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 – Taxed at 15%, along with deemed earnings, can be withdrawn for a deposit.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: The Death of Stalin

Furious Fridays The Death of Stalin Last episode we ended with Lenin’s death. The roll out of Communism was well underway and it was time for new leadership. One his last policies before he died in 1924 was the New Economic Policy (NEP) in 1922… A mixed economy put in...

The Election Battle between those who pay tax, and those who don’t

Welcome to Finance and Fury Today will be a quick update for the upcoming election and policies in response to the budget plans released last week. This election is becoming a battle for votes among salary earners. In the past we have talked about class warfare...

Furious Friday: How do we avoid the decline into a recession?

Welcome to Finance and Fury the Furious Friday edition Today we are continuing the discussion around supply-side economics We will talk about the best ways to avoid declining into a recession as an economy and some solutions for economic growth. Last Friday we talked...

Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future

Episode 14 Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future Have your Super set up – do yourself a favour! What will kill your retirement? Not looking at your super now. Would you trade 15 minutes now for $350,000 in 30...

All that glitters: How precious metals, like Gold and Silver work as alternative investments, and how they fit into an investment portfolio.

Episode 34 All that glitters: How precious metals, like Gold and Silver, work as alternative investments, and how they fit into an investment portfolio. Welcome to Finance & Fury. Today we’ll be running through some alternative assets – precious metals, like Gold...

Furious Fridays: The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style

Furious Fridays The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style Welcome to Finance and Fury, Furious Friday Have a think about how much you know about history? Are you familiar with the big events, like WW1...

Tax and Estonian e-Residency; Anyone can become an e-resident, create a company and operate it in the EU

Episode 15 Tax and Estonian e-Residency; Anyone can become an e-resident, create a company and operate it in the EU Welcome! This week we will be talking about Estonia, which sits right on the Russian border, just below Finland. Anyone can become an e-resident in...

How I buy shares – the horror stories and the happy endings, plus technical vs fundamental analysis

Say What Wednesdays How I buy shares - the horror stories and the happy endings, plus Technical vs Fundamental Analysis Welcome to Say what Wednesday Today's question is from Emma. She says, “I'm new to the podcast so not sure if you have covered this in the past. I...

Furious Fridays: What part of progress should governments have?

Welcome to Finance and Fury the Furious Friday edition. This is part 6 in the series, the second last episode of the series. So this is 2 more than expected in the series, which I guess is good for me. To do the last subject justice, I have broken it into 2 episodes...

How to not get tricked by election promises!

Welcome to Finance and Fury, the Furious Friday edition This is a continuation from this week’s Say What Wednesday episode, in part one on Who to vote for? Check it out here. Part 1: Political culture Tribalism 3 main parties policies and promises Today: How to tell...

Pin It on Pinterest

Share This