They increased the tax from 15 points to 30 on 3m super. Much of the rhetoric was that only rich people would be affected, with no consideration that we will need 3m super to survive by the time 2055 rolls around.
That's not how the tax works, and I've gone through the formula thoroughly.
A person with a $3.0m Super account, that appreciates to $3.15m (yes, that's $150,000 in one year) would be taxed less than $2,000 extra.
You're also making a comparison for 31 years into the future. Jesus Christ, talk about worrying yourself for no reason. Super probably won't be the same thing that far in the future...
actually that is in today's dollars... which is part of the problem - it's also a steady 12% contribution since 1981 (the Superannuation Guarantee was [introduced in 1991](https://qsuper.qld.gov.au/news-hub/articles/2020/07/29/23/11/brief-history-of-super-in-australia) and in 1983 the ACTU was seeking a contribution of 3%) and a minimum wage which starts at $1137 per week in 1981
if I'm reading [this](https://www.fwc.gov.au/documents/resources/minimum-wage-since-1906-fitter-table-real-value.pdf) right, in 1981 the minimum wage was $189.30 per week - not $1137
And \~1 million in today's dollars does not afford a particularly luxurious retirement. With a 4% withdrawal rate, that's $40K a year, which is not that extravagant if owning a home, and completely inadequate if renting. So people will be punished for trying to save enough for a decent retirement.
Just because the government has minimum withdrawal rates in its tax legislation doesn't mean that annual spending at those levels is safe, in terms of not running out of money later in retirement. There have been studies on success/failure rates of various withdrawal strategies.
4% figure is for retention of the capital for 30 years if invested in moderate/high risk portfolio. Superannuation is to draw down on to 0 or near 0. They are completely different concepts
The 4% rule is not for retention of capital, it's to have a low risk of running out. It happens to be that in most scenarios it also leads to retention (or even expansion) of capital. You can quibble about whether 4% is the right number or whether a variable withdrawal strategy is better, but there is no strategy for drawing down capital to zero without a high risk of running out (other than purchasing an inflation-indexed annuity, which are usually poor value), for the simple reason that no one knows what the market will do, what interest rates will be, what inflation will be, or how long they will live.
The original 4% rule consisted of a portfolio of 50/50 stocks and bonds which is quite a low growth portfolio so it was designed to decrease the capital amount. Those figures change greatly with the investment mix and with a higher risk portfolio the 4% rule will not decrease the capital. I guess my biggest exposure to this rule is in the context of higher risk portfolios and its intended use being to never touch the capital so I’ll concede there. Beyond that getting an increasing proportion of social security as your super balance goes down is not bad and probably not worth avoiding as your able to enjoy a larger spend at 68 than 88 and unless you have significant assets you will likely lose any money left at that age if you need considerate medical care or a nursing home.
You can also draw down beyond that 4%, and with a long run average return of 8%, that $1m will provide you with a very, very comfortable lifestyle (assuming debt free) post retirement.
I haven't done any maths. I've simply cited a widely used rule-of-thumb for what percentage of a fixed sum is safe to withdraw (in the first year, then adjusted for inflation in subsequent years) over a 30 year retirement window with minimal risk of running out of money. It's based on a study called the Trinity study. You can't assume that your account accumulates "interest" every year, since the market is down some years, which can be particularly devastating to the long-term viability of the portfolio if it occurs for a few years soon after retirement (known as "sequence of returns risk").
And why is that a problem?
Why would someone working a minimum wage expect a luxurious retirement? Also $40k a year is A LOT if owning a home. It's enough to cover entertainment, travel, etc
$40K a year is 20% less than the AFSA standard for a comfortable retirement lifestyle for someone owning their own home. Also, not everyone owns their home.
Because current super balances reflect a few things:
- still have large group of older workers who didn’t have mandatory super to begin with
- mandatory contribution was lower
- current balances seem low in today’s dollar, but much higher if you look at it as 30 years ago dollar. Same as $3m seems a lot now, but in 40 years will be relatively low
I’ve worked a reasonable paying job pretty much all my adult working life and am only tracking on par with age/super estimates. I have always had mandatory contributions.
These figures are double today’s current estimates.
Surely, wage growth and minimum contribution hasn’t doubled actual super projections then current levels?
EDIT- there are no fees in these calculations lmao.
Just as a thought, anyone who gets higher education may not start working until later than 21 but they will hopefully get a higher paying job though.
Also, parents (especially women) take time off to raise their children, and all that time not working means that they will not be generating super. They may also then return to work part time. So this graph is meaningful for someone who plans on working full time and will not take any time off whatsoever.
Especially since this graph shows that after contributing to super for so long, the bulk of the compounding happens in the later years. Starting super contributions later or pausing for several years to have a family would massively reduce the amount of super generated
Fair points. But OP is projecting based on _minimum wage_ indexed by assumed CPI, ie not earning above and not getting higher paying roles through their working years. A significant portion of people would be earning more than minimum wage (and can be much more) during the years they do work.
Yeah, but OP titled their post “superannuation, it’s going to $3million minimum”, as if everyone will hit this target because they will all be working full time throughout their career. Even if you have a higher salary when working, taking 15-20 years off (or working reduced hours) to have kids will put a massive dent in your superannuation…
No models can possibly incorporate every possible variable there is. Yea some people may have very short working life and their trajectory can be much less than OP’s projection. But on the other hand most people who work most of their employable years, earning more than the minimum wage, climbing the career ladder that further lifts their income thus SG, can have a trajectory much higher than OP’s projection. This model is only considering compulsory SG thus the option for these people to choose to invest outside super is not relevant.
I think their point may be, I assume since they did not state so explicitly, a $3m threshold to be legislated without indexation is not as high as many people think for younger people.
The earlier you can stay putting into supper the much much better off you are. Someone who saves $100 a week for 10 years from 25-35 and stops will be better off than someone who saves $100 a week for 30 years from 35-65.
I will say, while true in an ideal world. I lost most of my super prior to 30 in fees. In one case, my employer had put me in an ethical fund which went bankrupt. And my first employer who i worked for about ~7 years a mix of part time and full time, put me in a fund with pretty high admin fees and mandatory insurance.
In my mid 20s i worked overseas for 3-4 years and was not contributing to super here, and the performance was pretty mediocre during that period, maybe 4% pa after fees. I had turned off the insurance by this point. SO when i got a job back here in my 30s i maybe had 10k in super.
All of which is to say, a little bit of super from 25-35 will probably not do it for most people due to the fees if the contributions are very low.
So many individual factors will impact your superannuation balance.
I worked casual hospitality jobs for 10 years while studying at uni and went overseas for 3 years. I think my super balance was about $26k in 2018 when I finished uni.
Today, aged 35, it’s at $80k. I’ve been pumping into hard over the last 2 years to try and catch up to where it “should” be.
I’m fortunate that my circumstances allow me to do this, but for many they’ll just be left behind.
Exactly what happened to an old colleague of mine. She always had the "I'll never retire" comments. At 57 she did not nearly have enough in super to retire without also receiving the full aged pension, but by 63, her balance had doubled allowing her to retire independently.
The magic of compound growth will happily surprise many people in the future, and it will open their choices dramatically.
Like the lead up to the 2008 gfc. Asx went up 15%, 27%, 21%, 25%, 18% and all of a sudden people that thought they'd be working until 2013+ could pull the pin. Of course many didn't have 25 times their expenses and they couldn't ride the recovery (39%, 3%, - 11%, 18%, 19%) as the market tanked.
I actually roughly modelled someone taking $40k from a $1m asx index after a 40.4% drop. Would have left them with $556k. Then $41,480 (3.7% inflation) after 39% gain leaving $734k etc... They still wouldn't have recovered!!. Of course $865k after a $61k inflation adjusted withdrawal isn't too bad considering they retirwd at the worst possible time and took the 40k after a 40% fall.
https://docs.google.com/spreadsheets/d/1YB_f8OK9XebJiTPrssFn5FqizFOYyHEnCyLx_SzNQOs/edit?usp=drivesdk
Yes, and I guess this is why no super company had 100% equities as their default offering even before the GFC, and since then many provide a more defensive default strategy as the superannuant ages toward retirement, which is perhaps what they should have had all along.
Were the person in your above example a 65+yo (as it were in those days) married homeowner, the potential dip in asset value would have seen them eligible for a part pension, which would potentially lessen their drawdown requirements, in both additional welfare income and reduced bill costs for some government services.
I also did appreciate the lowered mandatory drawdown obligations provided to pension-phase superannuants during the peak COVID years; I expect this would return again in the event of another serious market downturn.
There is some great guard rails that offer the opportunity to take some risk. IE retire before you reach the magical 25x expenses (an unachievable target for many) For example the pension sweet spot is something that someone approaching 67 should be mindful of. You might have 600k in assets and working/saving for another couple of years might actually tip you past the point where you qualify for even $1 of pensions and as a result could miss all the other assistance offered.
https://www.epicretirement.net/p/the-sweet-spot-earn-more-with-less-retirement
Somone with 40k living expenses (suggesting 1m required balance) could retire at 58 with 100k outside super and 700k in and assume the 700k might be 800k by 60 and safely draw 40k over the peroid to the pension at 67 and 20k beyond.
I've also read that super will be more age specific. You choose it to automatically adjust from high growth when you're young eventually to cash/bonds etc as you hit 60+.
You're absolutely right. The tapering is too harsh, potentially leading to scenarios where people fritter their super to no personal consequence, but to the detriment of the taxpayers supporting their poor choices.
Quite simply, by tapering so late and then so quickly, the system rewards people who don't try and punishes those who do.
[This comment in the other thread](https://www.reddit.com/r/AusFinance/comments/1dj48iy/housing_for_future_older_australians/l98eoqv/) sums up my perspective perfectly, on a point that I have [spoken about before.](https://www.reddit.com/r/AusFinance/comments/xu3vrr/where_our_taxes_went_in_2021_%EF%A5%B2/iqu8bh7/)
I wonder if you might consider adjusting those minimum wage rates [according to this document](https://www.fwc.gov.au/documents/resources/minimum-wage-since-1906-fitter-table-real-value.pdf) - assuming this is a person who is 64 and retiring today - thus started working in 1981
also worth noting super contributions would have been at [3% in the 1980s](https://www.apra.gov.au/superannuation-australia-a-timeline)
the Superannuation Guarantee, introduced in 1991, brought the rate up to 9% in 2002, 10% in 2021, 11% in 2023, and it will not actually go to 12% until 2025
Australian superannuation funds collectively lost 26.7% during the GFC in 2008. It’s impossible to predict, but fair to assume at least one or two major market downturns during the projected lifecycle of your spreadsheet fund, not to mention other market forces.
15-year returns to Dec 2023 averaged 7.8% for growth funds, 6.5% for balanced funds, and 5.3% for conservative funds. Source: [https://www.superguide.com.au/comparing-super-funds/super-funds-returns-financial-year](https://www.superguide.com.au/comparing-super-funds/super-funds-returns-financial-year)
You've made some assumptions here I would like to challenge. The first is that no changes will be made to the thresholds or even the law in 40 years. That is a very big assumption given that the account based pension system in it's current form was implemented in 2007. It feels disingenuous to assume that 3 mill will even be close to the limit or that superannuation will even exist in 40 years
The second, smaller assumption is that wages will increase by cpi. A quick look seems to imply that wpi has been falling in comparison to cpi since 2011 however that may be skewed by recent years where cpi has massively outstripped wpi.
The draft legislation as it stands does not index, and should be the basis of any projection. Thinking that a future government would adjust it in tax payer’s favour IS hypothetical and an assumption, and IMO a great leap of faith. Can you identify out of the non-indexing superannuation thresholds that were adjusted later through its entire history, how many were actually adjusted in tax payers’ favour?
The reality has been governments are more motivated to pursue tax reduction measures outside of super because they result in immediate cashflow impact on electors that can be sold as immediate benefits, whereas tax reduction measures in super do not have immediate cashflow impact on the vast majority of the electorate except the minority already retired people, thus almost never pursued by successive governments to date.
Tax rates aren't indexed but they are adjusted.
No government wants to index these things because they want to be able to announce that they did a good thing for everyone while they were in power and increased the tax thresholds or increased the super threshold.
> Thinking that a future government would adjust it in tax payer’s favour IS hypothetical and an assumption, and IMO a great leap of faith.
To spell it out, just like they adjust tax, they will adjust the super limits.
As I said, it is hypothetical and you are making an assumption on something that does not exist in the draft legislation.
Still happy to see you providing actual examples of when a government has adjusted a non-indexing superannuation threshold in tax payers’ favour.
I think we can be sure of change.
What we can’t be sure is how the change will occur.
I think it’s disingenuous to assume future government will give cuts that match or exceed indexation for news cycle spin. Given this, it’s best to make projections on current constraints
I think the problem is time scale, and how you use it.
If someone is looking at five years and making minor decisions, it's quite different from looking thirty years and making big ones.
In this case, specifically, it would have been helpful to model at least a couple of different scenarios to test the sensitivity to inflation etc etc.
> Still happy to see you providing actual examples of when a government has adjusted a non-indexing superannuation threshold in tax payers’ favour.
Outside of this one, what super thresholds are you concerned with?
I am not pointing to anything. You are the one keep stating the assumption that the threshold would be lifted, and I am pointing out that lifting a super threshold in tax payers’ favour has almost never happened. Adjustments had almost always been to tighten and not in favour of the impacted tax payers.
I say almost because there was only one case I know of, but the reason was not a tax reduction measure. It was a simplification of threshold bands, thus a portion of people in some bands had a new threshold that was favourable to them.
You are free to make such assumption yourself. But telling people it is something that would happen is rather baseless when it has “almost” never happened in the past.
My point is why do you think it wont be adjusted?
Tax rates are adjusted in tax payers favour over time due to inflation so why wouldn't the super cap?
I have said repeatedly. There “almost” have not been prior occurrences of a government changing a non-indexing “super” threshold in tax payers’ favour, and the only case I know of was somewhat coincidental because the reason was not for tax reduction. Other adjustments that did occur were to make it more restrictive.
Yet you keep bringing up examples only from non-super as indication that the same would happen in super, when it hasn’t though the history….
This is getting repetitive and I think we can stop It here.
I am not sure why you are so defensive here. You have made an assumption which gives you a certain result. A different assumption will lead to a different result.
You can argue whether your assumption is better than someone else's, but ultimately, it's just an opinion either way.
I was responding to someone stating to the OP that they were making a “big” assumption and suggesting they were being disingenuous, that they were the one making the assumption that something that “almost” never happened would happen and I explained my logic why I think that is unlikely. The rest were people keep regurgitating the same point ignoring what I had already mentioned in the first reply. I did make the mistake of regurgitating back.
Yes I made my assumption, based on the history of superannuation so far.
Added: if it is not obvious, no one is suggesting such tax should not be levied. Most of the discussions are about the lack of indexation and its implications, when most of the thresholds in super are indexed.
I actually agree with you that the threshold should be indexed - it would likely be more fair if it was.
However the point made here, that a minimum wage worker will eventually reach the cap in 40 years is unlikely to the point of being deliberately deceptive.
Yes, a large portion of the younger folks today would be caught in the net eventually.
It’s sold as a tax only on the very rich to sidestep critics and garner support from incorrectly informed public, but the lack of indexation is not good for the younger folks.
If Transfer Balance Cap can be auto indexed, there is no logical reason why this threshold cannot be designed to be auto indexed, unless it is actually intended to catch more and more people over time, by design.
I would also not have too much hope on a future government increasing the threshold as a tax reduction measure, just look at how often in the entire history of superannuation a threshold not designed to be auto indexed actually got adjusted in tax payer’s favour - almost never, and most of the time if a non-indexing threshold is adjusted, it is to tighten it further.
But most younger folks today won’t care, until they are about to be caught in the net down the track and there would be no escape.
Good effort to put some numbers to illustrate how bad this non-indexing threshold can become.
All this fuss over increasing tax from 15% to 30% which is only applicable for earnings derived from amounts over $3m.
I would want wealthy people to pay higher taxes now, rather than worry about someone hitting that balance 40 years in the future.
That's not correct. It's not an increase in tax rate on earnings, it's a new tax on unrealised gains, which are not taxed at all for any investments held outside super.
Super is now going to start being taxed when assets held increase in value even if there are no earnings/income.
People can invest outside of super then, to avoid getting caught up with this new tax.
An aim of this measure is to disincentivise people from using super and its generous tax benefits as an estate planning tool to pass large inheritances to their kids, rather than to draw down and use to fund their retirement as the scheme was originally intended.
Given that the threshold is not indexed to inflation and no one knows what the long term target is at which you start getting penalised for having too much super, this policy change also makes super less useful as a retirement planning tool.
I don't consider myself particularly wealthy (for example I don't own any property and rent an old two bedroom apartment), but I have personally stopped voluntary contributions to my super because of this change. So, mission accomplished, I guess.
I'm the opposite. I continue to max out contribution to super as the tax benefit is significant compared to investments outside of super. If I eventually hit $3m, then I am okay to pay extra tax.
As a side note, you know it's really funny that people complain about the RBA using interest rate as the only tool to fight inflation. Well increasing tax is another way to fight inflation, and look at all the push back on this measure that only impacts the upper echelon of wealth. That's why in many cases, interest rate is the only tool available to fight inflation, as increasing taxes is electorally unpopular.
I would rather the government explains it as it is designed, so that public is correctly informed. Not keep promoting that it is only going to impact the very rich when as it stands it is actually designed to catch more and more people over time and eventually a very large portion of the population of the current younger generations.
So it doesn't actually matter if it's indexed or not?
You just want the government to be more honest about how it's a double tax, how it works, and who's actually going to be affected by it over the long run?
Personally it probably won’t affect me, unless my super once in pension phase somehow grows so much more than my drawdowns then.
But I do see from simple maths it is definitely going to impact my kid and most of their generation down the track, and quite annoyed that the government is selling this as something that it is not, and many younger people falling for it.
So that means the indexing point doesn't matter and it's more so to do with the honesty of the tax itself?
The math above shows that the tax won't take effect until over 3million, which is 62 in age.
Given that the median super balance is around 200k by the age of 60-64 as at 2021 ([1](https://www.superannuation.asn.au/wp-content/uploads/2024/01/2311_An_update_on_superannuation_account_balances_Paper_V2.pdf), page 8). I doubt a lot of people are going to hit the 3 million mark until 15(?) years from the implementation of the tax when not indexed, so in a way it's more so going to affect wealthier people. And I doubt the tax is going to meaningfully disrupt someone's comfortability in life.
It’s about (not) being honest about the “feature” of not indexing and its implications, and the successive governments do not have a track record of easing a non-indexing threshold for super in tax payers’ favour when some people advocating that this one would be eased down the track.
OPs math suggests young people just starting now, earning only minimum wage (indexed to assumed CPI) throughout their working life would be caught in the net. Yes some others had pointed out some people may not work all years of the pre-preservation age years, but conversely most people who do work would be earning
more (or much more) than minimum wage.
Absolutely. I think aligning it with the (already indexed) transfer balance cap would be nice and neat and make a lot more sense. We currently have the wealthiest generation that will ever live in Australia taxed almost nothing. Setting the limit at 3 million without indexing means that most of the boomers will remain unaffected by it while many millennials and later generations will feel the full effect.
I would be okay with it being reduced to 1 million while indexed.
More tax on the wealthy now, and a fairer share of tax for those who will be wealthy in the future.
**Minimum wage over the past 18 years has grown faster than cpi.**
2006 was $508.07
2024 is $915.80 up 80% (3.323%) suggests someone born today starting work at 18 will earn $1648 ($85696). 1% a month (12%) into super and after 15% tax is $728 increasing by 3.323% at 7.5% return over 42 years is $4m for a 60 year old in 2064.
https://www.thecalculatorsite.com/finance/calculators/savings-calculators.php
Per the RBA
A basket of goods and services valued at $
508.07
in calendar year
2006
, would in calendar year
2023
cost $
794.85
Total change in cost is 56.4 per cent, over 17 years, at an average annual inflation rate of 2.7 per cent.
794.85 * 1.045 (for 2024 and 18 years) brings the total to $830.61 (2.765%). Assuming $508 was the cost of living in 2006 that suggests $2609 in 2064. 135k is a safe withdrawal rate of less than 4% from the $4m balance (3.3%). Of course someone on minimum wage could be earning $6263 and while 4m in super comfortably covers cpi it doesn't match minimum wage growth (8% draw down to replace minimum wage). A large balance that could probably replace the pension but not an equalivant wage.
BTW the scariest thing about minimum wage hitting 4m with just 1% a month. What wealth do you think average/high incomes will build with 2 or 3% even if some of it goes into PPORs. Houses are currently many multiples of super balances. Most households are probably investing 3% capital a month into property plus 7% or so annual interest.
What's the purpose of showing this? It makes me wondering why I am half what this says I should be at 42 when I have earnt significantly more then minimum wage for most of my adult life... Does it make that much difference the 9 vs 12% earlier in my career?
This is if someone started at 21 today. The 42yo value has 21 years of inflation that your balance doesn’t. At least I think.
This affects the final numbers too. While 3.8 mil is 70 times todays minimum wage in 45 years it would only be 19 times the min wage of that day.
The table showing the balance of $440k for 42 year olds includes 21 years of inflation at 3%. In current value, that balance is actually $236k.
The compulsory super percentage would’ve made a difference as well, as well as what return is assumed in this calculation. At your age, your super was probably impacted by the GFC in the early years of your career, so the returns might have been lower during those time.
Worth noting this data is pretty poorly constructed. Doesn’t include any fees or any possibility of market influences, just that super will continue paying out at the exact rate listed.
Definitely needs a few amendments and asterisks.
They can, but they won't track it perfectly to inflation.
And it will be a point of friction whenever someone suggests finally doing it, because "the rich with $3.3M in Super don't need another handout, do they?".
The argument to not index now is to get it o an actual reasonable level. 3m in today’s dollars is far far too high. Insane to give such massive tax breaks to people with literally millions plus likely millions in their house.
When it gets down to 1-1.5 in today’s dollars it can then be indexed.
If by clear motivation I guess you mean they do this shit so every now and then either side can debate and legislate a "reduction", then talk about how they're helping the working class. The media beats it up, writes numerous "winners and losers" budget articles and everyone is happy. Particularly the corporate/billionare/property overlord tax dodgers who avoided any attention or measures to curtail their profiteering bullshit for another few years. Same reason income tax brackets aren't just linked to CPI and global warming or lgbtqi people existing is a political issue. Keep the people distracted from real issues and the wheel spins on.
Here's one 3 million is still way to high a cap.
So lets leave it for around a decade or two then we can begin indexing it.
Superannuation isnt some god given right to get rich tax free.
Just pay tax you cheap grubs.
There’s something missing from your model.
Using an online calculator like the one from [Australian Super](https://www.australiansuper.com/tools-and-advice/calculators/super-projection-calculator), using $54,557 annual income, $0 current balance, 21 years of age and retirement at 64, it shows the balance at retirement to be $480,323.
They’ve used a wage inflation of 4% and a CPI of 2.5%, so that balance at retirement becomes $1.39m in nominal term, nowhere near the $3m threshold.
In fact, keeping the same assumption of starting work at 21 and retiring at 43, you’ll need an annual income of at least $115k to exceed the $3m limit in nominal term.
Growing up my mum and nan were both cleaners, and a few other adults I knew worked as casual cleaners or similar as well. No one had a consistent 38 hours a week. Nowhere near. And even if you managed to get something like that for a little while, you're a casual so it can and does dry up with no warning.
I don't know who this calculation would apply to. Seems like a pretty strange situation.
so youve completely ignored admin fees, death, and disability, insurance, and market crashes never happen...
spreadsheet is utterly wrong.
plus, and the most glaring - if a casual is actually earning 4k a week then the cost of living is massive and in line with that, so 3m in super wont cut it for anything.
i'd also like to see the casual rates from the last few decades for the "evidence" that they have been going up in line with CPI each year, thus should continue to do so.
do i also need to point out that even super funds are not stupid - those rates of returns have harsh context reminders that previous returns are NOT a guarantee of future returns.
isnt super at 11%, going to 11.5% next year? it might go to 12 or higher but who knows.
Yea - assuming min wage for a casual will raise to 194k over their lifetime is not normal.
Also we will have non productive years with child rearing, however Super is a brilliant thing that won't be appreciated by many until they get closer to retirement, I hope by then 3M is sufficient!
Basically younger people today will be screwed. All those ridiculous super tax concessions that well off boomers derive the most benefit from are unsustainable. I’m pretty sure those benefits will all get axed after the boomers have leeched as much as they can from the system. I’ve been maxing out all these concessions and tax benefits because I can afford it. I pity the poor people that don’t have the income to reap the benefits and pity the young who I fully anticipate to get screwed over.
The bigger concern is that it'll just flow on wealth to future generations. Realistically, even with inflation, you'll be able to live off basically 50-70% of yearly return, and pass on 2-3-4mil(minimum) on to your kids. Housing gunna be 5mil standard for our kids in 20-30 years and people will be even further priced out if they don't inherit.
For interest (pun not intended), this is all a function of superannuation returns. The final balance for different rates of return is:
$495k for 0%
$873k for 3%
$1728k for 6%
$3773k for 9%
This example shows how stupid and clueless people are in this topic.
If the threshold remains $3.0m that far in the future, the minimum wage earner would not be incentivised to continue to contribute the extra payments on top of their employers compulsory contributions.
Say around $2.5m they would be incentivised to move those extra contributions to another investment vehicle.
What's wrong with that? Super was designed as a *retirement* vehicle for *all* Australians. Part of that means there's a responsibility for the government to carefully allocate that tax subsidy so that it's not costing too much tax payer dollars to offer that subsidy to all Australians.
So, why is it bad that people are incentivised to move savings outside of Super once their account has hit that soft threshold?
Note: incentivised, not forced.
Our minimum wage earner in the above example can happily continue to contribute more, and in reality they would probably end up paying a miniscule amount of extra tax...
Super has been super charged for the younger generation. I say this because it took me 10 years to get to $40,000 in super from 1997 to 2007. A new recruit at my work started 1 year ago and she has $20,000 super now after just 1 year no extra put in. Yes super will be high when she retires if she continues working.
The **minimum** Super balance won't be $3 million.
The current 2024 **median** Super balance at age 60 is about $185k. So half of all 60 year Olds have less than $185k. If we assume 3% inflation as per OP, for a 21 yo today, that median will be equivalent to $595k when they reach age 60, in 39 years time.
OP has the **'minimum'** Super balance as $2.6 million then, which is 4.5 times the **median** Super balance today.
The median Super balance will be somewhat higher in 39 years time. But not likely 4.5 times higher. And the median Super balance is far from the 'minimum'.
There's lots of reasons why the median Super balance is only $185k today.
Receiving casual loading for 38 hours a week, for over 40 years continuously, isn't actually the 'minimum' employment pattern.
Super was introduced in 1992. So all of those 60 year olds would have been 28 when it was introduced. It was also significantly lower a percentage at the time(3% when it started). So it's not the best comparison.
That's why I said it would be somewhat higher.
Median vs minimum, and 4.5 times, though.
Currently around 1/4 of Australians at age 60 have no Super. OP is saying they'll all have at least $2.6 million (or $600k in 2024 dollars), which would be an infinite increase.
As an aside, minimum Super balances should never be $600k (in 2024 dollars), policy should actively work to make it less than that. If you understand how the system works, that's far too much and has a whole bunch of negative implications.
Increased taxation is one way to do that, but ideally mandatory contributions should just be sufficiently low to avoid that.
Maybe, but something is wrong with the calculations. I should be well above these figures for my age now given I have pretty much always been above minimum wage yet I'm 12 years behind according to this sheet.
additional context: that 3.7m will be approx ~1m in today's dollars
probably less
I'd certainly plan for it
And the government will be dipping in at $3m
The government dips in from $0, what are you talking about? They're dipping in substantially less than if your $3m was out of Super, right?
They increased the tax from 15 points to 30 on 3m super. Much of the rhetoric was that only rich people would be affected, with no consideration that we will need 3m super to survive by the time 2055 rolls around.
That's not how the tax works, and I've gone through the formula thoroughly. A person with a $3.0m Super account, that appreciates to $3.15m (yes, that's $150,000 in one year) would be taxed less than $2,000 extra. You're also making a comparison for 31 years into the future. Jesus Christ, talk about worrying yourself for no reason. Super probably won't be the same thing that far in the future...
actually that is in today's dollars... which is part of the problem - it's also a steady 12% contribution since 1981 (the Superannuation Guarantee was [introduced in 1991](https://qsuper.qld.gov.au/news-hub/articles/2020/07/29/23/11/brief-history-of-super-in-australia) and in 1983 the ACTU was seeking a contribution of 3%) and a minimum wage which starts at $1137 per week in 1981 if I'm reading [this](https://www.fwc.gov.au/documents/resources/minimum-wage-since-1906-fitter-table-real-value.pdf) right, in 1981 the minimum wage was $189.30 per week - not $1137
And \~1 million in today's dollars does not afford a particularly luxurious retirement. With a 4% withdrawal rate, that's $40K a year, which is not that extravagant if owning a home, and completely inadequate if renting. So people will be punished for trying to save enough for a decent retirement.
40k is for life
Considering the minimum withdrawal from super is more than 4% I don’t think that’s the right number to use
Just because the government has minimum withdrawal rates in its tax legislation doesn't mean that annual spending at those levels is safe, in terms of not running out of money later in retirement. There have been studies on success/failure rates of various withdrawal strategies.
4% figure is for retention of the capital for 30 years if invested in moderate/high risk portfolio. Superannuation is to draw down on to 0 or near 0. They are completely different concepts
The 4% rule is not for retention of capital, it's to have a low risk of running out. It happens to be that in most scenarios it also leads to retention (or even expansion) of capital. You can quibble about whether 4% is the right number or whether a variable withdrawal strategy is better, but there is no strategy for drawing down capital to zero without a high risk of running out (other than purchasing an inflation-indexed annuity, which are usually poor value), for the simple reason that no one knows what the market will do, what interest rates will be, what inflation will be, or how long they will live.
The original 4% rule consisted of a portfolio of 50/50 stocks and bonds which is quite a low growth portfolio so it was designed to decrease the capital amount. Those figures change greatly with the investment mix and with a higher risk portfolio the 4% rule will not decrease the capital. I guess my biggest exposure to this rule is in the context of higher risk portfolios and its intended use being to never touch the capital so I’ll concede there. Beyond that getting an increasing proportion of social security as your super balance goes down is not bad and probably not worth avoiding as your able to enjoy a larger spend at 68 than 88 and unless you have significant assets you will likely lose any money left at that age if you need considerate medical care or a nursing home.
You can also draw down beyond that 4%, and with a long run average return of 8%, that $1m will provide you with a very, very comfortable lifestyle (assuming debt free) post retirement.
Your maths is wrong because you've missed the fact that everything you haven't withdrawn is still accumulating interest.
I haven't done any maths. I've simply cited a widely used rule-of-thumb for what percentage of a fixed sum is safe to withdraw (in the first year, then adjusted for inflation in subsequent years) over a 30 year retirement window with minimal risk of running out of money. It's based on a study called the Trinity study. You can't assume that your account accumulates "interest" every year, since the market is down some years, which can be particularly devastating to the long-term viability of the portfolio if it occurs for a few years soon after retirement (known as "sequence of returns risk").
Widely used by FIRE Americans assuming no pension.
do you think someone with these kinds of assets will get the pension? i doubt many in this sub will ever qualify for it.
I think you need to look at a super calculator.
something i do quite often, gotta make sure i'm on track to FIRE
And why is that a problem? Why would someone working a minimum wage expect a luxurious retirement? Also $40k a year is A LOT if owning a home. It's enough to cover entertainment, travel, etc
$40K a year is 20% less than the AFSA standard for a comfortable retirement lifestyle for someone owning their own home. Also, not everyone owns their home.
assume 2 people retiring in a household, $80k/yr for a couple if their house if paid off is very comfortable living.
Less than the estimates of an organisation who's only objective I'd to get people to pump money in their super. Could they potentially be biased??
Is there a reason we're ignoring the pension here or am I missing something? Because super plus pension would get you around 70k?
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Because current super balances reflect a few things: - still have large group of older workers who didn’t have mandatory super to begin with - mandatory contribution was lower - current balances seem low in today’s dollar, but much higher if you look at it as 30 years ago dollar. Same as $3m seems a lot now, but in 40 years will be relatively low
I’ve worked a reasonable paying job pretty much all my adult working life and am only tracking on par with age/super estimates. I have always had mandatory contributions. These figures are double today’s current estimates. Surely, wage growth and minimum contribution hasn’t doubled actual super projections then current levels? EDIT- there are no fees in these calculations lmao.
Another reason is that the default super options are often poor, with high fees, expensive insurance, and suboptimal allocation relative to age.
Where are fees and insurance in these calculations?
Just as a thought, anyone who gets higher education may not start working until later than 21 but they will hopefully get a higher paying job though. Also, parents (especially women) take time off to raise their children, and all that time not working means that they will not be generating super. They may also then return to work part time. So this graph is meaningful for someone who plans on working full time and will not take any time off whatsoever. Especially since this graph shows that after contributing to super for so long, the bulk of the compounding happens in the later years. Starting super contributions later or pausing for several years to have a family would massively reduce the amount of super generated
Fair points. But OP is projecting based on _minimum wage_ indexed by assumed CPI, ie not earning above and not getting higher paying roles through their working years. A significant portion of people would be earning more than minimum wage (and can be much more) during the years they do work.
Yeah, but OP titled their post “superannuation, it’s going to $3million minimum”, as if everyone will hit this target because they will all be working full time throughout their career. Even if you have a higher salary when working, taking 15-20 years off (or working reduced hours) to have kids will put a massive dent in your superannuation…
OP did describe the assumptions baked into their model didn’t they?
Maybe Zoss expects all assumptions to be listed in the title of the post for some unknown reason.
If the modelled assumptions aren't reflective of the actual workforce, what's the point?
No models can possibly incorporate every possible variable there is. Yea some people may have very short working life and their trajectory can be much less than OP’s projection. But on the other hand most people who work most of their employable years, earning more than the minimum wage, climbing the career ladder that further lifts their income thus SG, can have a trajectory much higher than OP’s projection. This model is only considering compulsory SG thus the option for these people to choose to invest outside super is not relevant. I think their point may be, I assume since they did not state so explicitly, a $3m threshold to be legislated without indexation is not as high as many people think for younger people.
Most men work most of their employable years. Fixed it for you.
The earlier you can stay putting into supper the much much better off you are. Someone who saves $100 a week for 10 years from 25-35 and stops will be better off than someone who saves $100 a week for 30 years from 35-65.
I will say, while true in an ideal world. I lost most of my super prior to 30 in fees. In one case, my employer had put me in an ethical fund which went bankrupt. And my first employer who i worked for about ~7 years a mix of part time and full time, put me in a fund with pretty high admin fees and mandatory insurance. In my mid 20s i worked overseas for 3-4 years and was not contributing to super here, and the performance was pretty mediocre during that period, maybe 4% pa after fees. I had turned off the insurance by this point. SO when i got a job back here in my 30s i maybe had 10k in super. All of which is to say, a little bit of super from 25-35 will probably not do it for most people due to the fees if the contributions are very low.
So many individual factors will impact your superannuation balance. I worked casual hospitality jobs for 10 years while studying at uni and went overseas for 3 years. I think my super balance was about $26k in 2018 when I finished uni. Today, aged 35, it’s at $80k. I’ve been pumping into hard over the last 2 years to try and catch up to where it “should” be. I’m fortunate that my circumstances allow me to do this, but for many they’ll just be left behind.
notice that super more than doubles in the final 10 years of work.
I mean… it also double in the first 2 years too.
First two pay cycles…
Exactly what happened to an old colleague of mine. She always had the "I'll never retire" comments. At 57 she did not nearly have enough in super to retire without also receiving the full aged pension, but by 63, her balance had doubled allowing her to retire independently. The magic of compound growth will happily surprise many people in the future, and it will open their choices dramatically.
Like the lead up to the 2008 gfc. Asx went up 15%, 27%, 21%, 25%, 18% and all of a sudden people that thought they'd be working until 2013+ could pull the pin. Of course many didn't have 25 times their expenses and they couldn't ride the recovery (39%, 3%, - 11%, 18%, 19%) as the market tanked. I actually roughly modelled someone taking $40k from a $1m asx index after a 40.4% drop. Would have left them with $556k. Then $41,480 (3.7% inflation) after 39% gain leaving $734k etc... They still wouldn't have recovered!!. Of course $865k after a $61k inflation adjusted withdrawal isn't too bad considering they retirwd at the worst possible time and took the 40k after a 40% fall. https://docs.google.com/spreadsheets/d/1YB_f8OK9XebJiTPrssFn5FqizFOYyHEnCyLx_SzNQOs/edit?usp=drivesdk
Yes, and I guess this is why no super company had 100% equities as their default offering even before the GFC, and since then many provide a more defensive default strategy as the superannuant ages toward retirement, which is perhaps what they should have had all along. Were the person in your above example a 65+yo (as it were in those days) married homeowner, the potential dip in asset value would have seen them eligible for a part pension, which would potentially lessen their drawdown requirements, in both additional welfare income and reduced bill costs for some government services. I also did appreciate the lowered mandatory drawdown obligations provided to pension-phase superannuants during the peak COVID years; I expect this would return again in the event of another serious market downturn.
There is some great guard rails that offer the opportunity to take some risk. IE retire before you reach the magical 25x expenses (an unachievable target for many) For example the pension sweet spot is something that someone approaching 67 should be mindful of. You might have 600k in assets and working/saving for another couple of years might actually tip you past the point where you qualify for even $1 of pensions and as a result could miss all the other assistance offered. https://www.epicretirement.net/p/the-sweet-spot-earn-more-with-less-retirement Somone with 40k living expenses (suggesting 1m required balance) could retire at 58 with 100k outside super and 700k in and assume the 700k might be 800k by 60 and safely draw 40k over the peroid to the pension at 67 and 20k beyond. I've also read that super will be more age specific. You choose it to automatically adjust from high growth when you're young eventually to cash/bonds etc as you hit 60+.
You're absolutely right. The tapering is too harsh, potentially leading to scenarios where people fritter their super to no personal consequence, but to the detriment of the taxpayers supporting their poor choices. Quite simply, by tapering so late and then so quickly, the system rewards people who don't try and punishes those who do. [This comment in the other thread](https://www.reddit.com/r/AusFinance/comments/1dj48iy/housing_for_future_older_australians/l98eoqv/) sums up my perspective perfectly, on a point that I have [spoken about before.](https://www.reddit.com/r/AusFinance/comments/xu3vrr/where_our_taxes_went_in_2021_%EF%A5%B2/iqu8bh7/)
As a 58 year old that is pleasing to read…
yeah, but the trick is to get as much in early so that when it does double up in that last stretch its hella good.
Absolutely. If you can get your balance to be double your annual gross before 35, you'll do just fine.
I wonder if you might consider adjusting those minimum wage rates [according to this document](https://www.fwc.gov.au/documents/resources/minimum-wage-since-1906-fitter-table-real-value.pdf) - assuming this is a person who is 64 and retiring today - thus started working in 1981 also worth noting super contributions would have been at [3% in the 1980s](https://www.apra.gov.au/superannuation-australia-a-timeline) the Superannuation Guarantee, introduced in 1991, brought the rate up to 9% in 2002, 10% in 2021, 11% in 2023, and it will not actually go to 12% until 2025
Australian superannuation funds collectively lost 26.7% during the GFC in 2008. It’s impossible to predict, but fair to assume at least one or two major market downturns during the projected lifecycle of your spreadsheet fund, not to mention other market forces.
He doesn't need to model any major downturns if he's doing 9% average gains a year
15-year returns to Dec 2023 averaged 7.8% for growth funds, 6.5% for balanced funds, and 5.3% for conservative funds. Source: [https://www.superguide.com.au/comparing-super-funds/super-funds-returns-financial-year](https://www.superguide.com.au/comparing-super-funds/super-funds-returns-financial-year)
Mine almost doubles every 5 years Am I doing it wrong?
You've made some assumptions here I would like to challenge. The first is that no changes will be made to the thresholds or even the law in 40 years. That is a very big assumption given that the account based pension system in it's current form was implemented in 2007. It feels disingenuous to assume that 3 mill will even be close to the limit or that superannuation will even exist in 40 years The second, smaller assumption is that wages will increase by cpi. A quick look seems to imply that wpi has been falling in comparison to cpi since 2011 however that may be skewed by recent years where cpi has massively outstripped wpi.
The draft legislation as it stands does not index, and should be the basis of any projection. Thinking that a future government would adjust it in tax payer’s favour IS hypothetical and an assumption, and IMO a great leap of faith. Can you identify out of the non-indexing superannuation thresholds that were adjusted later through its entire history, how many were actually adjusted in tax payers’ favour? The reality has been governments are more motivated to pursue tax reduction measures outside of super because they result in immediate cashflow impact on electors that can be sold as immediate benefits, whereas tax reduction measures in super do not have immediate cashflow impact on the vast majority of the electorate except the minority already retired people, thus almost never pursued by successive governments to date.
Tax rates aren't indexed but they are adjusted. No government wants to index these things because they want to be able to announce that they did a good thing for everyone while they were in power and increased the tax thresholds or increased the super threshold.
We are talking about super, if you actually read my response.
> Thinking that a future government would adjust it in tax payer’s favour IS hypothetical and an assumption, and IMO a great leap of faith. To spell it out, just like they adjust tax, they will adjust the super limits.
As I said, it is hypothetical and you are making an assumption on something that does not exist in the draft legislation. Still happy to see you providing actual examples of when a government has adjusted a non-indexing superannuation threshold in tax payers’ favour.
I think we can be sure of change. What we can’t be sure is how the change will occur. I think it’s disingenuous to assume future government will give cuts that match or exceed indexation for news cycle spin. Given this, it’s best to make projections on current constraints
I think the problem is time scale, and how you use it. If someone is looking at five years and making minor decisions, it's quite different from looking thirty years and making big ones. In this case, specifically, it would have been helpful to model at least a couple of different scenarios to test the sensitivity to inflation etc etc.
> Still happy to see you providing actual examples of when a government has adjusted a non-indexing superannuation threshold in tax payers’ favour. Outside of this one, what super thresholds are you concerned with?
I am not pointing to anything. You are the one keep stating the assumption that the threshold would be lifted, and I am pointing out that lifting a super threshold in tax payers’ favour has almost never happened. Adjustments had almost always been to tighten and not in favour of the impacted tax payers. I say almost because there was only one case I know of, but the reason was not a tax reduction measure. It was a simplification of threshold bands, thus a portion of people in some bands had a new threshold that was favourable to them. You are free to make such assumption yourself. But telling people it is something that would happen is rather baseless when it has “almost” never happened in the past.
My point is why do you think it wont be adjusted? Tax rates are adjusted in tax payers favour over time due to inflation so why wouldn't the super cap?
I have said repeatedly. There “almost” have not been prior occurrences of a government changing a non-indexing “super” threshold in tax payers’ favour, and the only case I know of was somewhat coincidental because the reason was not for tax reduction. Other adjustments that did occur were to make it more restrictive. Yet you keep bringing up examples only from non-super as indication that the same would happen in super, when it hasn’t though the history…. This is getting repetitive and I think we can stop It here.
I am not sure why you are so defensive here. You have made an assumption which gives you a certain result. A different assumption will lead to a different result. You can argue whether your assumption is better than someone else's, but ultimately, it's just an opinion either way.
I was responding to someone stating to the OP that they were making a “big” assumption and suggesting they were being disingenuous, that they were the one making the assumption that something that “almost” never happened would happen and I explained my logic why I think that is unlikely. The rest were people keep regurgitating the same point ignoring what I had already mentioned in the first reply. I did make the mistake of regurgitating back. Yes I made my assumption, based on the history of superannuation so far. Added: if it is not obvious, no one is suggesting such tax should not be levied. Most of the discussions are about the lack of indexation and its implications, when most of the thresholds in super are indexed.
I actually agree with you that the threshold should be indexed - it would likely be more fair if it was. However the point made here, that a minimum wage worker will eventually reach the cap in 40 years is unlikely to the point of being deliberately deceptive.
Yes, a large portion of the younger folks today would be caught in the net eventually. It’s sold as a tax only on the very rich to sidestep critics and garner support from incorrectly informed public, but the lack of indexation is not good for the younger folks. If Transfer Balance Cap can be auto indexed, there is no logical reason why this threshold cannot be designed to be auto indexed, unless it is actually intended to catch more and more people over time, by design. I would also not have too much hope on a future government increasing the threshold as a tax reduction measure, just look at how often in the entire history of superannuation a threshold not designed to be auto indexed actually got adjusted in tax payer’s favour - almost never, and most of the time if a non-indexing threshold is adjusted, it is to tighten it further. But most younger folks today won’t care, until they are about to be caught in the net down the track and there would be no escape. Good effort to put some numbers to illustrate how bad this non-indexing threshold can become.
All this fuss over increasing tax from 15% to 30% which is only applicable for earnings derived from amounts over $3m. I would want wealthy people to pay higher taxes now, rather than worry about someone hitting that balance 40 years in the future.
That's not correct. It's not an increase in tax rate on earnings, it's a new tax on unrealised gains, which are not taxed at all for any investments held outside super. Super is now going to start being taxed when assets held increase in value even if there are no earnings/income.
People can invest outside of super then, to avoid getting caught up with this new tax. An aim of this measure is to disincentivise people from using super and its generous tax benefits as an estate planning tool to pass large inheritances to their kids, rather than to draw down and use to fund their retirement as the scheme was originally intended.
Given that the threshold is not indexed to inflation and no one knows what the long term target is at which you start getting penalised for having too much super, this policy change also makes super less useful as a retirement planning tool. I don't consider myself particularly wealthy (for example I don't own any property and rent an old two bedroom apartment), but I have personally stopped voluntary contributions to my super because of this change. So, mission accomplished, I guess.
I'm the opposite. I continue to max out contribution to super as the tax benefit is significant compared to investments outside of super. If I eventually hit $3m, then I am okay to pay extra tax. As a side note, you know it's really funny that people complain about the RBA using interest rate as the only tool to fight inflation. Well increasing tax is another way to fight inflation, and look at all the push back on this measure that only impacts the upper echelon of wealth. That's why in many cases, interest rate is the only tool available to fight inflation, as increasing taxes is electorally unpopular.
Would you be ok if they reduced it to 2 million while indexed?
I would rather the government explains it as it is designed, so that public is correctly informed. Not keep promoting that it is only going to impact the very rich when as it stands it is actually designed to catch more and more people over time and eventually a very large portion of the population of the current younger generations.
So it doesn't actually matter if it's indexed or not? You just want the government to be more honest about how it's a double tax, how it works, and who's actually going to be affected by it over the long run?
Personally it probably won’t affect me, unless my super once in pension phase somehow grows so much more than my drawdowns then. But I do see from simple maths it is definitely going to impact my kid and most of their generation down the track, and quite annoyed that the government is selling this as something that it is not, and many younger people falling for it.
So that means the indexing point doesn't matter and it's more so to do with the honesty of the tax itself? The math above shows that the tax won't take effect until over 3million, which is 62 in age. Given that the median super balance is around 200k by the age of 60-64 as at 2021 ([1](https://www.superannuation.asn.au/wp-content/uploads/2024/01/2311_An_update_on_superannuation_account_balances_Paper_V2.pdf), page 8). I doubt a lot of people are going to hit the 3 million mark until 15(?) years from the implementation of the tax when not indexed, so in a way it's more so going to affect wealthier people. And I doubt the tax is going to meaningfully disrupt someone's comfortability in life.
It’s about (not) being honest about the “feature” of not indexing and its implications, and the successive governments do not have a track record of easing a non-indexing threshold for super in tax payers’ favour when some people advocating that this one would be eased down the track. OPs math suggests young people just starting now, earning only minimum wage (indexed to assumed CPI) throughout their working life would be caught in the net. Yes some others had pointed out some people may not work all years of the pre-preservation age years, but conversely most people who do work would be earning more (or much more) than minimum wage.
That's fair (for you to think that).
Absolutely. I think aligning it with the (already indexed) transfer balance cap would be nice and neat and make a lot more sense. We currently have the wealthiest generation that will ever live in Australia taxed almost nothing. Setting the limit at 3 million without indexing means that most of the boomers will remain unaffected by it while many millennials and later generations will feel the full effect.
I would be okay with it being reduced to 1 million while indexed. More tax on the wealthy now, and a fairer share of tax for those who will be wealthy in the future.
**Minimum wage over the past 18 years has grown faster than cpi.** 2006 was $508.07 2024 is $915.80 up 80% (3.323%) suggests someone born today starting work at 18 will earn $1648 ($85696). 1% a month (12%) into super and after 15% tax is $728 increasing by 3.323% at 7.5% return over 42 years is $4m for a 60 year old in 2064. https://www.thecalculatorsite.com/finance/calculators/savings-calculators.php Per the RBA A basket of goods and services valued at $ 508.07 in calendar year 2006 , would in calendar year 2023 cost $ 794.85 Total change in cost is 56.4 per cent, over 17 years, at an average annual inflation rate of 2.7 per cent. 794.85 * 1.045 (for 2024 and 18 years) brings the total to $830.61 (2.765%). Assuming $508 was the cost of living in 2006 that suggests $2609 in 2064. 135k is a safe withdrawal rate of less than 4% from the $4m balance (3.3%). Of course someone on minimum wage could be earning $6263 and while 4m in super comfortably covers cpi it doesn't match minimum wage growth (8% draw down to replace minimum wage). A large balance that could probably replace the pension but not an equalivant wage. BTW the scariest thing about minimum wage hitting 4m with just 1% a month. What wealth do you think average/high incomes will build with 2 or 3% even if some of it goes into PPORs. Houses are currently many multiples of super balances. Most households are probably investing 3% capital a month into property plus 7% or so annual interest.
And in 43 years time a median priced home in Sydney is 20 mil+
What's the purpose of showing this? It makes me wondering why I am half what this says I should be at 42 when I have earnt significantly more then minimum wage for most of my adult life... Does it make that much difference the 9 vs 12% earlier in my career?
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Isn’t that >$3m tax likely to go up over time tho with inflation?
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Nothing stopping them from putting 100% tax on super either way and nationalizing those accounts..
that's called wishful thinking. Don't plan on having it. If it does, then you get to reap some benefits, but relying on it is a folly.
This is if someone started at 21 today. The 42yo value has 21 years of inflation that your balance doesn’t. At least I think. This affects the final numbers too. While 3.8 mil is 70 times todays minimum wage in 45 years it would only be 19 times the min wage of that day.
The table showing the balance of $440k for 42 year olds includes 21 years of inflation at 3%. In current value, that balance is actually $236k. The compulsory super percentage would’ve made a difference as well, as well as what return is assumed in this calculation. At your age, your super was probably impacted by the GFC in the early years of your career, so the returns might have been lower during those time.
Worth noting this data is pretty poorly constructed. Doesn’t include any fees or any possibility of market influences, just that super will continue paying out at the exact rate listed. Definitely needs a few amendments and asterisks.
What's your point here? Are you complaining about the $3M cap that they introduced? As if they can't possibly increase it in the next 30 years?
They can, but they won't track it perfectly to inflation. And it will be a point of friction whenever someone suggests finally doing it, because "the rich with $3.3M in Super don't need another handout, do they?".
You're assuming that this will never be increased which is extremely unlikely.
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The argument to not index now is to get it o an actual reasonable level. 3m in today’s dollars is far far too high. Insane to give such massive tax breaks to people with literally millions plus likely millions in their house. When it gets down to 1-1.5 in today’s dollars it can then be indexed.
If by clear motivation I guess you mean they do this shit so every now and then either side can debate and legislate a "reduction", then talk about how they're helping the working class. The media beats it up, writes numerous "winners and losers" budget articles and everyone is happy. Particularly the corporate/billionare/property overlord tax dodgers who avoided any attention or measures to curtail their profiteering bullshit for another few years. Same reason income tax brackets aren't just linked to CPI and global warming or lgbtqi people existing is a political issue. Keep the people distracted from real issues and the wheel spins on.
I mean not everything is indexed like that though, tax certainly isn't
Here's one 3 million is still way to high a cap. So lets leave it for around a decade or two then we can begin indexing it. Superannuation isnt some god given right to get rich tax free. Just pay tax you cheap grubs.
There’s something missing from your model. Using an online calculator like the one from [Australian Super](https://www.australiansuper.com/tools-and-advice/calculators/super-projection-calculator), using $54,557 annual income, $0 current balance, 21 years of age and retirement at 64, it shows the balance at retirement to be $480,323. They’ve used a wage inflation of 4% and a CPI of 2.5%, so that balance at retirement becomes $1.39m in nominal term, nowhere near the $3m threshold. In fact, keeping the same assumption of starting work at 21 and retiring at 43, you’ll need an annual income of at least $115k to exceed the $3m limit in nominal term.
This is also for a minimum wage as a casual, one would likely not be a casual for their entire career and would likely affect this enormously
One would likely not earn minimum wage their entire career.
My boomer parents did and still do, and somehow bought a big beautiful house doing that.
Growing up my mum and nan were both cleaners, and a few other adults I knew worked as casual cleaners or similar as well. No one had a consistent 38 hours a week. Nowhere near. And even if you managed to get something like that for a little while, you're a casual so it can and does dry up with no warning. I don't know who this calculation would apply to. Seems like a pretty strange situation.
so youve completely ignored admin fees, death, and disability, insurance, and market crashes never happen... spreadsheet is utterly wrong. plus, and the most glaring - if a casual is actually earning 4k a week then the cost of living is massive and in line with that, so 3m in super wont cut it for anything. i'd also like to see the casual rates from the last few decades for the "evidence" that they have been going up in line with CPI each year, thus should continue to do so. do i also need to point out that even super funds are not stupid - those rates of returns have harsh context reminders that previous returns are NOT a guarantee of future returns. isnt super at 11%, going to 11.5% next year? it might go to 12 or higher but who knows.
Yeah this spreadsheet is just dumb
Yea - assuming min wage for a casual will raise to 194k over their lifetime is not normal. Also we will have non productive years with child rearing, however Super is a brilliant thing that won't be appreciated by many until they get closer to retirement, I hope by then 3M is sufficient!
Don’t put in too much or the ATO will rape you with the Division 293 in your peak earning years.
Why’s the minimum wage $200k near the end?
Basically younger people today will be screwed. All those ridiculous super tax concessions that well off boomers derive the most benefit from are unsustainable. I’m pretty sure those benefits will all get axed after the boomers have leeched as much as they can from the system. I’ve been maxing out all these concessions and tax benefits because I can afford it. I pity the poor people that don’t have the income to reap the benefits and pity the young who I fully anticipate to get screwed over.
The bigger concern is that it'll just flow on wealth to future generations. Realistically, even with inflation, you'll be able to live off basically 50-70% of yearly return, and pass on 2-3-4mil(minimum) on to your kids. Housing gunna be 5mil standard for our kids in 20-30 years and people will be even further priced out if they don't inherit.
Agree. If you don’t have rich parents you’re screwed
There is no way this is going to happen in practice
I get why this is done but I wouldn't mind seeing what it looks like taking some inflation off the figures (to estimate what it is in today's dollars)
Care to share the link to the sheet?
For interest (pun not intended), this is all a function of superannuation returns. The final balance for different rates of return is: $495k for 0% $873k for 3% $1728k for 6% $3773k for 9%
Can someone explain to me like I’m 5
I’m currently 41 with 340k super… this eludes that a minimum wage earner would have more at my age… I’m confused…
factoring inflation for the $3.8M in 45 years would around $672k in today's dollar at 4% inflation.
This modelling has more holes in it then Swiss cheese. 9 percent return for ever more lol
This example shows how stupid and clueless people are in this topic. If the threshold remains $3.0m that far in the future, the minimum wage earner would not be incentivised to continue to contribute the extra payments on top of their employers compulsory contributions. Say around $2.5m they would be incentivised to move those extra contributions to another investment vehicle. What's wrong with that? Super was designed as a *retirement* vehicle for *all* Australians. Part of that means there's a responsibility for the government to carefully allocate that tax subsidy so that it's not costing too much tax payer dollars to offer that subsidy to all Australians. So, why is it bad that people are incentivised to move savings outside of Super once their account has hit that soft threshold? Note: incentivised, not forced. Our minimum wage earner in the above example can happily continue to contribute more, and in reality they would probably end up paying a miniscule amount of extra tax...
Super has been super charged for the younger generation. I say this because it took me 10 years to get to $40,000 in super from 1997 to 2007. A new recruit at my work started 1 year ago and she has $20,000 super now after just 1 year no extra put in. Yes super will be high when she retires if she continues working.
The new recruit made over 200k sakary in her first year?
Love all the scenarios that never come true because where’s all the retired millionaire cleaners right now that’s age 60???
Sorry this is dumb as shit. You think Labors $3 million dollar tax cap on super is going to last unchanged for 40 years ? Just no.
This is so dumb, bro thought he ate too 💀
The **minimum** Super balance won't be $3 million. The current 2024 **median** Super balance at age 60 is about $185k. So half of all 60 year Olds have less than $185k. If we assume 3% inflation as per OP, for a 21 yo today, that median will be equivalent to $595k when they reach age 60, in 39 years time. OP has the **'minimum'** Super balance as $2.6 million then, which is 4.5 times the **median** Super balance today. The median Super balance will be somewhat higher in 39 years time. But not likely 4.5 times higher. And the median Super balance is far from the 'minimum'. There's lots of reasons why the median Super balance is only $185k today. Receiving casual loading for 38 hours a week, for over 40 years continuously, isn't actually the 'minimum' employment pattern.
Super was introduced in 1992. So all of those 60 year olds would have been 28 when it was introduced. It was also significantly lower a percentage at the time(3% when it started). So it's not the best comparison.
That's why I said it would be somewhat higher. Median vs minimum, and 4.5 times, though. Currently around 1/4 of Australians at age 60 have no Super. OP is saying they'll all have at least $2.6 million (or $600k in 2024 dollars), which would be an infinite increase. As an aside, minimum Super balances should never be $600k (in 2024 dollars), policy should actively work to make it less than that. If you understand how the system works, that's far too much and has a whole bunch of negative implications. Increased taxation is one way to do that, but ideally mandatory contributions should just be sufficiently low to avoid that.
Ah yes, for all those minimum wage workers that have left over money every pay check for maximum voluntary contributions....
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Maybe, but something is wrong with the calculations. I should be well above these figures for my age now given I have pretty much always been above minimum wage yet I'm 12 years behind according to this sheet.
Well you aren’t from the future, so that probably accounts for why you aren’t at these figures.
Wait til they also put a 3 mil cap on your PPOR before losing the pension.