Superannuation Discussion + market volatility

[andye]

Dividend reinvestment plans | Australian Taxation Office

How tax applies to your dividend if you use it to buy more shares from the same company.

www.ato.gov.au

As for the ETF, it’s an investment group and they pay you an after tax earnings - they as the shareholder get the benefit of the franking credits - you are a unit holder

ATO is here to help first-time share and ETF investors | Australian Taxation Office

The Australian Taxation Office (ATO) is supporting first-time share and Exchange Traded Funds (ETF) investors to lodge their tax returns and avoid errors that can delay tax refunds. First-time investors often misunderstand their tax obligations in relation to reporting capital gains from the...

www.ato.gov.au

The explanation there is helpful

That's great thanks

 

[cove]

With APRA moving to eliminate bank hybrid capital notes by 2032 there was a bit of a rush on Friday for CBAPM which runs to 2030.That one is a 3% plus the bank bill rate so 7.35% gross. Now that was a nice parking spot for surplus funds while we search for a long term investment but the latest price is a drawback.

 

[andye]

The helpful answers to my questions above do enter into the equation when considering what is almost ubiquitous advice to rebalance your portfolio.

Correct me if I'm wrong but it seems to me to make mathematical sense to do the rebalancing via distributions/dividends rather than selling while in accumulation

Also seems to make blue-chip high-dividend shares (and bonds and cash deposits) slightly less attractive than pure capital growth options. I may be underestimating the power of franking credits for AU shares in this however

 

[RooFlyer]

The helpful answers to my questions above do enter into the equation when considering what is almost ubiquitous advice to rebalance your portfolio.

Two things on 'rebalancing' from my own personal experience - no doubt will be quite different from yours.

On retirement, my SMSF had cash funds after I sold an investment property and also a managed office investment. The financial advisor. suggested they go into balanced funds which I accepted. They also suggested rebalancing my share portfolio as it was very overweight in Banks particularly CBA. I did not take this advice.

What I found out about the balanced funds is that they did an annual review and guess what? Because some things performed better than others, it was out of balance so then they rebalanced it back to what it was, charging me a fee for doing so. For two years in a row they could not explain or would not explain why the balance in years two and three should be the same as the initial balance. For various reasons I’ve got rid of the manager a year after that.

Moral: beware funds managers charging a fee to rebalance. Make sure they actually are earning at fee by justifying the balance they’ve made.

Thank God I didn’t accept their advice to rebalance my share portfolio and down weight CBA!

 

[Brissy1]

Two things on 'rebalancing' from my own personal experience - no doubt will be quite different from yours.

On retirement, my SMSF had cash funds after I sold an investment property and also a managed office investment. The financial advisor. suggested they go into balanced funds which I accepted. They also suggested rebalancing my share portfolio as it was very overweight in Banks particularly CBA. I did not take this advice.

What I found out about the balanced funds is that they did an annual review and guess what? Because some things performed better than others, it was out of balance so then they rebalanced it back to what it was, charging me a fee for doing so. For two years in a row they could not explain or would not explain why the balance in years two and three should be the same as the initial balance. For various reasons I’ve got rid of the manager a year after that.

Moral: beware funds managers charging a fee to rebalance. Make sure they actually are earning at fee by justifying the balance they’ve made.

Thank God I didn’t accept their advice to rebalance my share portfolio and down weight CBA!

So what does "rebalance" mean, sell some of your winning shares/industries and buy into your losing? That's not what Warren Buffett does (30% in Apple, 25% in Amex+BoA). And Berkshire became so unbalanced because it Didn't sell it's winners.
Well done with cba (that's what Buffett does).

 

[Quickstatus]

financial advisor.

I once had a westpac financial advisor suggest I take out some margin loans.
A year later the GFC hit...

 

[Freq Flier 2013]

With APRA moving to eliminate bank hybrid capital notes by 2032 there was a bit of a rush on Friday for CBAPM which runs to 2030.That one is a 3% plus the bank bill rate so 7.35% gross. Now that was a nice parking spot for surplus funds while we search for a long term investment but the latest price is a drawback.

Thanks for posting. I wasn’t aware.
Would you sell cbapm now as it’s trading to a high premium?

 

[p--and--t]

Yes and we've done that but in the case of dementia you'd have to decide to have something in place before you reached that stage but because you hadn't reached end stage then likely not eligible. When you are eligible it's too late. Life prolonging treatment is already in our directive but that isn't the issue with dementia.

Mum had a directive in place and I didn't realise prior that if she dropped while I was with her on an outing, then that meant she didn't want me to try to resuscitate her. A couple of years later I was the one to invoke her directive when she had a stroke at the nursing home and I was asked if I wanted to enact it as per her directive. Guess they didn't want to make the decision even though they had all the paperwork to do so.

[OT] I am late to this discussion (sorry its off topic) and maybe late to all the required planning. I have POA etc in place and updating my contract will. But struggling with the possibilities in my care directive - where does one go for guidance in specifying content in a directive document?

Was a bit alarmed to find out hospitals can totally ignore care directives if they so choose. I never wish to go to a nursing home, nor be "prolonged".

 

[JohnK]

Yep!

If by any chance I do end up in an aged care home, and I really don't wish for that. I won't be letting those greedy companies take 750k or whatever the amount is from my family to put me there.

No issue with daily fees etc but the lump sum is disgusting

I'm stunned at aged care fees. Surely not for profit organisations should be the way to go? I'm sure they could be make it work without those ridiculous up front fees?

Focus of the government should be in taking care of long standing citizens instead of throwing money at new arrivals.

If I end up needing full time aged care then time to head to Thailand. A carer for around 8 hours a day is $30-$40/day. I have a house there already but if you stayed away from the city you can rent a decent house for less than $600/month.

I'm waiting and hoping that my main medicine that costs around $2000 every 8 weeks comes of patent and they make generics.

 

[CaptJCool]

I’m not stunned at aged care fees
In a hybrid user pays / universal govt subsidised system this is the reality
What gets my goat is two things

1. Tax-free superannuation that asks retirees from age 60 to pay zero Income tax. Nada nix naught let alone FREE public transport, cheap medicines etc etc let alone refunds of excess franking credits unless you’re a former public servant in a defined benefit fund … (see below)
2. Fobbing the hefty cost onto the unfortunate 8% who end up in need of aged care and forcing them to fund the capital infrastructure of the so-called nursing homes - there is a serious cashflow deficiency problem now and will get even worse - carrying a mortgage into that scenario is worse again
The Medicare model and the education model both cover everyone (with options to pay more through private health funds and private schooling) - the aged care model forces one to contribute from the beginning so at least the lifetime cap which includes home care & aged care homes remains in place. And one way or the other is accessible to all (unlike airfares to footy finals)

So what will happen next?
Me thinks the “care at home” model noting the heavy strain on labour resources already in play
There’s not enough labour workforce to build enough new houses in far flung new suburbs 1/6 tied up in lucrative govt infrastructure projects let alone home renovations in Randwick
And the care workforce well insufficient to meet the all the needs of the NDIS, hospital, medical and aged care systems - is there a solution ? Well unpalatable to many as it involves good diet and movement (gentle exercise)


And then we got the $1.6 million TBC - well at least that’s a small contribution towards taxes
And perhaps soon we’ll get the $3 million cap on superannuation which will make a small but larger contribution
These will all limit future inheritances but let’s face it after the current 60ish baby boomers age, theres less dependants to inherit the significant wealth left to them by grandparents & parents

 

[Quickstatus]

The Medicare model and the education model both cover everyone (with options to pay more through private health funds and private schooling)

Medicare model?.

Total federal and states (across all govts) public health expenditure roughly 200B /year

Total medicare related benefits paid 30B/year. Medicare levy revenue is actually less than 30b/year (I dont have figures unfortunately but its leas)
Total taxation revenue across all govts 750B

Id like to know how Medicare really pays for the health system... because it did the medicare levy should be more like 10%

 

[andye]

I’m not stunned at aged care fees
In a hybrid user pays / universal govt subsidised system this is the reality
What gets my goat is two things

1. Tax-free superannuation that asks retirees from age 60 to pay zero Income tax. Nada nix naught let alone FREE public transport, cheap medicines etc etc let alone refunds of excess franking credits unless you’re a former public servant in a defined benefit fund … (see below)
2. Fobbing the hefty cost onto the unfortunate 8% who end up in need of aged care and forcing them to fund the capital infrastructure of the so-called nursing homes - there is a serious cashflow deficiency problem now and will get even worse - carrying a mortgage into that scenario is worse again
The Medicare model and the education model both cover everyone (with options to pay more through private health funds and private schooling) - the aged care model forces one to contribute from the beginning so at least the lifetime cap which includes home care & aged care homes remains in place. And one way or the other is accessible to all (unlike airfares to footy finals)

So what will happen next?
Me thinks the “care at home” model noting the heavy strain on labour resources already in play
There’s not enough labour workforce to build enough new houses in far flung new suburbs 1/6 tied up in lucrative govt infrastructure projects let alone home renovations in Randwick
And the care workforce well insufficient to meet the all the needs of the NDIS, hospital, medical and aged care systems - is there a solution ? Well unpalatable to many as it involves good diet and movement (gentle exercise)


And then we got the $1.6 million TBC - well at least that’s a small contribution towards taxes
And perhaps soon we’ll get the $3 million cap on superannuation which will make a small but larger contribution
These will all limit future inheritances but let’s face it after the current 60ish baby boomers age, theres less dependants to inherit the significant wealth left to them by grandparents & parents

I agree that effectively no tax (except GST on spending and council rates) in retirement is a massive perk for moderate to very wealthy retires and, in a world where lefespans go up and up, should be remembered whenever anyone is tempted to say "I paid taxes all my life" when it is probably only for half of it.

It should be remembered that everyone gets the benefit of a defence force, police force, roads, hospitals, legal system, medicare contributions to medical care etc. Only a small number of retirees are truly self-funded over their lifetime if you count all of that

It is human nature to feel that it is unfair to see others getting similar benefits of the state while paying little tax during their own working years but that is the nature of a progressive taxation system with a social safety net.

Unfortunately even people with very healthy lifestyles eventually get sick, and require expensive medical and nursing care in the years before they die. It just puts off the average age at which it starts. The only way it really saves the government balance sheet is if they are well enough to be able to continue to work (paying tax or employing others) or provide cheap childcare so their children can do so

 

[JohnK]

I’m not stunned at aged care fees
In a hybrid user pays / universal govt subsidised system this is the reality
What gets my goat is two things

There's a lot more than just 2 things we've got wrong.

One of the things that stump me the most are the people who do not contribute through life and continue to get everything throughout their life. That's a huge burden on the rest of us.

On a good note both my super funds returned between 8%-10% for the past financial year and my secondary super fund is reducing fees. The funds are exceeding my back of envelope calculations.