Did you know that in 2008 you could make a tax-deductible contribution to super of $100,000 and a non-concessional or non-deductible contribution to your superannuation fund of $150,000?
These generous contribution limits meant that you could spend your 30’s and 40’s financing the growth and development of your children, paying down your mortgage, and leave your retirement planning until your 50’s. Typically back then, a client that was aged in their 50’s had two children and their financial commitments began to subside as their children become more self-sufficient and financially independent. These clients were typically earning similar income in their 50’s as they were in their 40’s but incurring fewer expenses. Accordingly, they were able to make sizable contributions to their superannuation fund, not only increasing the probability of a comfortable retirement but also massively reducing their tax liability and in most cases maximising their annual tax refund.
Well, as you may know, the maximum tax-deductible contribution to superannuation now has reduced to $25,000 (after 1 July 2021 it will increase to 27,500) and the maximum non-concessional contribution or non-tax deductible contribution is $100,000 (after 1 July 2021 it will increase to $110,000).
In the 2008 and 2009 financial year, a client in their 50’s could contribute a total of $200,000 into their superannuation fund and receive a tax deduction. Now it will take almost 8 years to receive the same benefit. Not only does that delay the receipt of the tax deduction benefit but the superannuation fund is also not getting the benefit of the compounding return on the investment as it is drip-fed into the superannuation fund over 8 years.
Prior to 2009, I suggested to my clients that they should reduce and pay off their mortgage or loans as soon as possible then contribute as much as they could to their superannuation fund after their non-tax deductible home mortgage had been paid off. Since then, I am advising my clients that they need to do both. That is, contribute some of their savings to additional mortgage repayments and some to their superannuation fund. There is no point in having your mortgage paid off but unable to retire and equally no point retiring if you have a large mortgage with no plans to downsize.
The moral of the story is that with every Federal Budget there are tax laws changes. The strategy that worked 12 years ago doesn’t work today.
Should you have any questions with regard to retirement planning, please submit an online enquiry now or call Peter Quinn on +61 2 9580 9166. We also offer a FREE 45-minute consultation should you have other financial planning, taxation or superannuation issues you may wish to discuss.
The information in this document does not take into account your personal objectives, financial situation or needs, and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.