Superannuation Discussion + market volatility

[cove]

Everyone has quite different needs. My wife’s parents were quite able to live on the age pension.
Two of our friends have been surprised at their cost of living since they retired as it has been higher than they expected. I just listen and keep working.

 

[Flying mermaid]

Mr FMs parents lived well on the age pension and even saved money. Depends where you are living and medical and energy costs. They had the vets gold card or whatever it was, so medical bills were well covered.

 

[cove]

Yes that gold card from war service can be a real help in containing medical costs. All we did was buy them a new Toyota Camry every 4 or 5 years for them until the drivers licence was handed in. They saved quite a bit over those pension years.

 

[Flying mermaid]

Yes we all used to chip in for various things they needed, but they really managed very well!

 

[rogerkambah]

I've been reading some articles recently suggesting that people need >1 million superannuation..

That's not really right and out of reach of most people.

I'm not an expert but I feel ~$300,000 is enough for a modest retirement, $500,000-$600,000 enough for a comfortable retirement and $1 million+ for a luxurious retirement which in my opinion is not worth delaying retirement to achieve.

I'm certainly no expert, but the earnings on $300K at 5% will only be $15K per annum. And for people wanting to retire who are younger than age 60 would need to pay tax, albeit not very much. Also too young for age pension. Assume you and wife have other income of around 3 times that to live on and raise your daughter. I guess it depends on expectations.

 

[JohnK]

I'm certainly no expert, but the earnings on $300K at 5% will only be $15K per annum. And for people wanting to retire who are younger than age 60 would need to pay tax, albeit not very much. Also too young for age pension. Assume you and wife have other income of around 3 times that to live on and raise your daughter. I guess it depends on expectations.

What would a conservative pension fund be expected to earn? 7%-8%/year?

If you have $400,000 superannuation and you take out $500/week and assuming 2% inflation and 5% return/year that money should last you 20 years. I'd consider $500/week somewhere between modest and comfortable.

Obviously with $300,000 you'd have a little less but still possible to live modestly.

I'm a little luckier in that I have an investment property that returns ~$370/week and assuming expenses of 20% that leaves ~$300/week income.

At $800/week that'd be enough to save for a couple of trips to Thailand/year and stay in my little shack. If I save a little harder I may also be able to spend a couple of weeks in Pattaya.

I should be able to get to $400,000 superannuation by the time I'm 60 in 6 years time. And hopefully by then I've also saved my daughter's private school fees until she completes year 12.

 

[Pushka]

I think our generation has it a bit tougher, as compulsory contributions started quite late for some of us, although we’ve had the ability to make larger contributions at various times, although not everyone was in a position to take advantage of that.

We slipped through. SG didn’t come in until well into our career and just as our business could afford the top up via SS this opportunity melted before our eyes. The last 2 years and this year were supposed to be our top up years. No more.

 

[RooFlyer]

Without knowing your exact situation, Pushka, can't you use the '3 year bring forward' rule if you are retiring this year?

 

[QF WP]

Yes, however this is the personal contribution route which means that they have to personally have the funds to contribute - I think @Pushka was looking at their business being able to make higher contributions (which had previously been $100K, dropping to $50K, then $35K/$30K, now $25K).

Depending on if their business can be sold, then there may be additional capital that can be contributed using a number of different retirement exemptions

 

[Flying mermaid]

What would a conservative pension fund be expected to earn? 7%-8%/year?

If you have $400,000 superannuation and you take out $500/week and assuming 2% inflation and 5% return/year that money should last you 20 years. I'd consider $500/week somewhere between modest and comfortable.

Obviously with $300,000 you'd have a little less but still possible to live modestly.

I'm a little luckier in that I have an investment property that returns ~$370/week and assuming expenses of 20% that leaves ~$300/week income.

At $800/week that'd be enough to save for a couple of trips to Thailand/year and stay in my little shack. If I save a little harder I may also be able to spend a couple of weeks in Pattaya.

I should be able to get to $400,000 superannuation by the time I'm 60 in 6 years time. And hopefully by then I've also saved my daughter's private school fees until she completes year 12.

something to think of is the increasing cost of your daughter as she grows. It’s not just the fees, it’s all the extras, even at public schools. Books, uniforms, excursions, sport, extra activities. We are not a musical family but for some reason when she was 6, Ms FM conceived a passion to learn to play the violin - we thought it was a fad, but for 12 years she had lessons and played it - I even grew to love her music (as much as someone who is tone deaf can). I would have hated to have had to say no to those lessons. 25 years ago they were $100 an hour and she didn’t have the expensive teacher that the “serious” kids went to.

If she gets into a sport or gym or a thousand other things the $ mount up.

We didn’t retire until we were sure the children related expenses were coming to an end. Well they never do, but at least they are totally discretionary now.

Then there are medical bills. Ms FM (she was the expensive one out of our 3!), shattered her knee cap playing basketball - 3 knee operations and $30,000 at least..... yes you can go public, if you enjoy seeing your child in pain and waiting....Then all her other auto immune problems and specialist bills by the dozen. You can get lucky - apart from having her adenoids out I don’t think Dr FM ever had a problem or Master FM but you don’t know what lies ahead.

Not saying don’t retire - I love retirement! But maybe a bit of caution with a young child - they can be very expensive......

 

[RooFlyer]

Yes, however this is the personal contribution route which means that they have to personally have the funds to contribute - I think @Pushka was looking at their business being able to make higher contributions (which had previously been $100K, dropping to $50K, then $35K/$30K, now $25K).

Depending on if their business can be sold, then there may be additional capital that can be contributed using a number of different retirement exemptions

Ah, yes, well spotted.

 

[Pushka]

Without knowing your exact situation, Pushka, can't you use the '3 year bring forward' rule if you are retiring this year?

Not from pre tax funds, only from post tax funds and which wont be forthcoming until we realise some assets. About this time next year we hope to do exactly that for both of us unless the bloody Government gets in the way again.

 

[JohnK]

Not saying don’t retire - I love retirement! But maybe a bit of caution with a young child - they can be very expensive......

There's a good thing about having a Greek background and that is I hardly ever have to buy anything for daughter and that's likely to continue for at least a few years. Grandma buys many things for her granddaughter. Uncle will also help out.

Regarding retirement there's nothing set. I'd love to retire at 60 but could be a little longer. I'd like to work 2-3 months/year post retirement and salary sacrifice most into superannuation. And would be nice to be able to earn some part-time income post retirement.

 

[Flying mermaid]

There's a good thing about having a Greek background and that is I hardly ever have to buy anything for daughter and that's likely to continue for at least a few years. Grandma buys many things for her granddaughter. Uncle will also help out.

Regarding retirement there's nothing set. I'd love to retire at 60 but could be a little longer. I'd like to work 2-3 months/year post retirement and salary sacrifice most into superannuation. And would be nice to be able to earn some part-time income post retirement.

oh yes - that helps having grandparents. I can’t wait for Ms FM to have children, so I can buy cute clothes.

I think easing into it with part time work has a dual benefit - you get some income for the extras/super and it also gives a bit of interest while you develop your post retirement life (although you already have golf). Mr FM still works about 50 hours a month, mainly doing research into new products and technologies for a software development company in Sydney. He has no deadlines so can work when and how he wants and they come up to Canberra when they need a face to face. He really enjoys it and feels he can fritter money on cameras and going to cosplay conventions with a clear conscience

 

[Pushka]

Well I’ve found that one good thing about paying company tax is that shareholders receive fully franked dividends for the same net pay plus tax has already been paid on it. For the moment anyway......

 

[lovetravellingoz]

Well I’ve found that one good thing about paying company tax is that shareholders receive fully franked dividends for the same net pay plus tax has already been paid on it. For the moment anyway......

So you thought Dividend Imputation was?

 

[Pushka]

So you thought Dividend Imputation was?

I always knew what dividend imputation was. But we have our own company and over the years we have paid company tax. The dividend amount has been accumulating over 20 years. We’ve never taken any distributions but left the cash in the company bank account. It has now reached the stage where cash flow wise and profit accumulation wise that we are paying ourselves dividends this year instead of salary. And with retirement I am as of Sept 1 no longer in paid employment, but, I am able to more than replace my salary by means of dividends and which has the extra benefit of already having tax paid on it. Plus the Workcover levy excludes dividends from salary calculations. Win win.

 

[love_the_life]

something to think of is the increasing cost of your daughter as she grows. It’s not just the fees, it’s all the extras, even at public schools. Books, uniforms, excursions, sport, extra activities. We are not a musical family but for some reason when she was 6, Ms FM conceived a passion to learn to play the violin - we thought it was a fad, but for 12 years she had lessons and played it - I even grew to love her music (as much as someone who is tone deaf can). I would have hated to have had to say no to those lessons. 25 years ago they were $100 an hour and she didn’t have the expensive teacher that the “serious” kids went to.

If she gets into a sport or gym or a thousand other things the $ mount up.

We didn’t retire until we were sure the children related expenses were coming to an end. Well they never do, but at least they are totally discretionary now.

Then there are medical bills. Ms FM (she was the expensive one out of our 3!), shattered her knee cap playing basketball - 3 knee operations and $30,000 at least..... yes you can go public, if you enjoy seeing your child in pain and waiting....Then all her other auto immune problems and specialist bills by the dozen. You can get lucky - apart from having her adenoids out I don’t think Dr FM ever had a problem or Master FM but you don’t know what lies ahead.

Not saying don’t retire - I love retirement! But maybe a bit of caution with a young child - they can be very expensive......

Oh and don’t forget the horse! That sure eats up the money.

 

[burmans]

What would a conservative pension fund be expected to earn? 7%-8%/year?

If you have $400,000 superannuation and you take out $500/week and assuming 2% inflation and 5% return/year that money should last you 20 years. I'd consider $500/week somewhere between modest and comfortable.

For a conservative pension fund 7-8% is unlikely. From SuperGuide measured across Australian funds.

Performance over 10 years: Over 10 years to 30 June 2018, the All Growth option delivered the highest average annual return (7.1%) of the five asset allocations, followed by the High Growth option (6.9%), then the Growth option (6.6%), the Balanced option (5.9%) and the Conservative option (5.3%).

Calculations such as yours seem highly dependant on returns that are not based on what the funds are actually achieving without taking on considerably more risk

 

[Flying mermaid]

I always knew what dividend imputation was. But we have our own company and over the years we have paid company tax. The dividend amount has been accumulating over 20 years. We’ve never taken any distributions but left the cash in the company bank account. It has now reached the stage where cash flow wise and profit accumulation wise that we are paying ourselves dividends this year instead of salary. And with retirement I am as of Sept 1 no longer in paid employment, but, I am able to more than replace my salary by means of dividends and which has the extra benefit of already having tax paid on it. Plus the Workcover levy excludes dividends from salary calculations. Win win.

we have been doing the same for a few year now - we can’t close down the company until retained profits are zero, so are paying ourselves dividends each year until they are exhausted. A new ce bonus after years of paying large amounts of company tax!