Ask Paul: Should I sell my ETFs and put the money in super?

As retirement approaches, should you keep building your ETF portfolio or shift more money into super? Paul explains why maximising super can make sense, and why simplicity often wins when planning for retirement.

Reader question

Hi Paul,

How should I think about superannuation non-concessional contributions?

I'm 55 and my wife is 53. I'm looking to retire in five years' time, but my wife loves her job and will stay in the workforce longer. My knees are wearing out so I can't do that.

I think we're preparing well. I have $800,000 in super and, because of staying home with the kids, my wife has about $200,000. We have binding nominations pointing at each other.

We also have a share portfolio of ETFs worth $400,000 returning about a 4% yield, but no investment property.

My goal has always been to try and save so that we wouldn't be a burden on the taxpayer in retirement.

We're maxing out our concessional contributions, but should I consider shifting some of our share portfolio into super via non-concessional contributions to simplify our pension-phase retirement income?

And if so, whose super do I top up? My wife's balance because it's lower, or mine because I'm going to be retiring earlier?

Or would it be better to leave our ETFs compounding through dividend reinvesting?

Should I factor in the government's proposed minimum CGT tax of 30% and get out of share investing now? Or is that kind of speculation useless because who knows, maybe the government will go after my super next?

It sure is hard to know what to do. - Garry

Paul's response

You'll get no argument from me, Garry.

With the situation in the Middle East and the war in Ukraine, rapid rises and falls in the oil price, and changing tax policies in Australia, investing is not simple.

But we need to battle on and try to control what we can control.

There is no argument that those who save and invest sensibly will benefit. Your pool of savings is impressive. I agree with you, you are preparing well, and your savings pot will continue to grow over your next five years of work.

In a real sense, you've already done most of the hard work.

With a combined $1 million in super and ETFs worth $400,000, you already have a pool of money that should comfortably deliver around $60,000 a year. Based on long-term historical returns, your capital should also continue to grow broadly in line with inflation.

Geopolitics, uncertainty and changing government tax policy are hindrances, but you can't do anything about them. The important thing is that you have built a sizeable capital base.

Personally, I'd be looking to top up your super as much as you can.

You're already maximising concessional contributions, which means around $32,500 each this financial year. What a great start.

As your balances are well below the $2.1 million threshold, you and your wife could each contribute up to $130,000 a year as non-concessional contributions. Depending on eligibility, you may also be able to trigger the bring-forward rule and contribute up to $390,000 each.

You'll need to talk to your super fund, accountant or financial adviser before making any decisions. There is a lot more personal information required before anyone can provide more than general guidance.

That said, I think there is an important general principle here.

Depending on your personal tax rates, the potential capital gains tax implications of selling ETFs, and your broader financial situation, I generally prefer money inside super.

During the accumulation phase, earnings within super are typically taxed at 15%.

Once you move to pension phase, provided you have reached preservation age and satisfied a condition of release, earnings on assets supporting a retirement-phase pension can be tax free, subject to the relevant transfer balance cap rules.

For investors, that can be a very attractive environment.

I would encourage you to speak with your fund's member advice service or seek personal financial advice.

There may be factors specific to your circumstances that make maximising super less suitable than it appears at first glance.

In an increasingly complex world, I tend to favour simplicity. A large, low-cost super fund can often provide exactly that.

Seek advice, work through the numbers, and go from there.

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