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Podcast: Superannuation and Early Retirement

November 4, 2020

In this episode…

How do you approach super when you want to retire early?

Should you include it in your plans or not?  And how do we invest it?

We cover this and lots more in today’s episode!


Listen to the show…

(or download the mp3 file here)


Discussion points…

  • What exactly is superannuation and where did it come from?  (01:12)
  • How does super fit into early retirement plans?  (04:43)
  • The issues with going ‘all-in’ on super  (06:35)
  • The downsides of investing all outside super  (10:23)
  • How we choose to approach super and why  (11:39)
  • When focusing on investing inside super makes the most sense  (17:59)
  • If we’re going to retire early, does super even matter?  (19:56)
  • How to avoid a crap super fund  (22:21)
  • Investment strategy inside super  (29:28)
  • Member direct options and big grey tax area!  (34:32)
  • How we invest our super  (45:54)
  • Summary of the key points  (50:29)


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Do you have something to add to this discussion?  Share your thoughts in the comments below…


32 Replies to “Podcast: Superannuation and Early Retirement”

  1. On the Grey Tax area topic, my understanding is if the liquidity of the pooled fund (eg cash reserves or inflows) allow for switches without selling down assets, there is no CGT passed on to unit holders. I checked with my Industry super fund and they confirmed that the March spike on switching and subsequent $10K early withdrawals, no CGT was realized. Everything was covered by existing liquidity.

    Still rather opaque and some folks may prefer the direct options.

    1. Yes, there’s no CGT occuring, but the point is that the fund is still provisioning for tax liabilities and reducing the value of the fund on an ongoing basis. You can see this by comparing returns for the super fund index option versus the Vanguard index option – same index, but returns differ by 1% per annum in many cases, despite fees being similar also.

      1. As people convert to the pension phase on an ongoing basis, aren’t these deferred CGT provisions returned to unit holders? Meaning it mostly falls out in the wash

        1. As Pat said on the pod, there are token amounts being returned to retirees but it almost certainly doesn’t compare to the tax provisioned for during the last 20 years. It’s quite possible the benefits are likely accruing to other funds in the form of lower tax liabilities (perhaps their biggest default type funds). Like you said it’s extremely murky and nobody seems to have a damn clue exactly how to reconcile the numbers (myself included), haha.

          1. No offence but How about getting an actual professional who manages a Superfund or someone qualified to do so to actually break it down

          2. I’d like to see that too. I believe Pat has tried to contact them to get more clarity but even the people at the fund have little understanding on the accounting side of things so he was left unsatisfied. We aren’t saying we know better, simply that it’s very grey and we aren’t thrilled about it. I’ve also seen articles by people smarter than me who each had different views on how it works in practice.

          3. Some funds offer bonus schemes to people transitioning to the pension phase


            I was more referring to savings that filter back to investors in the accumulation phase. Could they really take recovered deferred gains from one pooled fund (say international indexed) and feed the savings back to another high profile pooled fund such as Balanced or High Growth? Doesn’t seem very ethical and not sure APRA would look to kindly at it.

            Been meaning to read this document at some point
            Unit pricing Guide to good practice
            Joint ASIC and APRA guide

  2. Apologies if my post came across like that, understand you guys are not saying you know better.

    It’s great that Pat and yourself are bringing this up. I found this part of the pod very interesting.

    It’s very frustrating how grey it is.
    I think Even a professional who manages a superfund, will no doubt spin it to convince you they are managing it the best way.

    Do they pool the funds of the different investment options together or are the funds of all the different options pooled separately?

    The unit price of these funds reflects the tax that is provisioned. That 1% difference compounded over 30+ years is huge.

    You think with index funds held in super that the turnover is that low it should be done on an individual basis and not pooled together.

    Hopefully Vanguard will rectify this when they enter the superannuation market.
    They are getting out of managing money for super funds

    Keep up the great work Dave

    1. No worries mate 🙂

      Part of me was cringing as we spoke about it because most people probably don’t care or found it confusing, but we felt like it should be mentioned at least. Yeah, Vanguard having their own option will be good, but ONLY if they decide to tax each account individually.

  3. This was great, as always, thank you!

    Do you guys know someone who has permanently moved from Australia overseas, perhaps to Europe, who can talk about how they managed their stocks and superannuation they had in Australia?

    Taxes, contributions, etc , that’d be an awesome interview


    1. Cheers Alex 🙂
      Unfortunately not. That would be interesting to a few people I’m sure. There would probably be a few complexities to consider.

  4. Hi Dave,
    I thoroughly enjoyed this episode. Thanks for the work you and Pat put in! My question to you is di you contribute to your super to keep boosting it up now that you are retired either individually or from Mrs SMA salary sacrificing into your super? Likewise Do you know if Pat intends on adding to super after he has retired?

    1. Thanks Dave. Myself and Mrs SMA put zero extra into super as we’re using that wealth to create passive income. We’ll only consider adding more to super later if we have excess wealth we don’t need or want access to, but I can’t see that happening for a long while. I’d rather pay more tax and have access to the money for the next few decades. I think Pat feels roughly the same as me, which you could probably guess from our chat.

  5. Really interesting guys! I too am hanging out for Vanguard Super. I have a VPI account that I now have my wholesale fund transitioned across to and honestly the $600 yearly fee is peanuts for what you get and is totally reasonable. (Even MMM uses Betterment from memory and it has a similar fee structure). I fantasise about Vanguard Super being accessible via the same platform and having all our investments neatly in one spot …. fingers crossed. In the meantime my Super is with aware 50/50 split Aus/Int. The International looks very similar to Vanguard’s new VESG which is doing very well in comparison to VGS ….. but it’s early days. As you know I’m close to early retirement and am a very late starter to the game. 3 years to go to FI and I’m still undecided on the RE but yet but at a minimum I’ll definitely be cutting my hours right back.

    1. Cheers Phil 🙂

      Haha the all-in-one-spot thing sound quite attractive! Hey, do you know if Bpay directly into your wholesale option is still doable? Or do you have to Bpay into your VPI account and then select the fund?

      I believe Betterment is slightly different for US folks in that they do tax loss harvesting which often makes up for the higher fees, so not quite the same thing.

      I would pay no attention to performance of ESG vs traditional indexes to be honest. I know you’re not doing so, but I’d hate to think people are choosing it based on expected outperformance, which is what one would believe from the marketing. Some say it should beat the index, some say it will lose. And there’s now enough data and examples for anyone to ‘prove’ anything they like. But nobody really knows, and it should be a decision based on personal preference, not performance.

      3 years is not long at all, bet you’re excited!

      1. For existing Wholesale customer Bpaying directly into our existing wholesale funds is still doable. We recently were sent brand new login details and can link the online account up to the PI account – thus both accounts can be accessed from the PI account. If I want to set up a new/different wholesale account I have to do this via PI. Eventually they will fully transition existing customer fully to the PI platform.

        Yes we are pretty excited, but of course not counting our chickens till they hatch 🙂

        1. Oh ok. So I take it that new wholesale investors cannot just use Bpay, there’s an extra step involved, which makes that option much less attractive going forward for newbies. Or am I misunderstanding?

          1. Correct.
            It’s early days yet though. There are several upgrades and account types coming soon. I get the feeling it is evolving.

          2. Thanks for getting back to me multiple times! Interesting to see what develops.

  6. Great POD guys, it’s a really interesting topic.

    We are mostly on the same path.. rather have the money in our pocket now and invest (although having to pay more in tax) than having it tied up in Super until we are 65 (or whenever it gets changed to over the years).

    1. Thanks! Absolutely, there’s just too much uncertainty and those restrictions don’t match up with goals of financial independence at a young age.

  7. Nice Podcast Dave & Pat.
    I think Super is a great concept but there have been too many changes and the time period is too far out.
    I’m 47 and am slowly starting to get serious about Super.
    It is still hard to justify putting too much extra income into Super though. The Super platform is too restrictive.
    My wife and I have been investing for ~ 20 years and have built a nice nest egg outside of Super.

    As a minimum people need to make the most of their compulsory Super contributions – a decent low cost fund fully invested in equities.

    1. Cheers Simon. Great to hear you’ve been investing so long outside super! Sounds like your approach makes perfect sense now that you’re starting to get closer to the access age.

  8. Thanks Dave.
    Still 13 years until I can access Super. I plan to have started to “reduce work well before then.

    We have a mix of private company shares and property.
    As you’ve discussed elsewhere, property has served us well… but there are many hands in your pockets for the income.
    Just finished Peter Thornhill’s book (loved it) and are looking to start periodically building a Dividend Portfolio on the side.

    You’ve introduced me to some new and valuable concepts.

  9. Great podcast gents.
    FYI the original SG was 3% back in 92/93, it was an agreement between Paul Keating and the unions to lock in pay raises, but defer them.
    Now SG is headed to 12% in the next few years.
    What irks me is that it is essentially a payroll tax for the poor old employers who have been struggling (and probably will into the future) just to keep the lights.
    The government is basically saying “you (citizens) can’t be trusted to save for yourselves, so we are going to make employers save for you.”
    Thanks again for your contribution.

    1. Thanks for chipping in Dan, interesting to hear it was just 3% in the beginning. I think you’ve summed it up pretty well in terms of people not being trusted to save for themselves, haha!

  10. I take that comment back.


    Property Chat members did a deep dive into this and it seems like pooled funds aren’t so bad after all.

    With an apples to apples comparasion.

    “ So, this comparison suggests that Suncorp is flowing returns from tax deferred amounts back into the indexed pool bucket. This seems to also be confirmed by the fact that their after-tax returns are very similar to the before tax returns of the index itself.

    If the pooled super funds are allocating income from assets backing deferred liabilities back to the option buckets that create the deferred liabilities than the potential drag is neutralised.

    My comparison between Suncorp Indexed and direct via SMSF shines a positive light that the potential drags are not impacting the Suncorp Aus share indexed option to date, if anything the pooled taxation might be creating a small benefit. What the future tax benefits or drags will be could only be gauged by understanding the fund taxation and allocation rules, investment outcomes and member accumulations/de-accumulations.”

    1. Thanks for following up. It would make sense, and would be great if it was occurring across the industry. But some other examples (as Pat’s post shows) are not quite as heartening. There could be an explanation, but it’s not the simplest thing to wade through.

      Given the lack of a large and ultra clear difference across the board, I’m happy to just leave my super as it is!

  11. It’s been a while since I listened to this episode but I have a related question: investment earnings inside super are taxed at 15% which is usually sold as a tax advantage compared to investments outside super, and this is true for most people / marginal tax rates. Someone who retires at a young age using investment returns outside super, however, might have an effective tax rate of 0% (e.g. by living on discounted capital gains) and so their returns inside super will lag significantly (namely 15%) behind their returns outside super until preservation age. Am I right?
    For example, an investment that has a pre-tax return of 10% in a given year will have a post-tax return of up to 10% outside super but under no circumstances will have a post-tax return of more than 8.5% inside super (prior to preservation age). As usual, this makes a big difference over many years, albeit potentially offset by the tax discount received when making super contributions in the first place.

    1. Ah, probably not the entire total return is taxed inside super (it isn’t outside either unless realised) but it’s hard to find information on what exactly is taxed inside super and when and how much.

    2. Yep good point Stephan. That is a fair thing to mention. Once retired, our tax rate is generally very very low, possibly zero. Though when comparing, most people are typically focusing on the investment journey up until reaching FI, rather than the years after, since they care far more about that part 😉

      In most cases, people also end up earning more money after retiring anyway, pushing their tax rate higher than their super tax rate. So it’s rarely ever such a clean comparison. And then super can then be used as a tax efficient store of wealth for anyone excess wealth that isn’t really needed in one’s personal account.

      As mentioned in the episode, even ignoring these things, I think other things are more important (access to the money) than optimising for taxes.

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