Superannuation Discussion + market volatility

[Quickstatus]

Thank you all for contributing to my superfund by patronising the airports and tollways and NSW electricity grid

 

[RooFlyer]

One of my better investments was completely accidental. I went in with some Sydney mates to have our super funds buy some commercial offices in Sydney, on Darling Harbour, which they would lease for their business; it was a trust structure, so could borrow . Slept for a few years then took off mightily and we decided to sell - it settled just after I retired, so for me, all the leveraged capital gains were tax free (unlike my mates ... suckers!!). They drove it all, but I was a happy passenger at the back of the bus ...

 

[Flashback]

One of my better investments was completely accidental. I went in with some Sydney mates to have our super funds buy some commercial offices in Sydney, on Darling Harbour, which they would lease for their business; it was a trust structure, so could borrow . Slept for a few years then took off mightily and we decided to sell - it settled just after I retired, so for me, all the leveraged capital gains were tax free (unlike my mates ... suckers!!). They drove it all, but I was a happy passenger at the back of the bus ...

I do remember you mentioning that before. Bravo!

 

[RooFlyer]

I do remember you mentioning that before. Bravo!

Oooh. I shouldn't skite so much.

 

[cove]

Last financial year the Australian stock market index improved by 24% according to Commsec. So if you had funds invested you should be happy with the uplift. Avoiding duds isn’t always possible and there is no guarantee that markets will continue going up.

 

[RooFlyer]

Last financial year the Australian stock market index improved by 24% according to Commsec. So if you had funds invested you should be happy with the uplift.

Well, yes... after a Feb'20 to June'20 plunge! 24% is the least it could do!! 31 Dec '19 to 30 June 21 would be a better yardstick for comparing performance, I reckon.

 

[Flashback]

Well, yes... after a Feb'20 to June'20 plunge! 24% is the least it could do!! 31 Dec '19 to 30 June 21 would be a better yardstick for comparing performance, I reckon.

If you were like me though, I bought in massively in Feb and Mar 2020..... happy with the returns from that period now.

 

[RooFlyer]

If you were like me though, I bought in massively in Feb and Mar 2020..... happy with the returns from that period now.

No! I was happily doing a RTW in Feb & March 2020 ... oblivious to the carnage on the markets!

 

[Jacques Vert]

You cannot. Once you are in pension phase you cannot bring more money in.

You certainly can bring more $ in once you are in pension phase, but you can't add it to your existing pension account; you simply start a second pension provided you are under the Transfer Balance Cap (or leave it in your accummulation account).

 

[exceladdict]

If projected super is going to be unable to replace the Age Pension - maybe better to spend it. Though many say you can supplement the Age Pension but I have not investigated this as it is academic for me given my super balance

Depends on a few variables
This is my favourite calculator though

Welcome - Retirement Income Simulator

Find out how much you might have at retirement, how long it might last, and what you can do to prepare now.

supercalcs.com.au

I've been using the moneysmart one: Retirement planner - Moneysmart.gov.au which, i think based on balance, estimates at what point the pension cuts in. I find it quite helpful.

As a %, how much of aftertax income are people aiming to replace with super at retirement?

Basically my average annual expenses (as opposed to current income), less the % that goes to rent / home loan repayments. I assume I will want to maintain the same standard of living.

I think by default the moneysmart calculator above accounts for inflation, as well as a 1.5% PA standard of living increase. I mean, with our economy becoming houses and holes, I am not sure Australia can achieve increased standards of living for all through the decades until I retire, but here's to wishful thinking.

 

[Quickstatus]

simply start a second pension

Why start a second pension account?
If Cap not reached easier tojust deposit up to Cap in the one pension account?

 

[VPS]

Depends on a few variables
This is my favourite calculator though

Welcome - Retirement Income Simulator

Find out how much you might have at retirement, how long it might last, and what you can do to prepare now.

supercalcs.com.au

Thanks - that was one of the better calculators I've seen

 

[cove]

I do hope we are all reviewing our superannuation funds at least twice a year to ensure that progress is being made to achieve a satisfactorily funded long term retirement.
Often I hear of folks going to shelf stacking at supermarkets once they found the cost of living was higher than anticipated.

 

[Jacques Vert]

Why start a second pension account?
If Cap not reached easier tojust deposit up to Cap in the one pension account?

Well I am not qualified or licenced to give financial advice so the following is definitely not financial advice and people should seek out professional advice to suit their own circumstances.

What I can say (and trying to keep this explanation as simple as possible) is that in my own situation, money has gone into our smsf from various sources and at various times (both before and after starting an initial pension). Superannuation money has various components such as a "tax-free" component and a "taxable" component. My initial pension account has a taxable component of 85%. As I'm over 60 I don't pay tax on it as it is tax exempt in my hands but if it goes to non-dependant children when I pass away, the taxable portion will be subject to tax when they receive the $ after my death.

Subsequently, I added extra $ from after-tax money (non-concessional contribution) which then has a 100% tax free component. It makes sense for me to draw down the initial pension at a faster rate than the second one (which has no taxable component); not because I pay less tax but because it will make a very significant difference when my kids get the money. Therefore, I am drawing the second pension at the minimum rate and living mostly off the initial pension. Of course, it would also make a difference if I was under 60.

Furthermore, it is my understanding that to have one pension account, I would have needed to commute my initial pension, combine the funds, and then start a new pension (although I may not be entirely correct on the rules on this).

Either way, it may not make sense to combine, and possibly contaminate, various parcels of money from different sources with differing taxable and tax-free components.

This is a complicated area and I would urge people to seek their own professional, independant advice before making any decisions.

 

[CaptJCool]

Thanks - that was one of the better calculators I've seen

And here’s another which looks similar to Mercers (who I gather ”consult with the CSC”

PSSap Retirement modeller

Project how long your super might last in retirement with our interactive retirement modeller.

www.csc.gov.au

 

[CaptJCool]

Either way, it may not make sense to combine, and possibly contaminate, various parcels of money from different sources with differing taxable and tax-free components.

This is a complicated area and I would urge people to seek their own professional, independant advice before making any decisions.

this would be an accurate representation of how it works.

many take super and then Later go back to work or consulting or to wash the $25,000 tax deduction against taxed super, and so need “new” super account at a future time. Govt superfunds especially won’t permit you to resume older accounts except in some specific circumstances so there’ll always be the new account to manage rollovers and future super - just means if you’re already over the TBC you contribute 15% tax on earnings forever (unless you’re washing the $25,000)

 

[lovetravellingoz]

Well I am not a have all your eggs in the one basket kind of guy.

I used to have 3 different super accounts at 3 different funds (cost have three was not appreciably higher as the cost to run each was mainly % fees) for in part that reason, but also to provide greater investment choices.

As I am now entering a legally retired income phase I have recently consolidated the 3 funds in to 1, and $1.7 million will be in the pension account next week, with the balance in a standard super account.

At the same time I have converted my $1.7 million of wife's super into pension phase with a small amount left in the standard account. We had significantly topped up her fund over the last five years years, and then moving our supper to cash and then back to shares at the right time saw all accounts grow nicely.

It is a different super company than mine and so it again means that as couple that we do not have all your eggs in the one basket

The two funds have different investment choices and so that gives us more choice than being in the one fund. Both funds also do allow you to in individual shares etc if you wish. So I can go back to a more complicated strategy if I wish to later. However the super income complements our second main income plank below.

However my wife has little interest in financial affairs, and so part of my strategy is to simplify things just in case I turn up my toes, or become incapacitated (Well part of the original plan was also that we were meant to be globe trotting in retirement and so I was some extra simplicity due to that).

Having said that, the second plank to our retirement income strategy is a large share portfolio which generates dividends with a lot of it franked. Now in retirement it also means that any capital gains tax from liquifying progressively some of the shares should be minimal if not zero.

The third plank is our cash reserve (in part so we do not have to liquify shares etc when downturns occur) is not in the super funds as the interest earnt is not large and that I prefer to maximise the share income in tax free super environment. As our taxable income is now not large (quite possibly zero) the interest income will most likely be tax free anyway. As the money is in direct accounts we can access it whenever we need it it.

At least for many years I would anticipate that wealth will grow quicker than we can spend it. But I also anticipate that we will also start in a while assisting offspring including the as yet not arrived grandchildren etc.

 

[lovetravellingoz]

many take super and then Later go back to work or consulting or to wash the $25,000 tax deduction against taxed super, and so need “new” super account at a future time.

Which is one reason why if converting your super to pension phase that it can be a good idea to leave some money in your existing super account. In my case in being over $1.7 million I did not have a choice (though yes one could spend everything in that account).

 

[Buzzard]

As a %, how much of aftertax income are people aiming to replace with super at retirement?

I might be misunderstanding your question, but if you follow the 4% rule you need 25 times the amount you want each year. So if you want $100k a year to live on you need a nest egg of $2.5m

 

[andye]

I might be misunderstanding your question, but if you follow the 4% rule you need 25 times the amount you want each year. So if you want $100k a year to live on you need a nest egg of $2.5m

I think Quickstatus meant what proportion of income would be replaced by annual pension (super + state (if applicable). Expenses should go down in retirement and much of the pension should be tax-free (so compared with net current income).
Personally I'm aiming to replace all except mortgage/life/disability insurance/regular savings/professional expenses at least.
Can't imagine we will change our spendthrift ways. And hopefully lots of travel by then