Podcast | Superannuation with Life Sherpa part 1 of 2

On board today is Vince Scully, better known as the Life Sherpa and Author of the popular book the Latte Fallacy which aims to dispel many common personal finance myths (just like that ordering a latte or smashed avocado will stop you owning a home). Vince is a licenced financial advisor, and with over 40 years experience in the industry he has only just recently reached preservation age and is set to retire.

“You should never let the insurance tail wag the investment dog”

Vince Scully, on Superannuation insurance packages

Vince and I chew the fat on wealth, Financial Independence, Retirement, and how superannuation fits into the picture. Superannuation is a pretty massive topic, so Vince and I tackle it from a few different angles – including;

  • Discussions on the evolution of Super
  • When and where it may or may not be appropriate
  • The different types and structures of super available (industry funds, Wrap accounts and SMSF),
  • The effect of fees on your super performance
  • Insurance within your super
  • Annuities and how they can fit into your retirement, and
  • sensible asset allocation for your super.

We look at the four important focus areas and decisions you have to make when selecting your super, and explore the trade-off of the tax benefits of super versus the flexibility of other investment structures. We also cover some interesting and important wealth topics such as home ownership, car loans and the concept of Human Capital and why early retirement might not be such a good thing.

Because it is such a big topic and I had such an awesome time chatting to Vince, I have broken it down into two parts. I didn’t want to cut too much away on the editing room floor, because there are so many gems in here and actually to produce this took over four hours of interviews.

Superannuation with Vince from Life Sherpa


Show Notes

  • Check out Vince’s book the Latte Fallacy
  • Don’t think of just returns. Think in terms of Risk Adjusted Returns over time, or return per unit risk. In the short term, defensive assets are low risk. However in the long term, defensive assets are incredibly high risk. In fact the riskiest thing you can do in the long term is not invest in shares.

Quick Super facts

  • Super taxed at 15% on contributions (up to the concessional cap)
  • Super taxed at 15% within the fund (although your total tax payable can be less depending on what actually happens within the super account)
  • CGT rate within super for assets held more than 12 months is only 10%.
  • Maximum concessional contribution (15% ingoing tax) $25K per year
  • Maximum non-concessional contribution (fully taxed at your marginal rate) – $100k per year
  • Maximum balance cap $1.6M for a tax free pension phase account
  • Aim for 100 months of living expenses in your super account at retirement as a benchmark for a good place to be – this provides around 60% of your pre-retirement income.

Vinces Approach to debt

  • Red rebt – High interest rate corrosive loans due to living above your means
  • Amber Debt – Home loan and Car loan – loans to spread the cost (amortise the cost) of enjoying these items across their lifespan
  • Green Debt – Investment loans – loans to pay for assets that appreciate faster than loan interest)

Vinces Wealth strategy

  1. Build an emergency fund
  2. Pay off any ‘Red’ debt (credit card, personal loan) – High interest rate corrosive loans due to living above your means
  3. If you have one – pay down your ‘Amber’ debt (home loan) until you are comfortably below an 80% LVR and thus have flexibility to refinance to the best deals
  4. Invest outside of super to build wealth flexibility and options (because if you put it in Super – for all intents and purposes it is GONE until preservation age)
  5. Ramp up your superannuation contributions to take advantage of compounding in a low tax environment

Vince on Investing $10K for ten years;

Vince war gamed three scenario’s for investing $10,000 over a ten year period into the three most commonly asked ‘vehicles’ and came out with some interesting answers.

1. Pay off home loan – saves you a total of $11K in loan fees (which should be grossed up as this is post tax – equivalent to about $14K or $24K in total equivalent growth) – with full flexibility and access to it immediately (if put into an offset)

2. Invest into an index fund outside super – grows into $40K – full flexibility with access to it immediately (subject to market fluctuations of course which could go up or down)

3. Invest into an index fund inside Super – grows into $77K – But no access to it until preservation age – the least flexible of all scenario’s

Vince on Asset allocation

You should have a combination of some growth and some defensive assets. For most young people, the balance is probably somewhere between 90:10. Adding some low risk Australian government bonds has a non linear effect on risk adjusted return (return per unit risk). The switch from 80:20 to 90:10 is much higher than the switch from 90:10 to 100% growth.

Vince’s Top financial tips

  1. You should have a combination of some growth and some defensive assets. For most young people, the balance is probably somewhere between 90:10. Adding some low risk Australian government bonds has a non linear effect on risk adjusted return (return per unit risk). The switch from 80:20 to 90:10 is larger than the switch from 90:10 to 95:5.
  2. Vince suggests you need to carefully consider the following six areas;
  • How you prepare for the unexpected
  • How you prepare for retirement
  • Where you live
  • What car you drive
  • How you make a living
  • Who you marry

3. Visit a financial advisor as early as possible. $500 might sound like a lot but in the grand scheme of things it is a small price to pay

Vince’s Super

  • Wrap account with BT Panorama
  • Primarily in Index funds from a mix of Vanguard, BT and Black Rock
  • 40% Australian exposure
  • 50% international exposure
  • 10% gold ETF

Vince’s top Books

The defining decade: Why your 20’s matter by Meg Jay

Vince recommends everyone should have a read of this, not just young people

Your Money or Your life by Vicki Robins

Vince likes Vicki’s concept of money being time units, and uses this book frequently with his clients. Vince recommends trying to find the original copy. Check out my detailed review of Your Money or Your life HERE

Index Funds: The 12-Step Recovery Program for Active Investors by Mark Hebner


eBusiness Institute review
pearler review

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3 thoughts on “Podcast | Superannuation with Life Sherpa part 1 of 2

  1. Hi Captain FI!

    There’s one thing Vince said that I’d like to follow-up on…

    In regards to discussing the transfer balance cap (TBC), that is the formally $1.6mil now $1.7mil cap that can be transferred from an accumulation super account into a pension super account, Vince said that once this cap has been reached you are unable to make any further contributions of any kind (circa 23min mark of 1st ep).

    From my study, my understanding is that once your super balance reaches $1.7mil, you’re not able to make any further non-concessional contributions. But you are able to continue making concessional contributions, which includes those paid by your employer on your income, such as the 10% guarantee and any salary sacrificed amounts, again up to the concessional contribution cap ($27,500) that applies to everyone.

    The reason I’m looking at this maybe niche topic (they’re aren’t many who will get to the TBC cap) is because I’m considering strategies for long-term wealth creation. I’ve effectively paid my PPOR (equity + 100% offset) and I have reached a passive income balance to cover my current expenditure, so I’m looking to split my ongoing income (not retiring) into different investment options. While still making some into outside super investments, I am considering maxing out non-concessional super contributions ($110,000/yr) up to the TBC ($1.7mil) so that I have as much as possible in super at the youngest age in order to maximize those investment returns in a tax-friendly environment. At $1.7mil, (I would be ~42yo), I would then just continue maxing out concessional contributions, and then at preservation, consider my options of what to do with the TBC amount and the excess.

    Kind regards,

    1. Sounds like a good plan! I am not au fait with the rules about maximum caps, but thats awesome you can keep contributing, it sounds like you are going to be in a very comfortable position whenever you should choose to retire. Do you just really love your job or something? What are you going to use all the money for out of interest?

      1. I’m not an expert on super rules either, but have recently researched a lot (your pod included, thank-you) as I’ve changed from being apathetic and relatively dismissive to excited about the potential long-term wealth creation benefits. That scenario in your pod still bounces around my head, that one of investing $10,000 initial and $500/mo over ten years and comparing the growth between the investment options of your home vs. non-super assets vs. super assets. Take that but apply $1.7mil over 30 years and it’s hard to ignore super!

        I’m a doctor. Like most, there are things I love and things I don’t about my job. The main problem atm is I’m trading high hours for high pay. So I want to lower the hours and live a more fulfilling life, but would like to maintain my income and keep achieving financial goals (exploring one, sources of passive income, and two, different avenues of work). I feel I live a FI/RE life in terms of consumption, low expenditure and high savings/investing, but the wealth creation in the long-term I am considering for the purposes of one of more of; 1) fat FI/RE retirement, 2) family with the option for higher affluent suburbs and private schooling, and 3) inter-generational wealth and opportunity creation. These are not necessarily good things to aspire to, but at least having the options is what I consider the power of finance, freedom and opportunities, whether you choose them or not.

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