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Mortgage or super? Where should I put my extra money? · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirby. Welcome aboard.
0:14
Speaker 2: Something we've been covering on recent episodes is the major
0:17
Speaker 2: questions that we receive most regularly here on the podcast.
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Speaker 2: You might have heard Doug Turek talk recently about how
0:24
Speaker 2: to invest for your kids. Today we're going to ask
0:27
Speaker 2: something which always comes up almost every week from the emails,
0:33
Speaker 2: themoneypuzzle at theaustralian.com.au. It's if People have some money to spare.
0:39
Speaker 2: Should they put it into their mortgage or into their super?
0:43
Speaker 2: And you might think, as a set answer to this,
0:46
Speaker 2: there isn't. It depends on the person. It also really
0:49
Speaker 2: depends on where we are. Where are super returns right now?
0:52
Speaker 2: Where are interest rate returns right now? And the answer
0:55
Speaker 2: leads in all sorts of directions I think you'll find
0:57
Speaker 2: very interesting. My guest today is Olivia Maragna. of the
1:03
Speaker 2: Aspire Retire Group. She operates out of Brisbane. She's been
1:06
Speaker 2: on the show before, but it's been quite a while.
1:09
Speaker 2: She's also on the Barron's Top 150 advisors list.
1:14
Speaker 1: How are you, Olivia?
1:15
Speaker 3: I'm very well, thank you, James.
1:17
Speaker 1: Good to have you on board.
1:18
Speaker 2: I know Olivia has been on the show before, folks,
1:21
Speaker 2: but it's been a while since she has been on.
1:23
Speaker 2: But I wanted to talk to her today. There's a
1:25
Speaker 2: question which comes in in so many forms, as I say,
1:29
Speaker 2: this issue of if you have anything at all to spare,
1:33
Speaker 2: or investments that are liquid, if you're lucky enough to
1:37
Speaker 2: have any, outside of super, then should you put it
1:39
Speaker 2: into super or should you put it into the mortgage?
1:42
Speaker 2: Olivia and I have often talked about this, and there's
1:45
Speaker 2: a couple of very general observations I think we might
1:48
Speaker 2: make first, which you'll find interesting, and then we'll actually
1:51
Speaker 2: get into how it might matter to you. But very broadly, Olivia,
1:54
Speaker 2: I mean, it seems to me, when I talk to advisors,
1:58
Speaker 2: that when people... And this is very universal, but when people,
2:02
Speaker 2: investors are a bit older, the priority might be to
2:06
Speaker 2: get money into super for the simple reason that there
2:10
Speaker 2: is a deadline that they face where they can't put
2:12
Speaker 2: it in any longer. And when you are younger, and
2:15
Speaker 2: I say younger folks, I'm talking sub 35, shall we say,
2:18
Speaker 2: you may have your big issue is your mortgage. And
2:22
Speaker 2: that's a kind of an albatross hanging on you forever.
2:26
Speaker 2: before you can get investing. So would you think that
2:29
Speaker 2: is very broadly how it goes, Olivia?
2:32
Speaker 4: Yeah, look, I think when you're younger in terms of
2:35
Speaker 4: getting ahead, getting those extra payments, starting to pay down
2:38
Speaker 4: the mortgage certainly gives you a head start. And it
2:41
Speaker 4: gives you a head start because it then starts to
2:43
Speaker 4: build equity in your own home as well, which allows
2:45
Speaker 4: you to do different things going forward as well. So
2:48
Speaker 4: when you're typically younger, I think mortgage is is a
2:51
Speaker 4: good way to at least start to get ahead because
2:55
Speaker 4: you're still building something.
2:56
Speaker 5: So you're building equity in your own home.
2:58
Speaker 1: Yeah, you're in the building phase. Absolutely.
3:01
Speaker 4: When you're getting a bit older, you've got to keep
3:03
Speaker 4: in mind, as you get closer to retirement, you really
3:06
Speaker 4: want a lot of your wealth sitting in an environment
3:08
Speaker 4: where it's going to be taxed the very least amount possible,
3:11
Speaker 4: which is your superannuation. So you can't leave it to
3:14
Speaker 4: the last minute with all the caps and rules and
3:16
Speaker 4: regulations around what you can do with contributions. So that's
3:19
Speaker 4: where the focus really turns to, do we put more
3:22
Speaker 4: into super and start building up that wealth because you've
3:27
Speaker 4: got those limitations on what you can do overall when
3:30
Speaker 4: it comes to superannuation. So I guess there's no universal
3:33
Speaker 4: answer in terms of what you should or shouldn't do.
3:36
Speaker 4: It really does depend on those sort of things. It's
3:38
Speaker 4: your age, it's your income, it's your mortgage rate, it's
3:41
Speaker 4: your ability to access cash and so on. So not
3:45
Speaker 4: so attractive for younger people to put money into super,
3:48
Speaker 4: concentrating on the mortgage and eating into that is more important.
3:52
Speaker 4: The thing I think that's really important for younger people
3:55
Speaker 4: is you shouldn't just do the mortgage. You're never going
3:57
Speaker 4: to get rich paying off your mortgage and paying off
3:59
Speaker 4: your mortgage and your mortgage only. So that's where I
4:02
Speaker 4: think there needs to be that balance. I always say
4:03
Speaker 4: there's a seesaw.
4:05
Speaker 2: Tell us what you mean by that. What do you
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Speaker 2: mean by that? I mean, I would have thought, you know,
4:10
Speaker 2: what do you mean by that? People say first thing
4:12
Speaker 2: you got to do, son, is pay off your mortgage.
4:14
Speaker 2: This is what I was always getting when I asked
4:17
Speaker 2: older people.
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Speaker 3: Yeah.
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Speaker 4: Well, that's the trap I think that our parents or
4:21
Speaker 4: grandparents fell into is they bought a property, they had
4:25
Speaker 4: a loan. Back in those days, interest rates weren't so
4:28
Speaker 4: attractive as well. It was just paying off your mortgage.
4:30
Speaker 4: But what happens when you pay off your mortgage is
4:33
Speaker 4: you're really only getting a set return, which is your
4:35
Speaker 4: mortgage rate. So depending on obviously how much you earn
4:39
Speaker 4: as well, that after-tax income that you have to, or
4:42
Speaker 4: that pre-tax income that you have to earn to pay
4:44
Speaker 4: off that mortgage rate can actually be significantly higher. But
4:48
Speaker 4: in terms of when we look at paying off mortgages,
4:52
Speaker 4: you're only really getting the return of that loan. So
4:55
Speaker 4: if you've got an ability to go and put your
4:57
Speaker 4: money elsewhere and get much bigger returns, you're going to
5:00
Speaker 4: build wealth faster. So that's why I generally say paying
5:03
Speaker 4: off your mortgage and only paying off your mortgage is
5:06
Speaker 4: never going to make you rich.
5:08
Speaker 1: Yeah.
5:08
Speaker 2: So, I mean, it's more like a kind of a warning,
5:11
Speaker 2: is it, from you that you say, okay, don't just
5:14
Speaker 2: do that.
5:15
Speaker 5: Absolutely.
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Speaker 1: Is that what you mean?
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Speaker 4: Absolutely.
5:16
Speaker 5: Don't just do that.
5:17
Speaker 4: You've got to look at avenues to build wealth because
5:20
Speaker 4: by the time that you end up paying off your mortgage,
5:23
Speaker 4: like I said, in terms of the assets that you
5:25
Speaker 4: have overall, you might have a lot of assets to
5:27
Speaker 4: you know, personally sitting in your own name, you're not
5:29
Speaker 4: going to be able to get that money into super.
5:31
Speaker 4: You're not going to be able to put extra money
5:32
Speaker 4: into super because by the time you get closer to retirement,
5:35
Speaker 4: you're probably at your peak income potential as well.
5:37
Speaker 1: Yeah. Are these rules appropriate for everybody?
5:41
Speaker 2: It sounds to me like, you know, if you were
5:45
Speaker 2: on middle income and it would be rock bottom, the
5:48
Speaker 2: first thing you should do, get that mortgage down and
5:50
Speaker 2: get something into super.
5:51
Speaker 4: Yeah, I think if you're that lower income earner, then
5:55
Speaker 4: it In terms of what you have to earn to
5:58
Speaker 4: pay off your mortgage, so an after-tax percentage that you
6:02
Speaker 4: have to put towards your mortgage, I think mortgage is
6:05
Speaker 4: really important there. Where you're the higher income earner and
6:08
Speaker 4: you've still got maybe some concessional contribution cap, which is
6:11
Speaker 4: that pre-tax cap. When you've still got that, it's beneficial
6:15
Speaker 4: to obviously get some extra tax deductions and help with
6:19
Speaker 4: your tax refund and your tax return.
6:20
Speaker 2: And that's getting the $ 35, 000 into super each year.
6:25
Speaker 4: Yeah, but also your after-tax contributions as well. So where
6:29
Speaker 4: you've got wealth sitting in your own name and you
6:31
Speaker 4: are a high-income earner, every dollar that you earn from
6:34
Speaker 4: those investments is getting taxed higher as well. So it's
6:37
Speaker 4: not just the pre-tax contributions, it's the after-tax contributions that
6:41
Speaker 4: you can look into it. So instead of maybe paying
6:43
Speaker 4: off your mortgage, it can be considering putting the money
6:46
Speaker 4: into the super.
6:47
Speaker 5: Remember, it does depend on obviously market returns.
6:50
Speaker 4: So what you've got to make sure is that if
6:52
Speaker 4: you're putting money into super, it's invested somewhere that has
6:55
Speaker 4: that potential to grow better than your actual mortgage rate.
7:00
Speaker 4: So if you're not paying off your mortgage and putting
7:02
Speaker 4: it into super and your super is invested conservatively, it
7:05
Speaker 4: doesn't necessarily make sense. So you've got to, yeah, you've
7:09
Speaker 4: got to look at it as a whole. So the
7:11
Speaker 4: other thing to be mindful, yeah, the other thing to
7:14
Speaker 4: be mindful of is money coming into super versus holding
7:18
Speaker 4: it personally. Remember when you've got money sitting in your
7:21
Speaker 4: own name, you've got an ability to then go to
7:23
Speaker 4: a bank and borrow more and invest more. So when
7:27
Speaker 4: it comes to where do you actually put that money overall?
7:30
Speaker 4: Do I put it into super? Do I keep it
7:32
Speaker 4: in my own name? Don't Don't forget about that power
7:35
Speaker 4: of borrowing money and investing your money and growing wealth.
7:38
Speaker 4: So for younger people, it might be a bit of
7:41
Speaker 4: a combination.
7:41
Speaker 5: It's paying off your mortgage.
7:43
Speaker 4: It's putting a little bit into super because those compounding
7:45
Speaker 4: returns are going to make an enormous difference. But then
7:48
Speaker 4: it's also, well, what am I building up that I
7:50
Speaker 4: can then use to potentially borrow? Might be a rental property,
7:53
Speaker 4: might be some investments, might be something else, a business venture.
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Speaker 4: Don't forget that ability to access your money is important
8:01
Speaker 4: to actually build wealth.
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Speaker 5: As well long-term.
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Speaker 4: So a few things to consider, but your general rule
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Speaker 4: is younger, concentrate on the mortgage, little bit in super.
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Speaker 4: The seesaw tips the other way as you get older,
8:13
Speaker 4: where super should be the concentration in terms of you
8:16
Speaker 4: want as much of your wealth as possible sitting in
8:18
Speaker 4: those beautiful environment that pays the least amount of tax. Lovely.
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Speaker 1: Okay. I like that.
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Speaker 2: It's a clear answer, folks. And you can pick up
8:26
Speaker 2: between the lines exactly what might be appropriate to you.
8:30
Speaker 2: I'm going to take a short break and we're going
8:31
Speaker 2: to expand this and we're going to look a little
8:33
Speaker 2: bit more at what is actually happening in super, what
8:35
Speaker 2: is actually happening with mortgages so that you can make
8:37
Speaker 2: the decision for yourself.
8:39
Speaker 1: Back in one moment.
8:54
Speaker 2: Welcome back to the Australian's Money Puzzle podcast. James Kirby
8:58
Speaker 2: here talking to Olivia Maragna. of the Aspire Retire group
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Speaker 2: based in Brisbane. She's on the upper ranks of the
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Speaker 2: top 150 Barron's advisors list. Delighted to have her on
9:09
Speaker 2: the show again. In the first part, you heard us
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Speaker 2: talk about the big question, really. Can you, should you
9:15
Speaker 2: have spare funds? Should you put it into the mortgage
9:18
Speaker 2: or into super? Very broadly, it's quite clear that if
9:22
Speaker 2: you're younger, obviously into the mortgage, if you're older into
9:24
Speaker 2: super with many caveats and nuances.
9:27
Speaker 1: Around that, folks.
9:28
Speaker 2: And of course, this is information only, it's not advice. Now,
9:33
Speaker 2: that is an interesting answer, first of all, a clear answer.
9:37
Speaker 2: Did the budget change your answer in any way, Olivia?
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Speaker 2: Because I know a lot of people are sort of petrified, right?
9:43
Speaker 2: At all levels, they say, oh, I won't buy an
9:45
Speaker 2: investment property because, you know, negative gearing is gone, or
9:47
Speaker 2: I haven't quite figured out how CGT is going to
9:50
Speaker 2: affect my shares, so I'm not sure what to do.
9:52
Speaker 2: By the way, folks, no one has figured out how
9:54
Speaker 2: CGT is going to work on your shares. I mean,
9:57
Speaker 2: We have even just a few days ago, there are
10:01
Speaker 2: people are still discovering. They're arcane in some ways, you know,
10:05
Speaker 2: loss ordering sequences and all sorts of things. But basically,
10:09
Speaker 2: even the brightest people in the country are still struggling
10:11
Speaker 2: to understand what exactly the budget meant.
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Speaker 1: Would you say that's fair, Olivia?
10:14
Speaker 2: And should it stop people or what should people do
10:17
Speaker 2: in terms of how they move on post-budget?
10:20
Speaker 4: Yeah, I think, look, these are the most complex changes
10:23
Speaker 4: that we've seen in the last 30 years.
10:26
Speaker 5: And they are super complex.
10:27
Speaker 4: So it's not, I know there's a lot of talk
10:29
Speaker 4: about we're reverting to old rules, but it's not really
10:32
Speaker 4: the old rules.
10:33
Speaker 5: It's the old rules with a twist.
10:34
Speaker 3: With a twist and complexity and problems and issues and
10:38
Speaker 3: exemptions and so on. So look, I think these are
10:41
Speaker 3: very complex rules. I think the thing that we've noticed
10:44
Speaker 3: is and I've had so many questions over the last
10:47
Speaker 3: three or four months in relation to this, is that
10:50
Speaker 3: particularly people who are older, it's now getting to a
10:52
Speaker 3: stage where it's just all too much. So if advisors,
10:56
Speaker 3: you know, our heads hurt looking at all of these
10:59
Speaker 3: new changes because they are so complex. You know, if
11:02
Speaker 3: it's hard for advisors to get our heads around exactly
11:05
Speaker 3: what they're trying to do.
11:06
Speaker 4: And to be honest, legislation is typically logical. and that
11:10
Speaker 4: might sound a bit strange, but there's a logic to
11:13
Speaker 4: how when you look at the changes that we've seen
11:15
Speaker 4: over the last 20 to 30 years, you kind of
11:17
Speaker 4: get the logic as to what the government's trying to do.
11:20
Speaker 4: And then it's easy to apply the rules because the
11:23
Speaker 4: logic is there to understand them. With these changes, you
11:27
Speaker 4: just look at some of the things in the finer
11:29
Speaker 4: detail of what they're trying to do, and there is
11:31
Speaker 4: no logic to it, besides the fact that it's a
11:33
Speaker 4: tax grab.
11:33
Speaker 2: Yeah, there is.
11:34
Speaker 1: There's parts that are absolutely barmy.
11:36
Speaker 5: I completely agree with you.
11:37
Speaker 1: But tell me, on super....
11:40
Speaker 2: Am I still on the right track in saying that super,
11:44
Speaker 2: by and large, escaped the worst of the changes?
11:48
Speaker 4: Look, I think super remains attractive. So I am a
11:51
Speaker 4: very big fan of superannuation. I've loved it from the
11:53
Speaker 4: very first day that I started working. My very small
11:57
Speaker 4: salary that I started with. But look, I think there's
12:00
Speaker 4: a lot, obviously, in the media and what you see
12:02
Speaker 4: on the news and politicians talking about superannuation. Obviously, the
12:06
Speaker 4: Division 296 tax, which is that tax on higher balances.
12:09
Speaker 1: The super tax, we've seen over 3 million.
12:11
Speaker 5: Yeah, absolutely.
12:13
Speaker 4: So that I think is, you know, that adds a
12:15
Speaker 4: lot of complexity and there's definitely some numbers that need
12:18
Speaker 4: to be done. So for those who have got those
12:20
Speaker 4: bigger balances, it's not a simple answer. There's a lot
12:23
Speaker 4: of analysis that needs to be done to figure out
12:24
Speaker 4: what you actually do with your super. But you've got
12:27
Speaker 4: to remember, fundamentally, most people aren't impacted by the Division 296.
12:32
Speaker 4: Superannuation remains as a, I always say it's our only
12:35
Speaker 4: legal tax haven in Australia. Because when you get to
12:38
Speaker 4: retirement and you're taking money from your superannuation, it can
12:41
Speaker 4: be entirely tax-free. So everything you make, you keep it
12:44
Speaker 4: for yourself. So I think in terms of if we
12:47
Speaker 4: sort of look through that noise and everything that's going
12:50
Speaker 4: on with changes, it still remains as being one of
12:53
Speaker 4: the most powerful long-term wealth creation vehicles available to Australians.
12:58
Speaker 5: And you can't really beat it.
12:59
Speaker 1: Okay.
13:00
Speaker 2: And can I ask you, do you think that is
13:01
Speaker 2: the same for the self-managed super funds?
13:03
Speaker 1: Do you think they're as attractive as they always were?
13:06
Speaker 4: Well, I think in terms of where I guess people,
13:08
Speaker 4: and it depends on obviously the governments and who remains
13:11
Speaker 4: in government long term as well, is self-managed super funds,
13:15
Speaker 4: the number one reason why most people look at it
13:17
Speaker 4: is purely to have their own control over it. So
13:20
Speaker 4: in terms of self-managed super funds, they are, when we
13:24
Speaker 4: look at, I guess, when we look at why clients
13:27
Speaker 4: actually use them, It's that control. It's the estate planning flexibility.
13:31
Speaker 4: It's that ownership that they have. It's that ability that
13:34
Speaker 4: no one can stop them from taking their money if
13:36
Speaker 4: they want to take it.
13:38
Speaker 2: Yeah, no one can stop them from doing whatever. And
13:40
Speaker 2: if you support them, you say no one can stop
13:42
Speaker 2: them from being quick and making great decisions. And if
13:45
Speaker 2: you don't support them, you can say no one can
13:47
Speaker 2: stop them from doing something stupid.
13:49
Speaker 5: Yeah, true.
13:50
Speaker 4: And look, I think in terms of having a self-managed
13:52
Speaker 4: super fund, I think it's definitely not for everyone. So
13:55
Speaker 4: you've got to do your numbers in terms of whether
13:57
Speaker 4: or not it makes sense. But I think in terms
14:00
Speaker 4: of the clients that we deal with in terms of
14:02
Speaker 4: they are what we call legacy clients, they're not going
14:04
Speaker 4: to spend their money in their lifetime. A lot of
14:07
Speaker 4: them go, I want to control the wealth that I
14:09
Speaker 4: have both outside of super and inside of superannuation as well.
14:12
Speaker 4: So that's their their plan is not just their wealth
14:15
Speaker 4: is their super, they're actually looking at their super as
14:17
Speaker 4: part of a much bigger portfolio that they look at overall.
14:21
Speaker 4: So I think overall in terms of is super less
14:24
Speaker 4: attractive after the federal budget changes? Absolutely not. I think
14:28
Speaker 4: it's probably more attractive. I think the thing that people
14:30
Speaker 4: have got to be mindful of is if you look
14:32
Speaker 4: at all the themes of the story behind a lot
14:35
Speaker 4: of the budget papers, when you read it, what the
14:38
Speaker 4: government wants to do is tax you as though you're
14:40
Speaker 4: working and as though you're alive. So In terms of superannuation,
14:45
Speaker 4: and remember, there's a lot of this reverting back to
14:46
Speaker 4: the old rules. In terms of superannuation, if you think
14:49
Speaker 4: back to how super was taxed back in my early days,
14:53
Speaker 4: I should say, which was a long time ago, there's
14:55
Speaker 4: a lot of people that don't realise how super was
14:57
Speaker 4: previously taxed. But it wasn't zero tax when you took
15:01
Speaker 4: your money out of super. It actually went into your
15:03
Speaker 4: tax return. You were taxed at your marginal tax rates
15:06
Speaker 4: and you got a rebate on the money that you
15:08
Speaker 4: took out of super. So when we look at what's
15:11
Speaker 4: changed in all the federal budget papers, all these old
15:14
Speaker 4: rules going back to being taxed as though you're working,
15:18
Speaker 4: it could be that superannuation is the next target in
15:21
Speaker 4: terms of changes. It's just that because they had the
15:24
Speaker 4: Division 296 changes, which is that bigger tax on superannuation,
15:28
Speaker 4: they've given a bit of a relief.
15:30
Speaker 1: Yeah, they've gone hard at the top end. Absolutely.
15:34
Speaker 2: You're saying watch out that it remains and always will
15:38
Speaker 2: be a political target, I expect.
15:40
Speaker 4: And I think in terms of, so the whole logic
15:43
Speaker 4: of the old rules was that if you took a
15:45
Speaker 4: modest amount out of your superannuation and it went into
15:48
Speaker 4: your personal tax returns, and a lot of retirees who
15:51
Speaker 4: have been retired for a lot of time will remember this,
15:54
Speaker 4: it would go into your tax return, you'd get a
15:55
Speaker 4: rebate and you still wouldn't pay tax on it if
15:57
Speaker 4: the amount that you took out was relatively modest. It
16:00
Speaker 4: was only those who were drawing big amounts from superannuation
16:03
Speaker 4: that by the time it ended up in their tax return,
16:06
Speaker 4: and they got that rebate, they still paid tax on
16:09
Speaker 4: what they took out of superannuation. So we could see,
16:12
Speaker 4: like I said, we've seen this trend with the government
16:14
Speaker 4: of we're going back to the old rules. We're constantly
16:16
Speaker 4: going back to the old rules.
16:18
Speaker 5: This could be something.
16:19
Speaker 3: This could be something on the cards that we just
16:21
Speaker 3: don't know about.
16:22
Speaker 1: I hope not. We've only just about understood what they
16:25
Speaker 1: did in the budget. So let's hope they don't do that.
16:28
Speaker 1: But just one more specific point on it all. about super.
16:31
Speaker 2: So it's very interesting to hear you say that super
16:33
Speaker 2: remains possibly more attractive than it was, or I suppose
16:36
Speaker 2: the way to phrase it might be relatively more attractive
16:38
Speaker 2: than it was compared to other things such as negative gearing,
16:42
Speaker 2: for instance, which is now greatly shrunk in that it
16:45
Speaker 2: can only be done on new property. On the SMSFs,
16:48
Speaker 2: do you think the inability of the funds to borrow
16:51
Speaker 2: for property, was that a sucker punch or what's your view?
16:57
Speaker 4: Well, I think in terms of if you're using a
16:59
Speaker 4: self-managed super fund to borrow, obviously for those, I think
17:03
Speaker 4: the biggest thing that was upsetting about what they changed
17:05
Speaker 4: your relation to it is you had people who had
17:07
Speaker 4: just gone into property. You had people who had contracts
17:10
Speaker 4: already in place.
17:11
Speaker 5: And so on.
17:12
Speaker 3: And for those who have.
17:13
Speaker 5: Existing arrangements, you've got to keep in mind if that has.
17:16
Speaker 4: Closed down a market of borrowing, it means that the
17:20
Speaker 4: interest rate on that loan may not be so competitive
17:22
Speaker 4: going forward. So I do feel for those people who
17:25
Speaker 4: do that, I think people will think of it differently.
17:28
Speaker 4: So whether it's, do I borrow in my own name?
17:30
Speaker 4: Do I get together with? So this is the thing
17:33
Speaker 4: that I think that will change a lot is people
17:34
Speaker 4: will think more strategically about how they build wealth because
17:37
Speaker 4: the changes in this federal budget have really hit, I
17:41
Speaker 4: think they've hit the younger people the hardest.
17:43
Speaker 5: So anyone up to about the age of.
17:45
Speaker 4: 45, you've lost lots of avenues now to build wealth
17:49
Speaker 4: where you could have done it whether you buy a
17:53
Speaker 4: rental property, whether you're doing various different things, you've lost
17:56
Speaker 4: that ability to actually build wealth.
17:59
Speaker 1: That's really ironic, isn't it?
18:00
Speaker 2: The whole thing was pitched as intergenerational equity.
18:05
Speaker 4: Well, they've hit every age group, I think. But I
18:08
Speaker 4: really think if you've got a younger person who has
18:11
Speaker 4: maybe got themselves into their first home, They've already started
18:14
Speaker 4: to build some equity. So just purely by getting in
18:17
Speaker 4: nice and early, they've already two or three years later,
18:20
Speaker 4: they might've built two, $ 300, 000 equity in their own home
18:23
Speaker 4: purely by the growth. So they might be struggling with
18:25
Speaker 4: their wage, build that equity because the property prices were
18:29
Speaker 4: continuing to increase. They can look at going out and buying.
18:32
Speaker 4: So for example, another investment, whether that be property or
18:36
Speaker 4: something else, but they can use borrowing capacity to do that.
18:38
Speaker 4: And they're young enough that if they're, say for example,
18:41
Speaker 4: they're 30, 35, they're young enough to be able to
18:44
Speaker 4: pay off that mortgage by the time they hit retirement.
18:47
Speaker 5: Now they can't really do.
18:48
Speaker 4: That if they're relying on negative gearing. What it does
18:51
Speaker 4: is it opens up to people, though. It's kind of
18:53
Speaker 4: the opposite effect of, I think, what the government actually
18:56
Speaker 4: wanted to do. It opens up people who have the
18:58
Speaker 4: bank of mum and dad, who have money behind them,
19:01
Speaker 4: to go in and purchase those properties with much less competition.
19:05
Speaker 4: So I think it's actually a very unfair budget. I
19:07
Speaker 4: was very lucky a few weeks ago to have some
19:09
Speaker 4: one-on-one time with Angus Taylor. And we were talking about
19:12
Speaker 4: a lot of these changes. And I think there are
19:14
Speaker 4: very much unintended consequences on who these changes have actually hit.
19:19
Speaker 4: But I do think those up until about the age
19:21
Speaker 4: of 45 have been hit the most because of these changes. Now,
19:25
Speaker 4: if you think strategically in terms of what you do overall,
19:30
Speaker 4: you've just got to look differently about how you build
19:32
Speaker 4: wealth now that you're younger and how you can take
19:36
Speaker 4: benefit from these changes.
19:39
Speaker 2: Okay, well, folks, I mean, I think in terms of super,
19:42
Speaker 2: I think Olivia's key point is obviously being it's still
19:45
Speaker 2: damn good. In fact, it's relatively better than it was
19:49
Speaker 2: because of the removal. of other arrangements such as negative gearing.
19:52
Speaker 2: I think that's an interesting point. When you are making
19:54
Speaker 2: that decision between putting money into super, putting it into
19:57
Speaker 2: your mortgage, well, super is as good as ever, I think.
20:01
Speaker 2: And Olivia has mentioned a few times about how much
20:03
Speaker 2: you can put in. Keep that in mind. You can
20:04
Speaker 2: put in pre-tax, you know, $ 35, 000 a year. You can
20:07
Speaker 2: also put in much more than that, obviously, post-tax, which
20:11
Speaker 2: are options that are open to you as well. Now,
20:13
Speaker 2: we're going to look at the third part of the
20:14
Speaker 2: show on the other side of the book, if you like.
20:16
Speaker 2: We mentioned, do you put the money alternatively into your mortgage?
20:19
Speaker 2: We're just going to take a quick look at what
20:21
Speaker 2: the position is there to help you make your decision.
20:23
Speaker 1: Back in a minute.
20:38
Speaker 2: Hello, welcome back to the Australian's Money Puzzle podcast. James
20:42
Speaker 2: Kirby here talking to Olivia Maragna of the Aspire Retire group. Okay, Olivia,
20:48
Speaker 2: we talked about the choice between putting money into super
20:51
Speaker 2: and putting it into mortgage. We've talked about super in
20:53
Speaker 2: the main and what has happened there and to the
20:57
Speaker 2: extent to which it's better or worse. On the mortgage side,
21:01
Speaker 2: I can remember doing this theme quite a while ago.
21:04
Speaker 1: When was it? Let me pick a time.
21:07
Speaker 2: I would think it was at least five years ago,
21:08
Speaker 2: six years ago. If you recall when interest rates were
21:11
Speaker 2: almost zero and mortgage rates, you could fix for two.
21:14
Speaker 2: I fixed a mortgage at 2.9%, I remember, at the time.
21:18
Speaker 2: So maybe it's further back than four or five years ago.
21:21
Speaker 2: But the answer to this issue at that time, of course, was, well,
21:26
Speaker 2: you know, your mortgage barely costs you. Your mortgage has
21:31
Speaker 2: never been so cheap, so don't worry about the mortgage.
21:34
Speaker 2: Get your money into super. It wasn't quite a nuanced answer.
21:37
Speaker 2: It was much more obvious what the answer might be.
21:39
Speaker 2: So at the moment, we've got mortgage rates, and they're
21:41
Speaker 2: coming up at very broadly 6.5%. Maybe people are paying
21:45
Speaker 2: across the board. That's kind of in the long-term average.
21:49
Speaker 1: Isn't it?
21:49
Speaker 2: Somewhere between 4% and 7%. Would you call those mortgages high?
21:53
Speaker 2: I'm just trying to help people make that decision, as
21:55
Speaker 2: I say. Would you call it a period of high
21:58
Speaker 2: interest rates?
21:59
Speaker 4: Where we are now? I would say is where they
22:02
Speaker 4: probably should stay in terms of... So if we look at...
22:07
Speaker 4: And you should always, I think, be earmarking that when
22:10
Speaker 4: you look at purchasing or borrowing any sort of money,
22:13
Speaker 4: that these interest rates... should be quite normal.
22:16
Speaker 5: So, you know, it was amazing a few years ago.
22:18
Speaker 4: Well, it was more than a few years ago because
22:20
Speaker 4: time flies when they were really low.
22:22
Speaker 1: It's always longer than you think. That was like a
22:26
Speaker 1: once in a century thing.
22:27
Speaker 4: Yeah, we never saw it, which was amazing. But in
22:31
Speaker 4: terms of should we see mortgage rates go higher, I
22:34
Speaker 4: think they will still go higher. But I think in
22:37
Speaker 4: terms of it'll be more slowly going forward as well.
22:40
Speaker 4: But in terms of, I think, when you're looking at
22:42
Speaker 4: paying off any sort of debt, I think this is
22:44
Speaker 4: a good mortgage level rate to making sure that you
22:48
Speaker 4: can afford to buy and maintain any sort of borrowing.
22:52
Speaker 2: So do you find that people, one of the things,
22:54
Speaker 2: when rates were at that rock bottom level of under 3%
22:58
Speaker 2: for a mortgage, people were building up huge buffers and
23:02
Speaker 2: people were paying back mortgages faster than they expected because
23:05
Speaker 2: they basically forgot to tell the bank. as the bank
23:08
Speaker 2: cut their rate from five to two and a half,
23:11
Speaker 2: they forgot to tell the bank to adjust. So they
23:13
Speaker 2: certainly found out they were paying it off faster than
23:15
Speaker 2: they expected.
23:16
Speaker 1: I imagine there's a lot less.
23:17
Speaker 2: Of that going on now that the mortgages are up
23:19
Speaker 2: at six and a half and higher if you're doing investing.
23:23
Speaker 4: Yeah, well, for some people who obviously fixed it in,
23:26
Speaker 4: so that was the good old COVID days effectively where
23:28
Speaker 4: people really got ahead as well. But in terms of
23:31
Speaker 4: if you fixed it, some of those rates have only
23:33
Speaker 4: just come off, which has been fantastic. But I think
23:36
Speaker 4: in terms of, like I said, when mortgage rates are
23:38
Speaker 4: sitting where they are now, it's a good time to
23:41
Speaker 4: actually look at what you're doing in terms of your mortgage,
23:45
Speaker 4: what your payments are, but also just simple things like
23:47
Speaker 4: just doing a mortgage repayment calculator, just to make sure
23:52
Speaker 4: that you're not paying off a mortgage over 30 years.
23:54
Speaker 4: We shouldn't be aiming to pay off mortgages in 30
23:57
Speaker 4: years or even 20 years.
23:58
Speaker 2: Tell me what you mean by that, because we said
23:59
Speaker 2: earlier in the show, The banks are allowing you to
24:01
Speaker 2: run out to 40-year mortgages now if you want.
24:04
Speaker 1: They are.
24:04
Speaker 5: Are you saying.
24:06
Speaker 1: Don't be seduced? Is that what you're saying?
24:08
Speaker 3: Don't be seduced. Absolutely don't be seduced.
24:11
Speaker 4: And also looking at the structure of your loans as well. So,
24:15
Speaker 4: you know, a lot of people look at redraws and
24:17
Speaker 4: offset accounts. A lot of people think that they're the
24:19
Speaker 4: same thing. They're actually not the same thing. So in
24:21
Speaker 4: terms of when you're looking at building wealth long term,
24:26
Speaker 4: whatever you buy, even if you think it's your own home,
24:29
Speaker 4: you should always be thinking about long-term wealth as to
24:31
Speaker 4: whether or not that home is going to be a
24:33
Speaker 4: rental property in five years' time because most people really
24:36
Speaker 4: are sticking in their own home for not more than
24:38
Speaker 4: about five or six years and they're moving to the
24:40
Speaker 4: next one. So the structure of your loans is really
24:43
Speaker 4: important to make sure that, say, for example, if you
24:46
Speaker 4: just paid off your home loan and then you move
24:48
Speaker 4: on and you use it as a rental property, you're
24:50
Speaker 4: going to get hit with a lot more tax because
24:52
Speaker 4: that rental income doesn't have any rental deductions against it,
24:55
Speaker 4: being the interest, obviously. The fact that we've got these
24:58
Speaker 4: federal budget changes, paying off debt means that you shouldn't
25:02
Speaker 4: really be pouring money into an actual loan. It should
25:05
Speaker 4: be going into potentially an offset account because that way
25:08
Speaker 4: you can take that offset to your next property and
25:11
Speaker 4: that loan stays nice and high.
25:13
Speaker 5: So it helps.
25:14
Speaker 4: Maintain that negative gearing property for as long as possible
25:18
Speaker 4: as well.
25:19
Speaker 2: And isn't it the case, it's worth, in case any
25:22
Speaker 2: of the listeners haven't quite picked up on this, one
25:25
Speaker 2: of the sort of consequences of the budget is, I've
25:30
Speaker 2: mentioned that negative gearing is shrunk and negative gearing is
25:33
Speaker 2: banned on all except new property. But it turns out
25:36
Speaker 2: that if you owned your home on budget night and
25:40
Speaker 2: you move out of your home and you make that home, ex-home,
25:43
Speaker 2: a rental property, you can still negatively gear it, can't you?
25:45
Speaker 2: Isn't that one of the sort of secret giveaways, accidental
25:49
Speaker 2: giveaways perhaps in the budget?
25:50
Speaker 3: Yeah.
25:51
Speaker 4: And I think also in terms of it, why would
25:53
Speaker 4: you give up a property that has grandfathering favorable conditions
25:57
Speaker 4: as well.
25:58
Speaker 5: So for those people... So.
26:00
Speaker 1: Are you telling people to do that? Are you telling
26:02
Speaker 1: people to think about that?
26:03
Speaker 5: Absolutely.
26:04
Speaker 4: So if they're sitting in their own home and maybe
26:06
Speaker 4: they've only purchased it for a couple of years and
26:08
Speaker 4: it's not fit for purpose or they've built up that
26:11
Speaker 4: equity and so on, that's why I said you've got
26:13
Speaker 4: to think differently about building wealth now. It's not what
26:16
Speaker 4: it used to be. You've got to be thinking about,
26:19
Speaker 4: am I using existing assets? Am I using different structures?
26:22
Speaker 4: Am I using superannuation? So you You've got to really
26:25
Speaker 4: look at the rules of what the government's doing, look
26:27
Speaker 4: at what the underlying reason behind why they're doing it,
26:31
Speaker 4: and then trying to look at, well, what's the new
26:33
Speaker 4: strategy going forward? How do we actually build wealth? Because
26:36
Speaker 4: if you just look at the changes, you can say, well,
26:38
Speaker 4: now everything's out. It's just you've got to be looking
26:41
Speaker 4: differently about how do you do it now? So that's
26:45
Speaker 4: our key in terms of these changes is it's not
26:48
Speaker 4: necessarily all negative.
26:50
Speaker 5: They're complex rules. They're horrible rules.
26:52
Speaker 3: They're the worst rules.
26:53
Speaker 5: But we've seen.
26:54
Speaker 4: In 30 years, but it's also now, you need to
26:57
Speaker 4: look at how to build wealth differently going forward in
27:00
Speaker 4: order to make sure that you can do that and
27:02
Speaker 4: you're not sitting back for the next 10 years going,
27:05
Speaker 4: it's all over.
27:05
Speaker 5: I can't actually build wealth now. Yeah, absolutely.
27:08
Speaker 1: I really like that attitude. It's a great attitude. Good
27:10
Speaker 1: on you. Okay.
27:11
Speaker 2: Well, I think if you could inspire your aspire, retire
27:15
Speaker 2: clients for that sort of, what shall I say? Optimistic,
27:18
Speaker 2: bullish attitude, which we all should have as investors. They
27:22
Speaker 2: should all do very well. Thank you very much, Olivia.
27:24
Speaker 2: Great to talk to you on the show today.
27:26
Speaker 5: Absolute pleasure, James.
27:27
Speaker 1: Terrific.
27:28
Speaker 2: That was Olivia Mar-Aigna of the Aspire Retire Group. And
27:32
Speaker 2: she went through some pretty difficult hoops, I can tell you,
27:35
Speaker 2: on that show because it is not easy to iron
27:38
Speaker 2: out some of the issues we talked about today, but
27:40
Speaker 2: I thought it was very clear.
27:41
Speaker 1: I hope it was useful to you.
27:43
Speaker 2: Keep the emails rolling, themoneypuzzle at theaustralian.com.au. Today's show was
27:48
Speaker 2: produced by Leah Samaglou.
27:50
Speaker 1: Talk to you soon.
27:54
Speaker 5: Thank you.