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Chapter 1: How should you split investments inside vs outside super?
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How Gemma Mitchell, the famous author of The Money Reset, managed to save $900 towards her Finders Keepers $10,000 challenge. You're in for a treat. You're going to get that, plus a bunch of questions and answers on constitutionally protected super funds. What the heck does that mean? We're going to cover that.
We're going to answer what people in their 20s should be doing with money, whether it's a first home buyer or whether you're thinking of investing, maybe you're thinking of starting a business. We're going to tell you kind of how to do those things and how to make a choice. We've got a lot of questions in today's episode.
Don't forget, you can send them in to us using the link in the podcast player or in the show notes. We would love to hear from you. Without further ado, let's get into the episode. Welcome to the Australian Finance Podcast by Rask. Together, we will improve your relationship with money, discover the world of investing, save more money, and design the life you want.
Please don't forget to subscribe to the show on Apple, Spotify, YouTube, or wherever you get your podcasts because we share at least two wonderful episodes every week. You should know that our favorite episodes drop on a Monday and a Friday with bonuses on Wednesdays.
Finally, to hear more from us and get show notes and all those other wonderful things like free courses, head to rask.com.au to find us online. Gemma Mitchell, welcome to today's show. Thanks for having me. Yeah, it's always good to chat. We have a story. and I think this is relevant for anyone that listens to the show regularly, of how you added $900 to your Finders Keepers challenge.
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Chapter 2: What are the eligibility criteria for first home buyer grants?
We've got questions on super, the first home owners grant, Blinky Bill wrote in and talked about like, how do you think about investing and managing money through what's going on in the world right now, or has recently gone on in the world. And we'll talk about if you're in your twenties, some of the tips and kind of tricks you can take no matter which pathway you're on. Travel,
home buyer, investor, business starter, whatever the case may be, we'll get you sorted. Now, we're going to dive straight into the Q&A because we're going to end with a story today of how Gemma did it. If we do answer your questions, we don't know your needs, goals, or objectives, so please...
Don't take all this information, run away, and then act on it because there's often more to it than you get in this podcast. We try to bring you the education, but it's up to you to relate it to your own circumstances. If you don't know how to do that, you should get financial advice. A financial advisor can take into account your needs, goals, or objectives.
In fact, all of those things in one go and give you a financial plan that actually relates to you personally. If you don't have a financial planner, we can match you with one and it actually supports RASC if you come through us. So you can go to the link in your podcast player or YouTube description for that as well. It just says financial planning.
And if any of that sounded confusing, just head to the RASC Group's financial services guide. That's FSG. It's available at rasc.com.au slash FSG. Now, we do have some questions sent in, Gemma. I want to get you to give us a lowdown on this first one. This is the most complicated one of the day. So if you're a bit like, holy heck, that was a steep learning curve really quick. Well, don't worry.
It gets easier after this. So this one comes from State Super Trooper. Now, before we get into the question, I did start playing Super Trooper kind of snippets before the show. I don't know if anyone can hear this, but... This is one of the snippets from the show. Can you hear this? So there is a great movie called Super Troopers. It was out many, many moons ago.
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Chapter 3: How can you invest during global uncertainty?
And interestingly, a bit of trivia for your pub trivia, Gemma, because I know you like that. Super Troopers 2 came out not too long ago. No one knows it really exists. You were familiar with the first one, which was really popular.
Was it a flop?
Is that why? Well, the crew kind of wanted to make Super Troopers number two, but there was no real producers around to fund the movie. And so what they did is an Indiegogo crowdfunding round, and they got $2 million. That was their budget.
That doesn't sound like a lot for...
A movie? No, it doesn't. And these are low budget movies. They're basically just doing burnouts in washed up secondhand cars. But they raised $4.6 million. So they actually became one of the most successful crowdfunded movies on the Indiegogo platform. Now, it didn't turn out to be that good.
But for anyone that's interested in the nostalgia of 2000s comedy, Super Troopers 2, you can go and watch the crowdfunded version. Now, back to our questions. The question was, my partner and I are members of a constitutionally protected super fund. We're in our 30s, earn a high income and aiming to retire in say five to 10 years before our preservation age.
What general principles should we be thinking about in terms of how much to invest versus inside super versus outside, whether this should change over time? For example, some of our older colleagues predominantly invested outside of super when they were younger.
But as they approach retirement, they are salary sacrificing their entire salaries into super with a plan to retire once they hit the $1.8 million lifetime max. We're going to need a lot of kind of groundwork here for people to keep up with what this actual question is asking. Let's first of all start with, if it's okay with you... What the heck is a constitutionally protected super fund?
Most people know Australian super and all those types of ones. What is this thing?
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Chapter 4: What are the tax advantages of superannuation?
They're pretty rare and it's one of those things that you would only know if you've got one. Okay. So it is a very different structure of superannuation and they're by state government. So some of the names here like West State Super, Gold State, Triple S, those types of things. So they're usually state specific and you're working for the government and they have very different rules.
So you and I have standard industry or real. You've got Host Plus, I've got Australian Super. Yep. And so there's a concessional cap on how much we can put in each year. It's currently $30,000. These protected ones are untaxed funds and they don't have contribution caps. So you could put, like in that example, your entire salary in to it.
Every year.
Yeah, the cap doesn't apply. And the 15% tax that comes out of yours and mine when it hits our super fund, that doesn't come out. It's an untaxed fund. Right. It gets taxed at the end, like when we access it at retirement, whereas ours gets taxed along the way.
So with these, they can look really, really healthy your whole working life, and then you go to roll out of them, roll into pension, do a withdrawal, and you get hit with a big tax bill. Yeah.
Okay, so just to slow down for one second. So if I put, so basically everyone listening to this can put $30,000 into super. Yep. And if we put $30,000 in, this is per year, there is a 15% tax that would come out of that. What's that? Four and a half grand.
Yep.
That then goes to the government, meaning that the other 25-ish ends up in our super funding and grows. Yes. Right?
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Chapter 5: What are the trade-offs between super, ETFs, and property?
In these super funds, in a normal scenario, at retirement, it becomes tax-free and we can pull it out. Yes, that's right. But with these ones, you're saying it's the reverse. It's like I can put as much as I want in, but then when I go to pull it out, I get taxed.
That's where it'll get taxed, yes. And it's taxed differently if you access it as a lump sum versus if it rolls over versus if you take an income stream from it. So the balance is a lot healthier and your returns, you're building on more and more because tax hasn't come out along the way, but then tax comes out the other end.
So there's lots of benefits to these, but you can't just, not anyone can just say, I want one of these. You know, they're part of that, your employment offer. So what, and the other confusing thing about these is, so they said the lifetime cap of 1.8%. The cap for us rolling into a pension is currently two to go to 2.1%.
So right now, any of us in like host plus seat plus, et cetera, et cetera.
Yes. Yep. And that's our balance transfer cap, the lifetime limit of how much we can move into that tax-free environment. These have a different kind of cap on them. It's 1.2%.
eight six five or something mil and it means that you can put those untaxed contributions in until the balance gets to that level and then the tax changes and there's penalties so this person's saying lots of our older colleagues haven't really prioritized super and now they're just smashing as much money in tax effectively as possible like tax isn't coming out they're smashing their salaries in there to get to that limit um yeah so that's what that
kind of fund is. So it's very complex, different rules. Usually when people have these, I recommend that they get advice from the actual fund because financial advisors tend to niche in different areas and there's not too many that would be out external to these funds. Like you would have to find someone who specializes in it is what I'm saying.
Your everyday financial advisors wouldn't see these very often, I wouldn't say. I would say.
Funnily, you mentioned that because we actually have a client that has this exact situation.
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Chapter 6: Should you focus on one investment strategy or diversify?
If you haven't heard of that, it's, you know, we've got defined benefits super, which again is different and that's very niche as well. You wouldn't necessarily know about them unless you had it. But this one's really interesting. I think that's really fun. But so that's explaining what they're talking about with what their colleague's plan is. But I don't think that relates to them at all.
So what I identified from this question is their issues are they want to retire before 60. So putting heaps of money into their superannuation shouldn't be part of their strategy. They need to work out how much, what are the gap years and how are we going to fund them? What assets are going to fund them between when we can actually access our superannuation? Yeah.
So that's number one they need to work out. And then number two, they need to work out that at the time they finish, say it is 40 or 50, if their super is going to just tick along with no contributions and get to the amount they need at 60 plus. So they've got two layers, how they bridge between stopping work and accessing super and then will super continue.
from 60 onwards, considering that it will be taxed, will that meet their needs there? So there's two layers of their plan that are relevant to what their colleagues are doing.
So I've learned a bit about these at uni. We're just discussing them. There's like three major types of super funds. There's the normal ones, which is like 95% of the country, like us. Then there's like a few people that have defined benefit, probably like 4% of people, round figures. And then there's 1% of people that have these things. So there's like different versions of it.
And for people's understanding, it's really important. We say this all the time on the show, you can have two super funds. Gemma has two super funds. I'm in the process of having two super funds. You can have 10 super funds. Yeah, you can have more than one. But the reason that I say that is for this person and thinking about their colleagues.
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Chapter 7: How can you build wealth on a lower income?
So I'm thinking like from a tax man's perspective, right? If I'm going to put money into a super fund, and like shovel as much money as I can in there. Everyone's situation is different, blah, blah, blah, blah. But wouldn't it make more sense to have a tax-free income in retirement than in accumulation?
So what I mean by that is, if you were going to work a job with the West Australian government and you have access to this, do that for the first like 10 or 15 years. Because it's going to grow tax-free between, say, ages 35 and 65. You know what I mean? And you can just let that go. You don't need to get to the $1.8 million.
You could get to $300,000 and then just be like, all right, it's going to grow tax-free for the rest of my life.
Yes.
So you could just let it compound, right? Uninterrupted by tax. But if you're in the second half of your career, it wouldn't make sense to do that because there's no tax benefit for shoveling more in, whereas if you have a regular super fund like you and I do, you can claim a tax deduction.
Yeah.
And then it's tax free after retirement age. So I feel like I don't know this person's situation. However, do rate the question name, by the way. Yeah. I would just say like you could have two super funds with two different tax scenarios and use them to your advantage.
Yeah. But with this one, if they're putting their entire salary in there, they're not having taxable income.
Well, that's it, yeah.
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Chapter 8: What financial priorities should you consider in your 20s?
Right, so we probably just went off script there for the Australian Finance Podcast.
We've dived into way more detail. This is a good episode for the retirement podcast. But again, it depends how many people it'll apply to. You know, this is very specific and the people that have these are all over these rules. Like when I see them, they know so much about them.
It's like the military one. The military one's another group entirely. Like it's very unique.
Yeah.
And those rules have changed in the last five years.
Yeah. And there's like P triple S there's so many different ones, but I think the key take out here that can apply to anyone thinking about this is it's early retirement. We want to retire before we can access this. What should our plan be?
And as much as I love super, it needs to be, you have funds outside of super to bridge those gap years, but you make sure that the projection is that by the time you can access super that will actually fund what you need.
Yeah. So there's so many different super funds. It's important to understand the big ones that do the handcuffing thing. They compare the pair or whatever, which that compare the pair thing. I don't think they'll be doing that in the next five to 10 years.
I don't know if anyone's up to date with this, but that, you know, when they do the protect the nest egg, compare the pair thing, which by the way, shout out to Chris, because he was pivotal in making that, that he was the one who kind of come up with that. Just a friend I know. So he was one of the guys that helped kind of come up with that idea. Anyway.
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