F
irst up, Justine, it is really impressive
that at 27 you are earning a really good
salary and you clearly have a plan to
save. This can be seen in your super fund of
$64,000 and also your savings of $25,000,
including the joint account, outside super.
I am a big fan of super. Compound returns
are about the only “money miracle” that
I know to be true, and with some 40-plus
years to go before you retire your fund will
certainly see this over the decades.
But having said this, I am not really
convinced the extra 5.5% you are putting into
super above your employer contributions is
your best strategy. At a salary of $83,000, the
tax rate on the top part of your income is
34.5%, including the Medicare levy. Yes, youpay only 15% tax on your salary sacrifice con-
tributions into super, so for every dollar you
actually have 19.5¢ more in super than
you would have in take-home pay.
At age 27, though, you have a long way to go
to retirement. With continued life extension, I
would be surprised if you will be able to access
your super before 70. In fact, your retirement
may be over half a century away. While super
is terrific, the money is locked away.
So my advice to you would be to allow your
employer’s compulsory contribution to keep
on growing your wealth in super, but I would
build your savings outside super faster. This
gives you a bigger pot of money which you
can control or direct. As you get older and your
salary grows, I think that is the time to refocus
on voluntary super contributions.
With this bigger pot of savings, investment
becomes a very important issue. I’d hate you
to forgo the benefits of super to leave your
money in a low-interest bank account. Shares
and property are historically your best options.
Let’s consider shares first, as unlike property
they can be accessed with smaller amounts
of money. Here I agree with your comment
about exchange traded funds (ETFs). These
are a reliable and super cheap way to access
shares. They come in every flavour – local
and international shares, international infra-
structure, you name it, there is an ETF to
invest in that area.ASK YOUR QUESTION
If you have a question, email money@bauer
-media.com.au or write to GPO Box 4088,
Sydney NSW 2001. Questions need to be 150
words or less and you must be willing to be
photographed. Readers who appear on this
page will receive a six-month subscription.Would-be investor is keen to get started
I
’m 27 yearsoldandworkfulltime,
earning $83,000 (gross) and sal-
ary sacrificing 5.5% into my super.
I have $64,000 in super, $22,000
in a personal savings account and
$3000 in a joint account. Not yet
being a homeowner, I am enticed
by the idea of investing through
a long-term plan. Do I continue to
salary sacrifice into super, or use
this additional money to a) invest or
b) continue to save for a 20% house
deposit? I have heard of exchange
traded funds but am wondering
how best to start a share portfolio.
JustineIf you want to know more about ETFs, which
I would strongly recommend before you invest,
I’d take a look at the ASX investor information,
or a company such as InvestSMART, which
builds investor portfolios using ETFs. Please
note, I am chairman of InvestSMART, which is a
company listed on the ASX but, bias aside, I am
very proud of the information and services it
provides, at very low cost, to online investors. If
you decide to invest this way, personally I’d go
with one of the ETF portfolios offering broad
exposure to local and international shares.
You could sell these in time to come to
buy a property, or you could simply save in
a high-interest online account and build your
deposit. In the long run, I would like you to own
a home, which may start out as an investment
property. At 27 you are doing really well and
under no time pressure.
I’d do a bit of research and create your own
plan. But one thing is for sure: saving in super
and assets you control is the key to making
choices about your future.Paul’s verdict:
At only 27, it
would be better to
save outside super
to build wealth
ETFs are an easy and cheap
way to access sharesPaul Clitheroe PAU L’S V E RDICT
Savings dilemma... Justine
could salary sacrifice more
or invest outside super.