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Hi Paul. There have been recent reports of the possibility of AI hacking into vast areas of the internet, including financial areas. Bitcoin and others have already suffered. How safe is my superannuation money? Would it be safer in a bank? Or under the bed?
Yes, the recent bitcoin heist certainly made for some interesting reporting. Fortunately, our superannuation and banking systems bear no resemblance.
We all need to be on the lookout for online scams and the like, but I think I’m on pretty safe ground when I say that taking your money out of super and putting it under the bed would be unwise.
Cybersecurity is not my area of expertise. But I take comfort from the fact that Australia’s financial systems are extremely well regulated, with teams of experts at the various connections in the money pipes making sure our financial records are safe. Consumer protections here are also extremely high, so if something goes wrong, you have recourse.
As an aside, there is more money in our superannuation system than there are deposits in our banks, so the proposition that your money is somehow safer in the bank is, in this context at least, highly questionable.
I am 39 years old on a salary of $125,000 per year and salary sacrifice an additional $200 per pay into my super, which is sitting at about $270,000. I also lease out an apartment which has around $285,000 left on the mortgage, at around a 6 per cent interest rate. I’ve been making extra fortnightly payments of $1000 to pay it down quickly, so expect it’ll be paid off in seven or so years.
Would it be better to continue this strategy and then increase my contributions to super once my apartment is paid off – or increase my salary sacrificing to super now and take longer to pay off my apartment? My goal is to have a decent nest egg, so I can retire a little earlier than the standard age.
The interest on this mortgage will be tax-deductible given the property is income producing (I’m making the assumption it is receiving the grandfathered provisions), and so there is a solution here whereby the after-tax cost of the borrowing is below the expected alternate returns (after tax). This being the case, it could be argued that you should slow down on the loan repayment, and focus your savings elsewhere.
My inclination, however, would be to continue with your current approach for two reasons. One, we are currently in a rising interest rate cycle and that will likely mean your interest expense will increase, raising the burden associated with carrying this property. Paying down this debt reduces your exposure to rising interest rates, which contributes to you being able to retain this property through the cycle.
Secondly, you’ve advised that your primary goal is to be able to retire earlier than the standard. Money that you place in superannuation is inaccessible until you are at least 60 years of age.
Given that you need access to money earlier, it makes sense to ensure that you hold wealth elsewhere. This investment property could produce income for you during that early retirement period.
I’d be interested to know the cash flow position of the property. If the property was producing positive cash-flow, after allowing for all expenses, you could perhaps direct some savings to a non-super investment portfolio to improve your diversification, and have greater options with regards early retirement.
Paul Benson is a certified financial planner at Guidance Financial Services – Retirement Planning specialists. He hosts the Financial Autonomy podcast. Questions to: [email protected]
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