Superannuation Discussion + market volatility

[Pushka]

we have been doing the same for a few year now - we can’t claim se 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!

I think if we’d done this while on a salary it wouldn’t have been appreciated so much.

 

[JohnK]

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

My calculations are based on 5% return on investment and 2% inflation.

Is that an unreasonable expectation?

 

[Pushka]

My calculations are based on 5% return on investment and 2% inflation.

Is that an unreasonable expectation?

I think it’s a little unrealistic although US shares are doing better than Oz ones.

 

[Flying mermaid]

My calculations are based on 5% return on investment and 2% inflation.

Is that an unreasonable expectation?

i do that quite easily but I put a proportion into growth stocks, which are higher risk. The less you have the more careful you need to be. Also if Labor win, then the franking credits won’t be refunded, so that’s a big loss.

While in a particular year that is easily achievable, as an average it is much harder - a big correction or recession can see massive capital loss and dividends cut (or even stopped). While it recovers, there can be a few years where it is pretty difficult.

 

[JohnK]

I think it’s a little unrealistic although US shares are doing better than Oz ones.

Cash is currently 2.5% and I'm not sure if bonds are still around but they used to be a little better than cash.

If superannuation funds are returning less than 5% there's something wrong. There's also a risk that you can end up with negative returns.

I haven't looked recently but I think you can buy a $300,000 apartment in some cities that is rented ~$250/week which is a gross return of around 4.33% and if you take into account say 25% expenses that is a net return of 3.25% and very low risk.

 

[QF WP]

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.

The ASFA Retirement Standards are very useful here to guage what is statistically a modest or comfortable income in retirement.

 

[love_the_life]

Cash is currently 2.5% and I'm not sure if bonds are still around but they used to be a little better than cash.

If superannuation funds are returning less than 5% there's something wrong. There's also a risk that you can end up with negative returns.

I haven't looked recently but I think you can buy a $300,000 apartment in some cities that is rented ~$250/week which is a gross return of around 4.33% and if you take into account say 25% expenses that is a net return of 3.25% and very low risk.

But don't forget that the income will be included in your taxable income and depending on how it is financed may end up with a lower real return. I also wonder about the low risk status of apartments at present. Of course property in a desirable location should be safe.

 

[Buzzard]

I know somebody in ADL @JohnK that purchased a place for 320k and immediately got a tennant @ 300/week

 

[JohnK]

But don't forget that the income will be included in your taxable income and depending on how it is financed may end up with a lower real return. I also wonder about the low risk status of apartments at present. Of course property in a desirable location should be safe.

Take superannuation as cash paymrent upon turning 60 and then invest that money in property. It gets easier if property purchased in joint names and tax on $40,000-$50,000 is not that much and should be covered in the 25% expenses that I mentioned.

Need to check reasonable benefit limit and if that applies to me.

 

[Pushka]

Cash is currently 2.5% and I'm not sure if bonds are still around but they used to be a little better than cash.

If superannuation funds are returning less than 5% there's something wrong. There's also a risk that you can end up with negative returns.

I haven't looked recently but I think you can buy a $300,000 apartment in some cities that is rented ~$250/week which is a gross return of around 4.33% and if you take into account say 25% expenses that is a net return of 3.25% and very low risk.

Cash is not 2.5%

 

[RB]

Cash is currently 2.5% and I'm not sure if bonds are still around but they used to be a little better than cash.

If superannuation funds are returning less than 5% there's something wrong. There's also a risk that you can end up with negative returns.

I haven't looked recently but I think you can buy a $300,000 apartment in some cities that is rented ~$250/week which is a gross return of around 4.33% and if you take into account say 25% expenses that is a net return of 3.25% and very low risk.

At what stage of the calculations are you including the stamp duty paid?

 

[JohnK]

At what stage of the calculations are you including the stamp duty paid?

At the same time you pay solicitors/canvassing fees. For $300,000 purchase that should be around the $10,000 mark.

 

[burmans]

My calculations are based on 5% return on investment and 2% inflation.

Is that an unreasonable expectation?

When the figures indicate the average conservative fund returns 5.3% (income and capital combined) over the last 10 years there is a difference between your expectation and reality.

Your expectations are your own choice but as a general principle I would prefer to make financial decision based on the facts rather than my "expectations".

 

[JohnK]

Cash is not 2.5%

It's not? Term deposits are as high as 3.00% for 12 months with Citibank and 2.85% with a few other financial institutions.

 

[Pushka]

It's not? Term deposits are as high as 3.00% for 12 months with Citibank and 2.85% with a few other financial institutions.

That’s not a cash account though. Need to lock it away.

 

[love_the_life]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

 

[Flying mermaid]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

need to have a balance - I prefer shares as they are fun and don’t have annoying tenants, but you do need to balance across different assets.

A friend of mine has just become a slum landlord (not really, but that’s what we call him. . ). He has bought a property in Queanbeyan that has 3 different dwellings on it and will bring him in a pretty fancy return, but I said to Mr FM I wouldn’t touch it with a barge pole. It has mega hassles written all over it.

 

[Pushka]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

Years ago before Hindmarsh Island in SA had the bridge - and that caused a storm in Fed Politics - we bought a block of land in the Marina that was being built about 3 months before the bridge was completed. Held on to it for 18 months after then sold it for over 100% profit. Over 100k more than what we bought it for. Two years later was the drought and all the water receded in the Marina. Timing is everything.

 

[burmans]

Timing is everything.

Abosolutely. Personally I've done quite well out of property but have seen far too many problems over the years to think its some silver bullet.

 

[lovetravellingoz]

Personally I would never rely on the income from property as my main source of income. Too many variables IMO.

Particularly if you are aiming to have only the one rental property.

One of my father's rentals had a tenant from hell who just stopped paying rent and it took about half a year to get him out, with the place trashed to boot.