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2 reasons why adding to superannuation isn’t a good idea


Australia’s superannuation system is highly respected by many countries around the world.

Getting citizens to fund their own retirement is the best way for Australia’s federal budget and people’s finances to remain in good shape.

Contributing 9.5% of an employee’s wage into super savings is good, particularly if those people wouldn’t otherwise make any other savings for their retirement. Forced savings can be a good idea. 

Superannuation is also a very good way to save for retirement for people close to retirement and for high net worth people & high income earners due to the tax savings.

But there are (at least) two reasons why I’m not adding any more to my super than I need to:

Access age

Once you’ve put some money into your super account, it’s almost impossible to get it out until you reach retirement age.

If you want to retire at a relatively young age then arguably you want less money in your superannuation account rather than more. It just means you need to invest a lot outside your superannuation account, even if it means you’re taxed a bit more.

Indeed, as the ageing demographics continue to play out, I wouldn’t be surprised to see the superannuation access age increase a little – although that may be an unpopular political move. Just look how the franking credit debate went down, with a successful campaign by WAM Capital Limited’s (ASX: WAM) Geoff Wilson.

Shifting requirements

Superannuation is nowhere near as attractive as it was a decade ago. It used to all be tax-free in the retirement phase, but now only a $1.6 million sum per-person is tax free.

It’s hard to want to lock away thousands of dollars for decades when the rules and goalposts are always changing.

I certainly expect that in 40 years it will still be better (tax-wise) to have a $100,000 share portfolio in super rather than out of it – assuming you have a full time job – but I’m not sure it will be as attractive in the future as it has in the past.

Foolish takeaway

It’s definitely worth having super and contributing 9.5% of your earnings into it, but I think it is worth thinking (with your financial adviser) about whether adding more money actually suits your life’s financial goals.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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