Ideal Passive Income Portfolio for Retirement - advice from forum experts

I've just been reading this guide. Good job to the author!
Just had a question regarding the DSSP/BSP section. In particular, this section:

I guess I don't quite understand the difference between a DRP and BSP. Does anyone have any links to good sources explaining the differences, and how they apply to the different tax brackets?

 

With a DRP, you need to declare the dividend as income and pay tax on it, although franking would likely pay most of the tax if still working.

With BSP, there is no official cash transferred from the company to you. Instead it is Bonus Shares they give you. You effectively receive no dividend or franking credits for tax purposes and don't have to disclose any income in your tax return as far as I know.

You just recieve 4% bonus shares, instead of a 4% dividend with franking.

Ideally, someone in the higher tax brackets could switch this on and accumulate AFI or WHF over a period of many years. Then when they want to live on this income they can then elect to stop the BSP and start receiving the dividends in cash and franking credits again - basically turning on the income tap when it's more beneficial to receive those cash dividends because their tax bracket is much lower.

 

Has been discussed numerous times.

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Have you looked at esuper?Very simple as they set it all up & take care of all paperwork,accounting etc. for a very low fee of around $799 per year.Been using then for 12 months now,came highly recommended to me from a friend who's been using them for years.

 

Assuming you have considered tax implications on sale of IPs and investment structure, you should read the LICs thread end to end. After which, you should be able to understand your own decision making about diversification.

My first question is why have both VAS and VHY?

 

Because Wozzer (Warren Buffet) would be proud...and Mr Bogglehead...is the bees knees.

 

VAS yes, VHY no!

 

In retirement shouldn't you be more income focused?

 

It is partially income focused. Potential growth with same % yield can provide an increase in disposable income.

 

I wish IPs would do that .

 

Only for as much as I need. If my requirement is $100K there is no need to invest in high income low CG investments once that figure is reached. Goal should be to have investment income atleast 20% in excess of what you consider as bare minimum.

Also, with low yield high CG investments even though the starting yield is lower in the beginning due to high CG the yield also proportionately increases over time. So your income increases at 5%-7% instead of 3%-4% per year over the long term.

Cheers,
Oracle

 

Others have covered the short term implications of BSP/DSSP here, so I'll leave that be.

On selling you need to consider that your cost base has not changed (as you haven't received any income, just bonus shares). If you ever need to sell a holding that has been under a BSP/DSSP plan you will be up for a much larger CGT bill. It isn't a free lunch

 

Must admit since securing more than enough income for our retirement needs we’ve mostly been investing in higher growth, lower “INITIAL” yield funds. That is, local mid / Small Caps and International. Also being retirees the cash allocation is somewhat higher.

 

The Bogleheads won't like this, lucky you are banned from their club

 

I’ve got the Bogleheads sorted. Last one who harassed me ended up as a pleasant meal for our new resident snake. That bulge in her stomach is all that remains of that unfortunate silly Boglehead. PETA the Python let me stroke her today. She’s getting used to me.

 

It seems you're contradicting yourself because your plan to retire on rent from IPs and never take your eye off is now being changed to shares? Be careful about changing your plan at this stage in life, sometimes it's better to stick with your original plan and not change it.

 

Hi @sash

Just saw your post.

Have you heard of Dale Gilham from Wealth Within?

His helped Michael Yardney diversify from property into shares and managed funds as well.

 

Hi Tyrone. Am interested in your experience and connections with Wealth Within (both from an interest point of view, but also any disclosures). Thanks,

 

Would VHY not be good if you continually purchased (DCA)

 

There are more CGT costs incurred in VHY from its re-balancing compared to a index "buy-and-hold" like VAS.