Say What Wednesdays

First Home Super Saver Scheme: Using superannuation to buy your first home

Today’s Say What Wednesday question comes from Emma, and relates to saving for a house deposit:

“Hi, thanks so much for the podcasts – I have learnt so much. My question is about saving for a house deposit in Sydney. We have $130,000 saved (which has taken us about five years to save) however we met with a broker and she recommended avoiding LMI by saving up the full 20% of the purchase price plus 4.50% for stamp duty etc. As we have two children we’d like to buy a modest townhouse which are currently valued at around $850,000.

Basically, at our current renting while saving rate this would take us five years or so. Do you recommend using ETFs, LICs in this saving circumstance or using the first home super saver scheme or term deposits etc? I’d love to hear any ideas you have to help us save, stay motivated and finally buy something!”

 

Thanks Emma!

Here’s what we think…

 

Option 1 – Staying away from risky investments – (5-year period)

  1. Given that you want to purchase a place in 5 years, I would probably recommend staying clear of ETFs and LICs.
  2. The share markets have had a good run over the past 8 years and historically speaking, we are more likely than not to have some correction in prices within 5 years.

 

Option 2 – Interest accounts

  1. Keep doing what you are doing – Savings in personal names
    • Downside at the moment – Low interest rates and income taxed

 

Option 3 – Super (First home super saver scheme)

  1. Using superannuation is a viable strategy in most situations, even though it can be a little restrictive.
  2. It essentially allows for larger savings through the reduction in total tax paid on the level of savings (through not receiving it as a taxable income).

How it works:

  • From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home.
    • Pre-tax contributions. – Taxed at 15%, along with deemed earnings, can be withdrawn for a deposit.
    • Done through employer – Salary sacrifice
    • Self-employed – Can still make the contributions, and claim a deduction on personal contributions later
    • Must remain within concessional (pre-tax) cap of $25,000
  • Withdrawals will be taxed at marginal tax rates less a 30% offset and allowed from 1 July 2018.
    • Amount of withdrawal = Net contribution plus deemed return (90-day bank bill plus 3%)
      • 4.50% currently – will change as the RBA cash rate changes
    • Withdrawal administered by the ATO – determine the amount of contributions that can be released and instruct superannuation funds to make these payments accordingly.

Examples

  1. Individual earning – $60,000 a year – Never bought a home before
  2. They direct $10,000 of pre-tax income into superannuation
    • increasing her balance by $8,500 (after 15% tax)
  3. Continue for 3 years – Contribute up to $30k in total
  4. Withdraw $27,380
    • Net contributions of $25,500
    • Plus deemed earnings on those contributions (4.5%).
  5. Withdrawal tax of MTR (34.5% including Medicare levy) minus 30% offset
    • $1,620 in tax paid
  6. Net withdrawal – $25,760
    • $6,240 more than if saved personally ($12,480 more if you are a couple)

Thanks again for the question Emma

P.S. Awesome work on being able to get to $130,000 in savings!

 

We’re back

Start here We're back! We're back! Sorry to keep you waiting for quite some time, but our absence hasn’t been wasted. As you can probably tell the podcast looks a little different, but don’t worry, you’re not lost. To help avoid any further confusion this is a quick...

What are the pricing and redemption risks of Managed Funds versus Listed Investment companies?

Welcome to FF – SWW- answer questions from each of you – this week from Sebastian   Hey Louis. I've been thinking about the pro's and con's of Managed Funds vs LICs/LITs. It occurs to me that one of the main disadvantages of managed funds is their open-ended...

(Intro Series) Trusting yourself and learning the basics

Intro - Episode 4 Trusting yourself and learning the basics To start off, do you think that having a map to financial independence would be the ideal solution? Compared to a puzzle it actually would be far better than trying to piece together something, if you could...

What is Luck? And how can we be manipulated through information, destroying the luck that we have

Welcome to Finance and Fury, the Furious Friday edition Last week: Being grateful for what we have, where Australia started and where we have come Today: Luck truly running out How it can be manipulated What is luck? Success or failure apparently brought by chance...

Furious Fridays: What should the government be involved in?

Hi Guys and welcome to Finance and Fury the Furious Friday edition. This is part 7, the last episode of the miniseries about all things politics. Sorry it took a while to cover, I wanted to do this topic justice and explain all the steps and outcomes instead of...

How to prepare for buying a home, paying off a mortgage, starting a family or funding your kid’s education costs?

Welcome to Finance and Fury, The Say What Wednesday Edition special series – running through the catalogue of questions and concerns The series is broken down into three stages – 50 years or so timeline – last week was basics and the first stage...

Risky business; why fortune favours the brave (and smart!) and why volatility isn’t necessarily a bad thing

Episode 5 Risky business; why fortune favours the brave (and smart!) and why volatility isn’t necessarily a bad thing Today on Finance & Fury, we’re talking about …risky business! Why take risk at all when investing? There must be a reason some people are willing...

Furious Fridays: Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty

Furious Friday Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty Welcome to Furious Fridays Imagine you are a child in Korea.... North Korea - After school (which is mostly propaganda to solidify your ruler), 10 years mandatory...

Nailing Business Cashflow Forecasts, whether you’re established, looking to expand, you’re a start up or a business in trouble

Hi Guys and welcome to Finance and Fury’s ‘Say What Wednesday’ Episode. Today we’re joined again by Nick. Our question today comes from Justin who asks, “Our building company recently went through issues with its cashflow, so as directors we halved our wages to help…I...

Furious Fridays: When $1 could buy you a pair of patent leather shoes – Is it true that all fiat currencies eventually become worthless?

Furious Fridays When $1 could buy you a pair of patent leather shoes: Is it true that all fiat currencies eventually become worthless? In today’s Furious Friday episode, we’ll be running through the historical life cycle of fiat currencies. This episode is thanks to...

Pin It on Pinterest

Share This