Investment model and retirement buckets

Sorry but confused with the question regardless of who it’s directed at?

 

Yes, that's pretty much it. We have reached the pension caps in super and both have super in accumulation. The number of government changes to super over the years has meant we always made sure to have funds and assets available outside super. May be it will be our nursing home fund one day!

 

@Nodrog - Just pondering @Islay's situation in the same terms as a fund manager.

Does one leave the capital untouched to grow in each of the original proportions so that they may no longer resemble the original portfolio (unbalanced) or will you draw down/invest excesses to keep the % in each segment at 10%? Eg: 2.5% in crypto regains steam and goes back to $15k/unit and is now 20% of total asset value. Do you sell down keep it sad crypto?

 

That's at least $70k for one person in a private room on top of the $1m bond.

 

@Scott No Mates I do not think you have represented my situation accurately. Our superfunds ie buckets 1 and 2 are rebalanced. Our other assets are outside super and I probably should not have called it bucket 3 because it is confusing you.

 

I think in regard to @Scott No Mates question we are very similar in that we are not like asset allocators rebalancing to maintain asset percentages such as percent in asx / international equities / emerging markets / bonds / listed property / cash / crypto etc. It’s simply about maintaining X years pension payments / living expenses in cash. @Islay has 5 years and I have 10 years. This is usually from dividends alone, no capital is realised.

The closet thing I do to asset allocation is having a rough percentage invested in International equity listed funds.

Although in our case I tend to look at Buckets as our ENTIRE portfolio both inside and outside Super and hold asset types in the
environment for best tax outcome. Overtime Super pension withdrawal requirements will force the assets outside Super where they continue onward there.

 

Thank you, yes. I guess I called it bucket 3 so it was included as a part of our entire portfolio too. Our bucket 3 (claytons super) is a mirror of our super buckets ie 5 years cash topped up by dividends. It also has a few other assets classes that I am not comfortable disclosing here

 

I dream of the day I have 1 year's expenses coming in from dividends alone. I can't even imagine having 10 years worth of expenses sitting in cash.

Well done to you both and it just goes to show what some time and discipline can achieve

 

Oh you mean those Kings Cross Property / Businesses.

 

Haha, that’s close. Do have a property just of Oxford St.

 

I was incorrect in my earlier reply. It appears like us you actually have 10 years expenses in your case being 5 years cash inside Super and 5 years cash outside Super.

We also have another Sequence of Return Risk (SORR) Cash stockpile (around another 10 years generous living expenses) in case a major market crash / bear market occurs in the early stage of retirement. This will be deployed into equities should a SORR event occur otherwise progressively over time similar to a version of rising equity glidepath.

Before I get criticised for holding too much cash / term deposits it’s still less than 15% of the portfolio so it’s not like we’re sacrificing a large amount of growth for SORR protection. Also no capital is being realised, like @Islay it’s simply about dividends topping up the Cash Bucket (s). Geez I do love dividends, definitely the eighth wonder of the world.

The early stage of retirement is the most critical in many respects hence I’m being quite conservative in wanting to dramatically minimise the risk of having these wonderful years of freedom and subsequent retirement ruined by even the most major of market events far greater in magnitude than anything experienced during the GFC.

So I suppose you could say in our early stage of retirement we also have 3 Buckets but with the third bucket being the SORR Cash stockpile which overtime flows back into Bucket 2. Then again we may retain some of this cash (or top up later in retirement) in Bucket 3 incase of future possible aged care financing? Besides I want a V8 motor and gold plated mag wheels on my motorised scooter / wheelchair. And of course unlimited supply of quality craft beer on tap in the ages care facility.

 

My Clayton's Super is the only way I can FIRE. Unfortunately the government keeps changing the rules, making it more difficult to plan.

@Nodrog while other retirees spend their money on bread and milk, you spend it on beer and LICs. Mmmmmmmm LICs.

 

I quite liked an article I think by Bruce Brammel a while ago that outlined the effective tax nature of each of the various buckets for retirees in order to prioritise inputs. I can't find it to accurately quote it but I think it went something like fill up

Bucket 1 - "Super in pension mode" until $1.6m cap is reached. Then fill up

Bucket 2 - "Investments in Personal Names" till about $60Kpa income (for a couple) was reached as this should largely be at no or minimal tax. Then fill

Bucket 3 - "Super in accumulation mode" as this was taxed at 15%. Lastly was

Bucket 4 - creating a private investment company and/or trust that would limit tax to the company tax rate rather than the personal tax rate.

 

I have gone with door number 1 up to the $25k a year concessional contributions and the rest is behind door 4. The income aspect of door number 2 can be achieved via distributions from door 4. Door 3 I will worry about when I reach $1.6m behind door number 1.

 

A fourth pot for your retirement plan | Bruce Brammall Financial

 

Good reading. Currently I make the max $25k concessional contribution each year. Everything else goes into the trust vehicle. I'm wondering whether it might also be best to start making the max non concessional contribution each year in super to get the account to $1.6m sooner rather than hold those extra funds eternally in the trust vehicle.
Thoughts?

 

Trouble with Super is the rule changes and access till preservation age. That said, we tried to max out non concessional contributions when possible as the trend has been toward Gov’t reducing what one can get in there. The sooner you can get money into Super including NCCs the more it can compound sooner in a low tax environment if leveraging off that money isn’t the aim.

Then again Trusts also seem to regularly be a target for legislative change. Labor policy is to tax trusts at a Minimum 30% if elected. We’re shutting our final Disc Trust down soon in part due to a desire for simplicity, being retired and limited benefit anymore.

Our strategy has been:
1. Max out Super CCs each year until 65 (no work test).
2. Max out Super NCCs until limit reached (use 3 yr rule if suits) - well over limit given generous previous rules. Hence the larger portion of our assets is in Super.
3. The rest in joint names (previously had multiple trusts).

 

Thanks @Nodrog . Might start looking at doing the non concessional contributions as well. I'm still a long way of the $1.6m cap in super but also a long way of being able to access super. If I go to max contributions now both CC and NCC by the time I reach retirement age which they might change to 90 by the time I get there, then it should have grown well above the $1.6m cap.

 

I just read this article - he fails to mention the most important part. A company can receive income from a discretionary trust, pay tax and lend it back to a discretionary trust to invest. This gets all the benefits of a company and a trust - low tax, but also the 50% CGT discount and the flexibility to stream income to somewhere other than a company.

 

Good point @Terry_w . I use this exact structure for that purpose. Income only generating investments I hold in the company. Income and capital gain generating investments I hold in the family trust. Only thing I came across is that when you want to then disperse that income in the company that received it I might want to distribute it out to a trust again. You cant loop back into the trust being it came from there. That's what I was I was advised by some hot shot accounting firm. So we now have 2 different discretionary trusts. One that can distribute to a company and one that the company can eventually distribute back too one day.
So much for simplicity. I'm sure the day will come when I will spend many a years unwinding this monstrosity of a structure.