there’s a risk a financial planner could rip you off.
Yet the main thing that could sway our 40-something is that the recent returns he’s got from his super fund aren’t anywhere near as good as what he would have received from buying an investment property.
Melbourne house prices have not only doubled in the past decade — landlords have scored generous negatively geared tax breaks to boot.
Why wouldn’t he take the lead from the Member for Networth, Malcolm Turnbull?
He’s a rich bugger, and even he’s admitted that negative gearing helped him get started on the way to wealth. If you can’t beat ’em, join ’em, right?
Actually, I don’t think that’s the best option for our 40-year-old.
And in my weekend column I’ll break down the numbers on negative gearing into property, and show you what you should be doing.
I think you’ll be interested in the results.
Originally published as So, how can a 40-year-old garnish the nest egg?
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