Max out on pre-tax super

Q I’m 30 and my wife is 33, we have a child of 16 months and live in Sydney. My income is $180,000 and my wife works part time and makes $85,000 a year. We have a combined $200,000 in super and $135,000 in stocks in both the US and Australia. Our primary place of residence is valued at $900,000 and we owe $660,000 (but also have $200,000 in offset). One of our investment properties is valued at $470,000 (we owe $270,000) and the other investment is valued at $550,000 (we owe $395,000).

All of these properties are within the Sydney area. We are considering whether or not we should buy another investment property about two to three hours north of Sydney or whether that is too risky given our property exposure and what the 2017 market could bring? Should we rather build up our stock portfolio or just keep stashing away money in the offset?

Hi Tony, what a wonderful position you are in at such an early stage in life. Including your offset account, your debt-to-equity ratio in your properties is about 58%. And if we add your super and shares to the pot it is around 50%, a very safe level. On top of this your family income of some $265,000 is very healthy.

Despite your youth and years to retirement, on a big income like yours I would firstly ensure $35,000 goes into your super this year, and then $25,000 from July 1, when the amount you can put in pre-tax drops.

I will save you my usual “too much property” lecture – you and every other reader are probably sick of that – so while in your situation I would prefer to see better diversification, in particular building your international shares, I can live with you buying another property north of Sydney. In your shoes I’d max out on pre-tax super then, given you have three properties, I’d pay off the mortgage via the offset account.

But your position is so strong, with decades of earning in front of you, that I am unusually relaxed about your choice. Just make sure you have death cover and income protection in case of illness or injury – that is about the only downside potential I can see.