Call us on 1300 794 893

Your Money

Rainy day or super – where should I put savings?

| More

My mum is a widow, aged 54, and has a couple of hundred thousand dollars in a super fund and she owns her own house. She still works as a part-time teacher and seems to have enough money for her lifestyle.

It seems to me that her super is pretty small but she has about another $200,000 in a term deposit outside of super. She has it for what she says is a ‘rainy day’ but I was wondering if the money would be better if it was in super?

You are wise to be concerned about your mum’s super as I suspect it could be arranged a bit better. Because she’s working, although I’m not sure how much she is getting from teaching, she is probably being taxed around 31.5 per cent in the dollar on any interest she earns in that term deposit.

On the other hand, if the money was in super, the tax would only be 15 per cent and because she could be in this situation for anything up to 65 years of age, if she keeps working, which I think is a good idea, then there’s 10 years of either smart or unwise investing ahead for her.

Let’s imagine she gets six per cent on her deposit but she loses around 30 per cent of this interest in tax. On $200,000 the interest would be $12,000 and the tax would be roughly $3600 – that’s 30 per cent. If it were in super, the tax would be 15 per cent, which would be $1800. So in super your mum could save $1800 a year for 10 years and then there is the rollover effect of it being in super, which can even bring better average returns than six per cent.

Another benefit of getting money into super is that you mum can’t touch it for ‘drizzly days’, so to speak. Sometimes it’s too easy to spend money but when it’s in super, it’s there until you retire.

On the other hand, because your mum is nearly 55 years of age, she could access some super via the transition to retirement option that is available. Part-time workers can use this effectively with the tax system to come out with a good arrangement, but she might need some advice with this.

Finally, if she might have some concerns about the need for some money for surprise events, she could put $30,000 into an internet savings account, which pay good interest but also provide good access and the rest goes into super.

Maybe your mum would get some value out of advice from a trustworthy financial adviser as she is entering into an important stage of her life. If she can get five to 10 years of good income earning, given she owns her own house, she could set herself up for a comfortable retirement.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, March 29, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Related articles

Super changes in the Budget

Segregation anxiety – how to split assets

Is your business prepared for MySuper come 1 January?

Is it time to fix now?

Can I access my super without retiring?

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300