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 – Taxed at 15%, along with deemed earnings, can be withdrawn for a deposit.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!

 

Furious Fridays: What happens if the EU collapses?

Furious Friday What happens if the EU collapses? Welcome to Finance & Fury, the Furious Friday edition. For the past few weeks we’ve been talking about the EU and this week we’ll finish up by looking at the flow on effects of the EU breaking up. There’s no way to be...

5 property investing myths you have to stop believing immediately.

Welcome to Finance & Fury! Today we’re talking about five property investing myths you have to stop believing. At the moment property has gone from being the most talked about, exciting thing… to the most talked about, negative thing. Since 1994 there has been...

Furious Friday: Could social security be the greatest Ponzi scheme ever?

Furious Friday Could social security be the greatest Ponzi scheme ever? Welcome to Finance and Fury, Furious Friday! I saw an ad this week for a movie called ’Wizard of Lies’ – Bernie Madoff movie – 2008. He was a stockbroker, investment adviser and financier who made...

Say What Wednesday: The ups and downs of Bitcoin – currency, investment opportunity, both… or neither?

Say What Wednesday The ups and downs of Bitcoin - currency, investment opportunity, both... or neither? Today’s question comes from Richie, who asks, “Have you been following the Bitcoin ETF at all? If so, are you able to do an episode on this and if it is worth...

Bonds; How do they work, when do they increase in value and how do they fit into your portfolio?

Episode 20 Bonds; How do they work, when do they increase in value and how do they fit into your portfolio? Today’s episode stems from the question last week from William about investment bonds (an investment vehicle, kinda like a life insurance product). Today...

Porsches, Paintings and Property Prices: Alternative investments and what they can mean for property and the economy

Episode 18 Porsches, Paintings and Property Prices: Alternative investments and what they can mean for property and the economy Alternative investments and what they can mean for property and the economy Classical Car Index The CommSec Luxury Vehicles Index lists the...

Financial Stress: A major issue for many Australians…we worry about money more than anything

Episode 21 Financial Stress: A major issue for many Australians...We worry about money more than anything To start today’s episode, I want you to think about if there is something that you keep putting off. A nagging little task, like paying a bill, lodging a tax...

Say What Wednesday: The tax implications of investing in shares; owning, holding, selling, dividends

Say What Wednesdays The tax implications of investing in shares; owning, holding, selling, dividends Welcome to Finance & Fury’s ‘Say What Wednesday’! Today’s question is from John; What are the tax implications of investing in shares, owning, holding, selling,...

Say What Wednesday: Labor’s policy changes – Franking credits, negative gearing, super, and CGT

Welcome to Finance & Fury, the ‘Say What Wednesday’ edition where every week we answer questions from you guys.   Today’s question is from John;   “Thanks for the podcast and the content you provide. I thought a useful podcast topic could be the legislative changes...

Furious Friday: Will the EU fall apart?

Furious Friday Will the EU fall apart? Welcome to Furious Friday where we look at misconceptions in the media about the economy There is a lot of talk about fears that the European Union (EU) will fall apart – That this will cause a financial crisis Will it? A lot of...

Pin It on Pinterest

Share This