Superannuation/preparing for retirement.

Ok so thought I'd follow up after meeting up with my friend, and going over the information she had paid for. The good news was that she paid 200 upfront, and another 1000 was going to be charged if she went ahead with their plan. She told them no thanks.

So I asked if they performed a risk profile on her and they did, she advised them she was not comfortable with borrowing any money and buying any new houses. I asked her how she felt if she tried to invest and in the long run lost 5k (worst case scenario I asked her, to get a reaction) and if she couldn't handle it, so on the scale she has no tolerance for any sort of risk or investing. And she also told me this.
So I try and understand why they advised her to purchase a new house in Ballarat, along with salary sacrificing. As it turns out, she was told her taxable income would be less and a way to save on tax.
The salary sacrifice is a bloody good idea though.

So this is what they adviced, with a massive 2 booklet of info on Ballarat and why to purchase there.
Lot 70 whidburn place, Sebastopol.
Land price 105k
Build price 205,410
Total price 310,410.
3 bedroom/2 bathroom, dlug garage, house area 152m2, land area 307m2.
They also adviced her that they make 8k commission on the sale if she proceeds through the developers. Now I know why they advised her on property, cheeky *******s.

Their projections they worked off.
Property value 310k
Gross rental yield 4.76% rent 300-320/week.
Capital growth 6% per year for 10 years.
Property value after 10 years 555,896

Anyhow, she's not going ahead with buying any property.
We worked through some figures, and going by the latest feedback and economical conditions, getting a greater return than previous will not happen, maybe even negative growth in shares this year.
So she's going to withdraw 10% per year through her super as she's currently allowed, put that straight into her home loan at 5%.
She will salary sacrifice as much as possible every year, hopefully over 500 per week, which will save her around 5400 in tax every year.
I will try and get her a better interest rate.

Would anyone know if you can better 5% with only 130k in mortgage loan? Anyhow we are going to try. That will also save her a small fortune.
Each year we will re assess how the superfund performs, and perhaps what might happen in the future, this will allow her and only her to decide if she wants to pay off the loan at 5%(current rate) or try and get a better return in super. She will continue to draw out 10% (15k plus it will increase with more salary sacrifice and earnings)every year if she chooses to continue paying off her home loan.

Now the hardest part, at 59 years, she is happy to work till 69, and she needs too, as I see it. Does she leave her super in a balanced portfolio or switch to retirement or conservativ? This she can only decide but would love to her your thoughts for another 19 years?

Also she loves her home in Geelong and does not want to move, ever. It's valued at 750k, but that's irrelevant as she won't sell. But good to know she's got value if she needs it.

Also if you see any issues with this method, please throw it at me, cheers for everyone support. She also thanks you all for helping too.

 

She got an SOA for $200? No wonder the advice was structured like it was. To give you an idea, based on the very small amount of information provided, I would charge *at least* $500 to the adviser just to write the plan. What they charge their client after that is up to them. Based on my experience, a reasonable amount to charge would be upwards of $2,000, depending on the time spent with the client and the complexity of her situation. It never ceases to amaze me that people expect champagne service on a beer budget. What did she expect for $200?

It's obvious they use the SOA as a loss leader, to get people to purchase products (in this case a house), for which they receive a very sizeable commission. It seems to me that these guys are property spruikers using financial advice as a front.

My advice is that no one on here provide their opinion on what she should do, because no one on here knows her. Not that that is going to happen...

 

Hi mombius, yes it appears an soa.
I'm not sure why your amazed, this is a person just like most people near retirement without a true understanding of finance. She does like most, asks friends if they know any good financial planners, or looks on the web to find one. How was she supposed to know she was going to be served beer. She went in looking for advice and was willing to pay the fees in the first place what ever they were within reason. This is why good financial planners are so hard to find, and people have a perception planners are going to sell them something in the first place.

Yeah I agree. Lucky she new better to walk away.

I think people should provide their opinion, perhaps their in a near similar scenario or coming up to retirement. it educates people. And that's the purpose of property chat, isn't it?

 

What you're asking is for people to provide specialised non-property related 'suggestions' for someone whom they don't know, also for whom they have no clear understanding of this persons' circumstances.

I suggest what she does is do her homework and find a good adviser that will actually help her out.

• ~11 years' experience in the industry
• 2 + 2 = 4

 

My super is in balanced and I think I will leave it there for the upcoming downturn. I would consider switching to growth during the recovery phase, however, I have 30+ years to retirement and have a higher tolerance for risk than your friend.

If her super has already lost value (mine has), switching to conservative now will consolidate any losses and she also faces very low growth during the downturn. Conversely, keeping the fund in balanced mode will risk the value declining further. I am not sure there is a solution to ride out the downturn. I have a proportion of international shares and they might not be hit as hard as Australian shares. Who knows? Sorry, I don't have an answer to this one. I have the same dilemma myself.

 

Thanks Perth guy. Appreciate the feedback as always. I've decided to let her call sunsuper and speak to their planners, then let her decide on what to do. I also find this to be very challenging.
Cheers

 

Thanks.

 

They are probably best to advise. I don't 100% understand how it works. All I can tell you is that my super has a unit price of 2.4153. The price for these units peaked at 2.5756 on 4/8/2015. So I have already lost thousands in value. I don't know how many unit I have but this is how I am calculating this on a hypothetical 100,000 units:
value on 4/08/2015 = $257,560 (100,000 * 2.5756)
value on 16/02/2016 = $241,530 (100,000 * 2.4153)
So, if I had 100,000 units, I would have "lost" $16,030.

This is the part I don't know: I am assuming I don't actually lose units, so if I keep adding units through the downturn and some time after that, the value of each unit increases, I guessing the value goes back up? Assuming I could add 2000 units a month and it takes 18 months for the price to return to 2.6000, at the end of 18 months I would have 136,000 units with a total value (at 2.60000) of $353,600.

However, if I switch from balanced now to conservative, I essentially cash in my units at 2.4153 and crystallise the (hypothetical) $16,030 loss.

This is probably something I should talk to my super company about. Although I don't have as much in the example above, it is building up and I don't want to waste it by leaving it in the wrong mode or by switching back and forth, crystallising losses.

 

Thanks for the explanation on units. I will be looking into this for myself as well. Gonna make time to better understand it. I'll be calling them tomorrow

 

@Perthguy - pretty much on the money. The other thing to warch is that the unit value isn't being eroded by paying dividends out of the capital futher eroding the unit value.

Each investment stream will have different unit values which hopefully travel in different directions so that they aren't all affected by a market downturn eg direct property/REITs may be trending upwards, cash reasonably stable, Aust shares downwards and international shares downwards but buoyed by a falling AUD.

 

So in other words, you can't time the market. If you have plenty of time, choose one and stick with it. If your close to retirement, try and protect what you have?

 

Not quite - fund managers are just that, they shift the balance of assets across various asset classes within defined limits in order to maximisegains and minimise losses. The better the fund manager the greater the return in excess of thr target.

 

I don't know the answer. I'm guessing. I am considering moving to a more aggressive (higher risk, higher return) strategy when the market is recovering but not sure when or if this is a good idea. Closer to the time I will definitely contact my super provider to find out more. I could possibly get some better returns in a growth strategy when the market is rising, so I would consider this.

Closer to retirement I would be trying to protect what I have.

 

Current thinking is that you're a long time retired 20+ years.

So are short term strategies to maintain your nest egg with low risk still valid vs. less aggressive growth strategy?

 

Fair point. I don't know the answer. I can't predict the economic landscape 12 months from now, let alone 30+ years from now when I retire.

My current thinking is that just before I retire, I don't want to lose 30% of the value of my super like my parents did. My thinking is probably wrong, but it is reactive. That's ok. I have more than 30 years to work on my mindset

 

@Perthguy - But in losing 30% of their super did they overreact and crystallise the paper loss? Why not institute a short, medium & long-term unsavings plan? Ie stratify the spending pattern to continue with some long term growth but also short term cash as well.

 

I have no idea. It was just a shock at the time because they were retiring around the time of the GFC.

Sounds reasonable.

 

I am semi retired now at 61 taking a pension and my superannuation strategy is:

• Aim for 4 years required income in cash/conservative units
• Remainder in growth units

Currently I am taking my pension out of the cash component while waiting for the growth to recover over the next 1 - 4 years.

Normally only after we see a recovery (say ASX 200 goes over 5500) will I think of building up the cash component again. . . . but I recently received a significant inheritance which I deposited in cash. I can't pick the bottom of the investment market so at the moment I am converting the excess cash to growth units at the rate of $10,000 a month until I get back down to my target of 4 years cash.

 

@bashworth - are you also combining transition to retirement strategies? ie withdraw tax free & recontribute?