Superannuation Discussion + market volatility

[amaroo]

We're around the same age as the OP, and have a decent amount of the total in cash. We have plans in place that will see us enjoy life well past our active participation of the businesses we manage / control.

 

[JohnK]

I think the point is that you will lose a chunk of that interest in taxes if you take it out of super.

You can take up to the reasonable benefit limit tax free? Majority of people won't have anywhere near that amount especially the ones starting in these times.

 

[Pushka]

You can take up to the reasonable benefit limit tax free? Majority of people won't have anywhere near that amount especially the ones starting in these times.

We are talking about the interest you will earn and subsequent tax you will have to pay on the money you extract from your super fund. There are two different processes in play here. Super fund Tax and Personal Tax.

 

[Flying mermaid]

You can take up to the reasonable benefit limit tax free? Majority of people won't have anywhere near that amount especially the ones starting in these times.

Once you are over 60 and retired you can take a pension out of the fund tax free and whatever lump sums you like. They have put an upper limit of $1.6 million that you can move into the pension part, but that is pretty much the only limitation. There are minimum and max pension amounts as well, which are age based, but if all you want to do is take the whole amount out, thrre is no limitation, apart from the $1.6

 

[Flying mermaid]

We're around the same age as the OP, and have a decent amount of the total in cash. We have plans in place that will see us enjoy life well past our active participation of the businesses we manage / control.

which is what we have done. Closed the office and got rid of staff in 2012, closed the business in 2014 and just have fun and travel. The only constraint we have is Ms FM who somehow still seems to take a lot of maintenance

 

[VPS]

That's interesting. I asked my accountant how to "declare retirement" and start taking $ out instead of putting in and the advice was - just go ahead and they'll fix up the paperwork later, including calcs on the 4% compulsory amount.

Same here but guess that’s because it’s an SMSF. I had to convince the Trustees I was going to retire permamently. MrP and I were both convinced. I think he might be a tiny bit envious.

Mine was in a state government fund. Not sure if that had anything to do with it but I had to tell them I’d retired. Well I did from my last job

 

[burmans]

I think you have misunderstood my post. This is how arguments start.

My calculations take into account 5% interest and 2% inflation. With that I mean I'd expect the fund to deliver 5% growth and whatever I deduct from the fund in the first year (say $30,000) will increase by 2% each year to cover inflation.

That's why I asked is 5% growth and 2% inflation unrealistic? I'd like a 7%-8% return but that looks to be a myth although Australian Super is quoting much higher figures of ~11% return on a 2 year old retirement product. I hate it when Super funds create new products to make the returns look better.

It's the job of all sellers to make you think their product is attractive, that's just the capitalist system. And our job as buyers to validate if that's really true. In the case of most investment options they do this by choosing the timeline that makes their investment look good. For the last two years shares and property have looked old so they quote that but when they have a bad year or two I can pretty much guarantee they'll stop looking at such a short timeframe and look for a longer timeframe that makes the figures look better.

As a consumer my suggestion is to search out 10 years or longer. Doing so would suggest that on average around 5-6 % (in a low inflation environment) is probably more realistic particularly when both property and some shares are looking like they are at the end of their runs (or it has largely ended in the case of property.

PS I'm no investment advisor so this is all opinion!

 

[amaroo]

Being married to a super / financial CA specialist ... coupled with our combined street smarts - has been an absolute winner!

You can get lucky

 

[JohnK]

You can get lucky

Such as buying 2 investment properties in Shanghai ~20 years ago for ~AUD50,000 each and are now worth over AUD1 million each?

Some are truly blessed.

 

[love_the_life]

Such as buying 2 investment properties in Shanghai ~20 years ago for ~AUD50,000 each and are now worth over AUD1 million each?

Some are truly blessed.

Yes, an appreciating asset is great, as long as it can be translated into cash if need be. It's not much use only having a paper value. I have no knowledge of the Chinese market though.

There are apartments round here that sold off plan for a premium but are now changing hands for much less. I am sure the same thing is happening in many places. One reason I am a bit wary of real estate as the main retirement base.

 

[Pushka]

Not sure I’d ever invest in properties overseas unless I had that country’s citizenship. Foreign ownership can be fraught with issues.

 

[JohnK]

Yes, an appreciating asset is great, as long as it can be translated into cash if need be. It's not much use only having a paper value. I have no knowledge of the Chinese market though.

There are apartments round here that sold off plan for a premium but are now changing hands for much less. I am sure the same thing is happening in many places. One reason I am a bit wary of real estate as the main retirement base.

Property is ok but the days of making quick profits are almost over. I'd be more worried about the volatility of shares.

 

[Flying mermaid]

Property is ok but the days of making quick profits are almost over. I'd be more worried about the volatility of shares.

shares are volatile but there’s is money to be made in volatility. I sold a share yesterday that I bought 12 months ago. Had two dividends totalling 5% + franking and made a 30% profit. It was a share I saw plunge, thought it was over done, bought always intending to sell when it recovered. Of course I don’t always get it right either

 

[nickfromeastryde]

That's just a bit of hyperbole, even with Labours proposed changes people in pension mode are considerably advantaged over your average Joe Blow working person.

While I understand the argument around retrospectivity I'm still of the belief that bad policy is bad policy and should be changed. Benefits to one group of people always comes at a cost to the rest, in this case we are asking our childeren/grandchildren to bear the costs of some misguided economic policies which advantage us as retirees (or in my case soon to be). Regardless of my personal situation I can see this is not and was never fair. Some sort of transition may be fair but frankly I think we all need to recognise this was never sustainable and when thats the case governments need to make adjustments.

Governments can't just make popular decisons every time, thats as recipe for disaster and frankly is the cause of far too many of our current problems. This is true not only on OZ but overseas also, bad populist decisions of previous goverments always come back to haunt us.

Why is the ability to utilise these franking credits against other tax any different really. 10K reduction in tax has the same effect to the bottom line as a 10K cheque to the individual. You are now creating different rules for different people. Also please explain how it is OK for an industry fund (union controlled of course though Retail funds will also benefit) to be able to utilise tax liabilities of other members to offset this and therefore provide the full franking credit benefit to their members in pension mode. This seems to be the assumption as to how it is going to work even though full details of the policy have yet to be released

The real issue or bad policy is zero tax in pension mode. That is inconsistent with our tax laws and also creates different classes of taxpayer's and if addressed would largely make the imputation credit scenario irrelevant. And with Mrs Nick already in pension mode with me to follow in the next year or so we are very much beneficiaries of this policy, I am definitely not speaking through my kick as it would be very detrimental to me if these rules were to change

Still, I cannot shake the belief that Bill Shorten is only doing this at the bequest of his union bosses as it greatly diminishes the benefit of an SMSF and will drive billions of dollars back into industry funds.

 

[JohnK]

shares are volatile but there’s is money to be made in volatility. I sold a share yesterday that I bought 12 months ago. Had two dividends totalling 5% + franking and made a 30% profit. It was a share I saw plunge, thought it was over done, bought always intending to sell when it recovered. Of course I don’t always get it right either

If only it was that easy!

It's too easy to manipulate shares in the short term. If you don't panic you're generally ok. The biggest issue with the value of shares is finding a buyer at the current value. The paper value of shares does not mean much in tough times and we are just about due.

 

[Flying mermaid]

If only it was that easy!

It's too easy to manipulate shares in the short term. If you don't panic you're generally ok. The biggest issue with the value of shares is finding a buyer at the current value. The paper value of shares does not mean much in tough times and we are just about due.

yes I would agree about manipulation. As a small holder you have to realise you are never going to know what the big guys do. I think with a sensible diversification into other things and also dividend paying shares means you can wait out the bear markets without having to sell.

Shares aren’t for everyone, but I really love doing the research and investing.

 

[Pushka]

Why is the ability to utilise these franking credits against other tax any different really. 10K reduction in tax has the same effect to the bottom line as a 10K cheque to the individual. You are now creating different rules for different people. Also please explain how it is OK for an industry fund (union controlled of course though Retail funds will also benefit) to be able to utilise tax liabilities of other members to offset this and therefore provide the full franking credit benefit to their members in pension mode. This seems to be the assumption as to how it is going to work even though full details of the policy have yet to be released

The real issue or bad policy is zero tax in pension mode. That is inconsistent with our tax laws and also creates different classes of taxpayer's and if addressed would largely make the imputation credit scenario irrelevant. And with Mrs Nick already in pension mode with me to follow in the next year or so we are very much beneficiaries of this policy, I am definitely not speaking through my kick as it would be very detrimental to me if these rules were to change

Still, I cannot shake the belief that Bill Shorten is only doing this at the bequest of his union bosses as it greatly diminishes the benefit of an SMSF and will drive billions of dollars back into industry funds.

And there you have it.

 

[tgh]

John is misguided about shares
Todays value is what they are worth to a buyer today
There is always a buyer or the share would have no value

 

[JohnK]

John is misguided about shares
Todays value is what they are worth to a buyer today
There is always a buyer or the share would have no value

Misguided would be spot on.

Is it possible for all shares to be sold today at the same share price? Todays share price is indicative of what a few shares have been sold today. It is possible to sell the same shares over and over and manipulate the share price up or down depending on your motives. Wouldn't be the first time it's happened.

My accountant has an interesting theory. When $60 billion is wiped off the stock market where does that money go?

 

[serfty]

When $60 billion is wiped off the stock market where does that money go?

Simples - "stock market valuation" is based on the sum of the notional total value of all trade-able stocks at the current offers to buy.

For each "stock" this is often the current value of offers to buy at least one share of the stock multiplied by the number of trade-able shares of that stock.

"stock market valuation" does not represent the actual total value of those stocks.

So, it is not "money" in the first place.

If $60 billion is "wiped off the stock market", it means the notional total of offers to buy has reduced by $60 billion.