New strategies post APRA

Discussion in 'Investment Strategy' started by Ian87, 9th Oct, 2018.

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  1. BPhil

    BPhil Well-Known Member

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    I am not familiar with intimate financial details of friends and colleagues (in my country it is considered rude to ask), however I am sure you can basic math. 1.6m super cap at say 4.5% divs is 6.4% grossed up, which will produce 103k tax free (not assessable). 200k+ for a couple. Still achievable for modest payg even with 25k pa concess limit.
     
  2. BPhil

    BPhil Well-Known Member

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    Maybe? Dunno. Not sure how relevant tho, just depends on whether it is open for everyone to invest.
     
  3. NHG

    NHG Well-Known Member

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    I'm not very good at math.
    4.5% of $1.6M = $72k
    So $60k? post super tax. Accessible at retirement age of 67. Yipee.

    What would one need to earn yearly to accumulate $1.6M?
    I worked out a touch over $10k every year for 47 years increasing by 4.5% at the end of each year.
    So at 10% super contribution, you would need to be earning $100k from your first year at work for 47 years to accumulate $1.6M at 4.5% growth year on year. $0 fees being deducted the entire time.

    Did I do that math right?

    You mention putting in $25k contribution. Whilst paying down a PPOR?
    That's pretty good savings for an average house-hold income.
    Australian average household income $107,276 pre-tax.
    Australian median gross household income $80,704 pre-tax.

    FYI @$200k for a couple is 2.5 times the average median gross household income.

    Do both people in a couple work consistently? Are there any extra-ordinary expenses? Children, illness, cars, other life changes.
     
    Last edited: 18th Oct, 2018
  4. BPhil

    BPhil Well-Known Member

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    Maybe? Dunno. Not sure how relevant tho, just depends on whether it is open for everyone to invest.
     
  5. albanga

    albanga Well-Known Member

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    TBH I probably didn’t track the profits closely enough given it was my first one and it was also a lifestyle purchase. Wasn’t looking at it originally as an investment and definitely overcapatlised.
    Learnt loads though so the value of that knowledge IMO easily offsets the additional profit of someone else doing it more efficiently.

    No structure on that one either, as I mentioned it started off a lifestyle choice which in itself is tax efficient because I was living in the original house as PPOR. Wouldn’t enjoy that luxury again though as wife has come accustomed to Marble benchtops :p

    I am using some of the equity for personal so will have about 130-150k on the table.
    Logan is not on the radar though, prefer to stick in my own backyard given the contacts I have.

    I know holding definitely has upside, my response was regarding the hot topic of servicing and APRA. As I noted it only becomes an issue when you want to hold more than a couple.
     
  6. NHG

    NHG Well-Known Member

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    I just realised you used 6.4% gross.
    So $1.6M * 0.064 = $102,400.
    So $87k post tax? Super tax is 15% yeah?

    Also looked at vanguard funds.
    Average 5 year return is 10-15%.

    Yeah, doable.
    Does anyone else wana pitch in see if this is right? Is 6.4% realistic? Or 10-15% growth?

    Still. 67. What's the buying power of $100k 47 years from now?

    AU$100 in 1970 is equivalent in purchasing power to AU$1,134.69 in 2017, a difference of AU$1,034.69 over 47 years.

    I think I'll keep doing me.
     
  7. BPhil

    BPhil Well-Known Member

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    Amazed at how knowledgable you are on some aspects of finance but you are blind about super. Do some research. Super pension is tax free, and if you are invested in Aus equities you will be 100% franked, hence the 6.4% number. So much more efficient for delivering income per dollar of asset vs property. Property is for building wealth, not spending it.

    9% is a conservative long term (>>10 yrs) return in a low fee fund.

    You should index yearly contributions for CPI. People get promotions etc. Using a figure of 10k pa for 47 years is silly.

    Don't compare average household income to the typical 1-2m mortgage in sydney. Plenty of people with much more affordable housing who can afford to tuck extra away (if they can't then how are they investing in anything, not going to get approved for IP anyway).

    Yes, there are disruptions to work/plans, this is a risk in all investing. Nonetheless I know several who would be approx at the figures above, hence were able to achieve despite this.
     
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  8. BPhil

    BPhil Well-Known Member

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    Tax in pension phase is zero.

    Dont worry about 1, 5, 10 yr return. Especially as GFC distorting numbers. We are talking long-term averages, developed stock market in general eg AU/US is about 9.5% total return (divs + cg).

    Dunno why we are talking about 100k in 47 years, the 1.6m is todays number for those who are at/nearing retirement. It will be a higher number for those looking to retire in another 30 years or whatever (CPI). Even if they never indexed it, its still a substantial sum tax free (tax FREE ie does not count towards your assessable income! So you can earn from investments outside of super too and still pay no tax... Seniors and pensioners tax offset is generous, think tax free thresh is another 57k per couple on top of whatever you have coming from super... Being old is an epic tax dodge).

    By all means keep doing you... But you will be richer if you incorporate super as part of your strategy.
     
  9. NHG

    NHG Well-Known Member

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    You are correct. I don't know too much about how super works. It is 35+ years away for me. The most I've done was move my Super to HostPlus.

    I do believe you pay 15% tax on funds going into super? So you do pay tax. Not on the profits. Same as capital growth without selling.

    Your numbers make it sound easy. Theory vs Fact though, what are the stats for retirees today? We've had 26 years of super (1992), and 27 years or so of unprecedented growth (that's distorting the numbers).

    According to the Association of Superannuation Funds of Australia's Retirement Standard, to have a 'comfortable' retirement, single people will need $545,000 in retirement savings, and couples will need $640,000.

    So a comfortable retirement is $640k, less than half your $1.6M. Yet people are panicking? Government is worried about a strain on the system? Why?

    This is how much money Australians have in super | The New Daily

    Clearly the situation will improve with equal work between men and women, 9%+ super contributions, and over a longer period of time. In that you are also correct.

    I should stop investing and join www.superchat.com.au then I can really start to enjoy life... at 67!... , or 70, or 75, whenever the government chooses I can access it.

    Hope I stay in perfect health, my roof won't needs repairs, my car doesn't break down, if I can still see well enough to keep my licence.
     
    Last edited: 21st Oct, 2018
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    'you' don't pay any tax on funds going into super.

    Generally the fund pays tax on contributions received and you or the employer claim a deduction.

    For non-deductible contributions you cannot claim a deduction but the fund itself also doesn't pay any tax on receipt of that contribution.
     
  11. NHG

    NHG Well-Known Member

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    So if I contribute an extra $10k, I don't get charged any tax at any point?

    Are there any monetary incentives to contribute above compulsory amounts? I remember they used to match dollar for dollar?
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You should seek financial advice...

    It will depend how you do things but you might save tax. If the $10,000 contributed is deductible this will result in your annual income dropping by this amount which means you save tax on the lower income.
     
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  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    part of the chase here is that some folks think Property is the only way, some think resi property only, some commercial property only, some super only, some business only, some PAYG and super only

    My point has always been, and will likely remain, that one sole focus on income stream either while earning active income, or in the chase for an ok retirement, is high risk.

    Super is a slow and an unlikely vehicle to obtain a recurring income "early" - I think we can all agree on that ?

    Super to date, is pretty average, and to a large extent, its because the 10 % the employee is supposed to contribute to make it work..... hasnt happened and WONT unless mandated by Gov - good luck !

    https://www.superannuation.asn.au/.../1710_Superannuation_account_balances_by_a...


    while the actual needs are determined to be 2.4 times the current holdings for the average person at retirement

    How Much Super Will I Need? What's the Average Balance? | Canstar

    Further, Super, while a holy grail, isnt insulated from future significant regulatory changes to balance the books - look at other economies that have had super for much longer than Oz...........

    Finally, in the GFC we had lots of people that lost 15 years of working contributions just when they were about to retire........ Unretired..... many had to go back to work because their nest egg lost 20 to 30 % at a time when they could least afford same.



    I use the analogy of a 4 lane motorway when trying to shift traffic ( wealth). The more lanes you have the more volume you can move………..more importantly, if one lane has a breakdown in it, the whole thing can still move, but if you have a single lane …



    Lane 1 PAYG job ( and super)
    Lane 2 Property ( resi and comm organic)
    Lane 3 Shares/managed funds/debt recycling
    Lane 4 Business ( of any sort, this can also include non organic property "growth" or trading property stock etc )



    Conversely, if one lane starts to fly, we can move some resources from others, for eg when business can become full time, you can slow lane 1 right down

    Run more than one method in parallel perhaps

    ta
    rolf
     
  14. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    We put the max allowed in SMSF as a couple 50k/yr, it use to be 60k just year or two ago.
    SMSF pays 15% tax for total super contribution, Thus making salary sacrifice component taxed at 15% which other wise would be 40+% taxed,
    We still have few decades to retire but I see it as a guaranteed 25% upfront profit on salary sacrificed component and let compounding do the magic.

    for eg if a couple has 35 yrs to retire,
    a 50k yearly contribution results in 42.5k after tax and even if invested in term deposit at 3%,
    will turn close to 2.75 mn by the time they retire.
     
    Last edited: 21st Oct, 2018
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  15. XBenX

    XBenX Well-Known Member

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    Im not sure why access to superannuation (which is from your preservation age + meeting a condition of release) is confused with the aged pension. People claiming how unfair it is, always changing, the age you can access superannuation being pushed back, etc....

    For information on when you can access your superannuation read here:

    Preservation of super

    Note these havent changed...

    It is important, and for some reason this is often confused.

    If you really wanted to get technical - you can access your superannuation prior to preservation age... but you dont really want to be in any of the situations that allow early release.

    To be totally honest, I think people who ignore superannuation to fund their post 60 (if you arent a boomer) lifestyle are crazy - it is still as it always has been.... the best place to compound your wealth.

    Note Im not saying dont build wealth outside of super to fund your pre 60 retirement.
     
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  16. Blueskies

    Blueskies Well-Known Member

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    A few decades? C'mon now, I know those ruthless skivvy wearers keep the lions share, buy surely there must be some royalty cheques still headed your way? My youngest daughter still loves her wiggles DVDs...;)
     
  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    When I was sacked my renumeration package was paid in those DVDs,
    they made a wiggly promise, one day an angel from blue sky will appear and will buy all the DVDs and I will be rich.... Are you the one? ;)
     
  18. Wanttoretire

    Wanttoretire Well-Known Member

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    Seriously. R u OK?
    Happy to chat as a non over the top person. Your life sounds a bit....
     
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  19. NHG

    NHG Well-Known Member

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    Thanks mate. Honestly.
    Fortunately i'm here by design, not by mistake. I can comfortably walk away at any point. Not many can say the same.

    I was simply feeling the pinch as I'd given myself large obstacles to tackle in a short period of time. However I pushed through, and have kept myself on-track to hitting each and every goal I've set so far.

    I'm super lucky in having an amazing support network. I reached out to a few 'successful' mates who have done exceptionally well by a very young age, and each of them could relate to my internal state. They provided great feedback and advice based on their own struggles.

    I do daily morning mediatation/gratitudes. I cycle 90 mins a day now. Organised a boxing match with a friend. 6 weeks intense training, PT twice a week, sparing 4 times a week. I lost. He trained twice a day. Rematch in Feb 19'. I gave him a good wack though, worth it.

    I set fixed date nights with my partner, and family days, making sure to have boys night a couple of times a month. I use audible whilst I ride so can get my 'reading' in. I already had a cleaner, now have a cook to make sure I eat well. I am still struggling to get sleep consistent which is super important.

    I take holidays almost every 2-3 months. Since June have road tripped Tasmania with my gorgeous girlfriend, Broken Hill to see my mooshie nieces, and slept in a underground hotel in White Cliffs, now organising itinerary for my trip to South Korea / Japan in December.

    I really am carving out the life I want day-by-day, and it's awesome. I see the stress/anxiety as just putting myself out of my comfort zone, and then learning what it takes to grow into the person I need to be to hit my goals.

    My life sounds a bit... yet, I wouldn't have it any other way.
     
    Last edited: 22nd Oct, 2018
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  20. NHG

    NHG Well-Known Member

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    So if you put in $50k. And it results in $42.5k. Then you did pay tax?

    If there's no tax, or a matched contribution, it makes sense if you have surplus funds.