This is a fantastic opportunity for your daughter to learn about investing and financial markets. Our superannuation system means that we all need a fairly high level of financial literacy. Yet,such skills are rarely taught in our formal education system.
Coming into money early on in life can be a wonderful opportunity to learn about investing and financial markets.Simon Letch
Most important is that she learns about the unbreakable connection between risk and reward. With this in mind,consider putting a portion in a term deposit with compounding interest.
Perhaps a quarter of the total. Then,put the remainder in 2 or 3 mainstream ETFs so she can experience volatility. Five or more years from now,she will almost certainly find the ETFs have grown more than the term deposit,but she will also have experienced ups and downs with the ETFs that weren’t present with the term deposit.
Through this experience,she’ll gain a lived experience of her tolerance for risk,which will put her in a great position to navigate her finances for the rest of her life.
As your daughter is 18,it’s possible for her to hold the investments directly in her name,something that’s often a challenge for those under 18. Take a look at apps such as CommSec Pocket and Raiz. These are targeted at young investors and do an impressive job of reducing the number of choices an investor must make,limiting the potential for overwhelm.
Should I be salary-sacrificing to super? I earn $60,000 per year,am 52,have a small debt-free home,$370,000 in super,and expect to work until pension age. I do have the ability to save,but I’m wary of losing access to my money. Also, I know that when I send money to super,it gets taxed by the fund,which makes me wonder whether it’s worth putting any extra in.
Thanks for your question. In the information you’ve provided,you make no mention of any cash savings or other liquid investments such as shares. As you note,money sent to superannuation becomes inaccessible until you are at least 60 years of age,and in your case,perhaps 65.
Before considering directing any additional money towards superannuation,I would encourage you to build up a pool of savings that is readily accessible to meet any emergency needs,home and car repairs,etc.
You are right to observe that money deposited into your superannuation account is taxed. The tax rate on superannuation contributions where a tax deduction is being claimed (such as salary sacrificed contributions) is 15 per cent.
The portion of your income above $45,000 is currently taxed at 32.5 per cent,with this falling to 30 per cent from the 1st of July. Medicare is on top of this.
The tax rate applicable to salary sacrificed superannuation contributions is,therefore,at most half (15 per cent) the tax you pay on earned income (32.5 per cent,soon to be 30 per cent),so electing to salary sacrifice into superannuation does seem financially sensible from a tax perspective.
Beyond the positive tax outcome at the time of contribution,it’s worth also keeping in mind that future earnings on your superannuation savings will be taxed at 15 per cent,which continues to be attractive relative to the same earnings generated outside the superannuation system where tax would apply at your marginal tax rate. And then once you retire,there will almost certainly be no tax payable at all.
Paul Benson is a at Guidance Financial Services. Questions to:
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