Would you keep superannuation in high risk or move to mid/low risk option?

Wylie - no one knows ,otherwise they would all pull their money out and cause the crash right now. Maybe you should look at doing both to let you sleep at night? Or, Get the super focussed more on dividends - if you look at Thornhills stuff, the dividends hardly changed regardless of the share price. You and Mr Wylie are still young, and seemingly fit and well - you may have 20-30 years retirement at least - a crash would be a smidge of that timeframe anyway. If you haven't read motivated money, let me know and I can lend it to you. I think it's still apt

 

I would stay in the higher risk (more debt) option.

But it is always easier to advise when you are on the outside and not in the guts of it.

The Thornhill comment is good.

 

AFAIK, it's pretty rare for both the property sector and equities to crash/correct at the same time (there's usually little correlation between the two).

If you cash out of super, you lose out on tax free income once you hit the age for drawing down on your super. Consider super as your long term bucket, don't play with the settings (leave it in the growth/aggressive phase for as long as possible as you won't need it all in the short term).

You could use the tax-free income to aggressively pay down debt (or sit in offset).

 

I'm not a doctor but I'd prescribe a Thornhill event for you. Its a small investment to support yourselves for the rest of your lives....

Keep a proportion of funds in cash (powder dry) and some in industrial (non mining) shares. If there's a crash, buy using that cash you have. Long term, you'll do well. As was mentioned, dividends don't drop anywhere as much as a share price can, so keep some money accessible for those events.

Ps. I'm not licensed to give financial advice. I can completely recommend the Thornhill event though.

 

Ahhh.... This is how it boils down to in my mind. There's a great @Mike Roberts post / website item. Just have to find it...

Edit: found it! Here's a easy starting point....
Peter Thornhill - interview with an investing genius

 

Been 10 years since the GFC so some say we are due for a correction. No one really knows, the stock market is purely about sentiment.

Apart from Thornhill, I'd say read the LIC beginners document that @austing has put together.

 

Perhaps I am old school but I would want to protect my capital and reduce risk

Eventually market will correct we just dont know when. I like Bran's advice.

What if the share market crashes where does that leave you financially? Just have to weigh it up, reducing debt is a beautiful thing

 

@wylie , we are in a similar situation to you, just a couple of years older at 61 and 62. We did the following when we turned 55:

1. Switched our Super (shares and managed funds) to pension phase (so no tax on income or on capital gains).
2. Withdraw minimum of 4% of Super balance each year as tax-free income to fund living expenses and lifestyle (going up to 5% in 3/4 years time - 25% pay rise).
3. Have a minimum of 3 years in cash investments to pay pension (don't have to sell shares after a crash to fund pension).
4. Take all dividend payments as cash and place these funds in cash account to top up our cash reserves for pension payments.
5. Bank all net rental income into Offset Accounts (over time these are filling up and provide a great cash reserve in case the "**** hits the fan").
6. The first $36,400 in net rental income is tax free for a couple. With dividend imputation, loan structuring/manipulation, ... one can increase this. Our aim is structure our affairs (legally) so that we do not to pay any income tax.

We implemented this strategy because:

1. If our Super grows at say 10% to 12% (income and growth) tax free and we withdraw the minimum 4%, our Super balance continues to grow. That is, the strategy is sustainable and we have a good SANF. In time, when you are 90, the minimum increases to 11%; so our Super balance might start to decline but who cares .
2. With 3 years pension payments in cash, we would expect to ride out any share market crashes (that is, no fire sales of shares to fund pensions), especially as we top up our cash account with dividends. Another SANF.
3. In time, all of our Offset Accounts will be chockers which means we have no debt and a great cash reserve. Another SANF.
4. We pay no tax and we have the flexibility to structure/manipulate our affairs so that we may never have to. Even our property portfolio turns hugely cashflow positive.

Since, we implemented the above 7 years ago, our Super balance has increased nearly 40% (means we have take a bigger pension ) and our assets have grown by nearly 30%. We are very comfortable with this approach.

Obviously, this is not advice. I wouldn't be in a hurry to cash out your Super and pay off your IP loans because:

1. Now your Super balance equals your total loans. In 10 years time, even if you did nothing, your Super balance is likely to be double your loans.
2. By paying back your loans, you lose flexibility to structure/manipulate your affairs so that you pay little to no tax (especially if the Government grandfathers NG in the future).

PM me if you want to catch up over a coffee to discuss in more detail.

 

At your age some would suggest Super should be the number one priority. You're both already able to access tax free pensions in relation to fund earnings and any tax on withdrawals (taxed component) receives a 15% rebate. Depending on cap limits in my case rather than taking cash out of Super to pay loans I sold some IPs to get more money into tax free Super environment.

@kierank has covered most things.

I follow a simple path tax wise:
1. Max out tax free Super pensions.
2. Max out personal tax free thresholds outside Super.
3. Get as much as possible into Super accumulation whilst the law allows you to still make concessional contributions. Unlike tax free Pension there's no maximum limit on accumulation balance. Capped at 15% tax.
4. When all above done then invest outside Super using whatever structures / gearing available to minimise tax further.

I fully understand your concern about debt, I hate it also. Regardless of merit if the level of debt impacts your SANF then it's too much no matter what others say. Peace of mind is everything in retirement. But taking money out of a tax free Super environment, which in some cases may not be possible to put back in, to reduce debt is certainly not what I personally would be doing.

Not advice of course.

 

Are you sure about that? We can discuss over coffee.

Early in July would be good as I am up to my eyeballs with EOFY stuff

 

Given your current ages and retired from the workforce you should be able to commence Super pensions. See here for preservation age:
Preservation of super

The earnings on the pension will then be tax free. Until you reach 60 Tax will be payable on pension withdrawals at marginal tax rate less 15% rebate. Note you are only taxed on that proportion of your pension relating to before tax contributions. Any after tax contributions making up a proportion of your pension won't be taxed.

Depending on previous contributions there's a one off opportunity to get $540k after tax contributions "each" into Super prior to 1 July. This will significantly increase the tax free proportion of your pension. End result could be a pension available now with very little tax.

I'm 57, started Pension at 55, but pay very little tax on the Super pension due to high proportion of after tax contributions. Note I also obtain a decent income from investments outside Super. So paying minimal tax on Super pension prior to 60 is important to me.

 

Plenty of sensible opinions here already.. but my 2c are observations based on history...

I've mentioned before (in other threads) that both the 1987 crash and the GFC were preceded by 4-5 quarters of growth at 10%/qtr. That is a good marker for an over-hyped market ready for a crash/correction.

I've recently had a look at the Nasdaq, Dow Jones, S&P 500 and the FTSE 100 indices. The biggest growth was in the Nasdaq at around 6.5%/qtr. The AllOrds by comparison was at about 3.3%/qtr.

My guess is that Aussie stocks are not headed for a crash anytime soon.

 

There are theoretical arguments to starting retirement with a more conservative risk profile and slowly ratcheting it up with time into retirement. This is because a big drop at the start of retirement can result in an unrecoverable position.

There's also an argument to become more conservative with age, e.g. having your age as the percentage of bonds you own.

However:
1. The markets are unpreidcatble in the short term.
2. You have other sources of income i.e. your IPs
3. There are indicators for a crash that have been around since doomsayers existed, although the ASX is not highly overvalued, the US appears to be (Shiller P/E Ratio: Where Are We with Market Valuations?)

If you go defensive and the market increases, you will kick yourself. If you keep it all in, and it crashes, you will kick yourself.

But if you don't plan on touching the money for 10 years, then leave it.

Not licensed to give advice.