Author Topic: Early Retirement Australia  (Read 5095 times)

deborah

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Early Retirement Australia
« on: June 24, 2018, 12:16:21 AM »
In the Australian Investment thread, thereís currently a discussion about how to do early retirement in Australia before superannuation kicks in. In the past there have been several discussions about related topics, but I think we should have one thread for this, so that people can refer to it, and we can have everything together.

My recollection is that @alsoknownasDean had a post (somewhere) about how much you should put into super vs investments outside super. It was a formula based upon the projected date of early retirement. This would stop people from locking away money they would need before they reach preservation age.

There are three dates that are important - your projected retirement date, the date you reach your preservation age (when you can access superannuation) and (for some) the date you can claim the aged pension. Generally speaking, for most here, the second is currently when you reach 60 (over the past few years it has gradually been increasing from 55), and the third is currently when you reach 67.

I suspect that there arenít many of us for whom the third date is relevant. However, the prospect of the aged pension means that we can probably ignore poor outcomes for our investments after 67, and thus take more risk or retire earlier, since our stash wonít need to last. This assumes the aged pension will still be around for all of us. It also assumes that you donít have philosophical problems with taking the aged pension.

Let us assume that person X wants to retire at 52 (the example in the Australian Investment thread).

Between 52 and 60, @mjr suggested that X live on the dividends from his non superannuation investments.

After 60 X can live on his superannuation.

Between 60 and 65 (after this time he would need to pass the work test, and X is never going back to work) he can possibly transfer his non superannuation investments into superannuation - this allows him to pay no tax on the income from the investments.

What happens if X is younger? What if, like @Ozlady he has mainly investment property? What advice should we include so this thread gives meaningful advice?

GT

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Re: Early Retirement Australia
« Reply #1 on: June 25, 2018, 04:09:24 AM »
Aussie Firebug created a calculator to determine how much you'd need to cover you for the gap between RE and Super kicking in.  Here's the blog post he wrote about it, he also offers a copy of the calculator if you provide him your email address for him to send it to you.

http://www.aussiefirebug.com/australian-financial-independence-calculator/


Phryne

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Re: Early Retirement Australia
« Reply #2 on: June 26, 2018, 04:09:30 AM »
Aussie Firebug created a calculator to determine how much you'd need to cover you for the gap between RE and Super kicking in.  Here's the blog post he wrote about it, he also offers a copy of the calculator if you provide him your email address for him to send it to you.

http://www.aussiefirebug.com/australian-financial-independence-calculator/

Thanks for sharing! I signed up and had a play with this today. It was a good thought exercise, but didnít quite suit our (quite specific) situation (couple, 11 years age difference)

marty998

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Re: Early Retirement Australia
« Reply #3 on: June 27, 2018, 06:52:42 AM »

What happens if X is younger? What if, like @Ozlady he has mainly investment property? What advice should we include so this thread gives meaningful advice?

Good thread. Property also opens up a couple of options - the ability to refinance and cash out say, to invest in shares, is a big plus. A loan secured against property is a lot better (for SANF) than a margin loan.

Ultimately though you can't pay your groceries with bricks, so a plan to sell properties, or move towards more high yielding properties is necessary to put in train well before you pull the plug on ER.

deborah

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Re: Early Retirement Australia
« Reply #4 on: June 28, 2018, 08:46:22 PM »
Copied from The Australian Investment Thread...

Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.

Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.

Good question iím struggling with this one also.

In my case it will likely be a far less than ideal multifaceted strategy. A combination of dividends from stocks, selling some stocks, cash and rental income.

The less than ideal part of this strategy for us will be once weíre both drawing our pensions we may find we have too much money for the later part of our Retirement phase.

First world problem I guess. But the flip side is that if this is the case we have probably spent to much time slaving away 9 to 5. I guess it will come down to finding that sweet spot where we stop accumulating and start selling some shares.


The other thing we are toying with his living OS in a LCOL area for a portion of the time between ER and being able to access our super. We would rent out our place and use the differential in rent to help fund the gap. Lots of potential issues with strategy including capital gains tax implications.
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.


Only 50% (assuming you've had for more than 12 months) of the capital gains are considered as taxable income. So if you bought 20,000 shares five years ago at $10 per share (total $200K) and they are now worth $15 per share or $300K, you could sell 3,000 shares for $45K (to fund your living expenses for the year). The total capital gain is $5 per share x 3,000 = $15,000 and only $7,500 is taxed.


And don't forget the possible imputation credits on top of that.
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.
As already noted, CGT is no big deal. If it is a big deal it means you're rich, so shouldn't care about a bit of tax.

I haven't finalised my pre-preservation plan yet. I had been thinking of a base comprising something like cash/certificate of deposit ladder/bonds and stock selling if/when conditions are suitable. Now I'm thinking a home equity loan/line of credit could replace a lot of that cash/bonds stuff for smoothing out the gaps when I don't want to sell stocks. I could live entirely off my home equity for the time between FIRE and preservation if desired.

If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
I looked at the eligibility criteria and they seem pretty strict. For example, you have to sell down other assets before you can touch super. Is there something I'm missing?

Does anyone have any insight into why our market is running up at the moment?  I see cheering online, but not explanation.
Trade wars, bears in Asia, Aussies shovelling cash into super before EOFY? This is the first year personal contributions can be claimed back easily...

"From 1 July 2017, most people, regardless of their employment arrangement, will be able to claim a full deduction for personal super contributions they make to their super until they turn 75."

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-my-super/Personal-super-contributions/
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.

Please note the part that Iíve highlighted.

There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.

Tax is just one part of the equation. You need to work on the total outcome.

When I was retiring, the best total outcome was to take super as early as possible. I canít see any changes that would make that different today.
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.

Please note the part that Iíve highlighted.

There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.

Tax is just one part of the equation. You need to work on the total outcome.

When I was retiring, the best total outcome was to take super as early as possible. I canít see any changes that would make that different today.

Thanks for the clarity. Maybe Iím not understanding what you mean by total outcome? My singular goal is to live off of $40k a year from 50 onwards. I will only have 3 buckets: super, Vanguard and cash. My goal is to have that $40k but structured in a way to pay little or no tax from withdrawals/distributions. 

The current thinking is have $220k cash and withdraw $18k each year. Is there a flaw in that? Should all cash be redirect to Vanguard? Or get that all in super as after tax contribution?

I want something fairly simple. So I donít want to create a trust or anything too complex.

Or are you suggesting to Use cash 50-55, then use super from 55-?

And what the hell would someone do at 30 or 40?
It's a hard question to answer, because we don't know how much you have outside of super.

The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation. 

Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax.  Your pre-super money is in taxable accounts, so you're going to pay tax. 

Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.

Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.

Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares.  Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.
It's a hard question to answer, because we don't know how much you have outside of super.

The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation. 

Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax.  Your pre-super money is in taxable accounts, so you're going to pay tax. 

Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.

Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.

Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares.  Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.

Thanks MJR, so, then youíre basically suggesting keep as much as you can in investment account and live of the dividends. I think that would be fine. Iíd probably keep $100k in a HISA as a safety net and to weather any market drops. So, right now Iím having all dividends reinvested, is the idea that you stop that at 52?  They just become a quarterly income stream?
Yep, that's my suggestion.  I have money kept in HISA as well.  Waaaay too much, but that's only while I'm still working.

I said 52 only because I'm 52 and about to RE.  Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.
Yep, that's my suggestion.  I have money kept in HISA as well.  Waaaay too much, but that's only while I'm still working.

I said 52 only because I'm 52 and about to RE.  Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.

Ok MJR, thatís good, I get it. For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years? So, your plan is to live off the post-tax dividends from 52-60, and then take from your Super at 60? Or will you just take from 52-55 and then start accessing your Super like Deborah suggested and pay the tax? And how do you even know that your dividends will be enough?

I gave 50 for this thought exercise but on paper, Iím slated to pull the plug at 52 like you, so Iím very interested in how youíre making this work. Thereís no guidance for the after FIRE part of money management, itís all most accumulation phase focused.

Apologies for all the dumb questions, really appreciate you sharing.
There are two forms of tax on super. Inside super itself, and your own income from super.

Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you donít need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire itís all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.

How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.

Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they arenít considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you canít pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didnít need to look into these, and after youíre 60, income from super is generally tax free, so itís only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).

If I was doing it again, Iíd live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.

For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years?


Growth of your non-super assets will certainly be hampered by taking dividends, or by selling shares.  I don't quite understand your thinking here.  I don't expect my non-super assets to double every 10 years, nor do I need them to.

*My* plan is to draw down about $30k/year from my non-super portfolio of $1.2m. I'm getting more than that in dividends and interest now. I'll start drawing from super at my preservation age (60) from the funds in there (another $1.3m).  As you can see, I have a safety margin a mile wide, because that's the kind of person I am.  A more general plan would be to draw down on your non-super assets as long as you're comfortable it will get you to 60.

Maximise returns and minimise taxes for your non-super assets and your super in both the accumulation phase and pension phase.  You have more options open to you after you turn 60.
If you have trouble getting to your preservation age, there is always the possibility of using your mortgage offset account (if you have one - I didn't). If you have a mortgage, and can fully offset it (so you aren't charged interest), it can be of value keeping this until you can access your super.

Firstly, banks are reluctant to lend to people who aren't working, so having the account allows you to use it as a loan or a line of credit when you need it.

Secondly, no-one manages to get their retirement budget right before they've retired. Everyone I have met spends differently in retirement than they predicted. Everyone bar one spends less, so it isn't really something to worry about, but having the offset as a backup would allow you to draw on it if your dividends etc. don't work out as well as expected. If you repay it as soon as you get your dividends, you shouldn't be charged too much interest.

If you are retiring early, you know how to save, so you aren't likely to fall into the traps associated with using your mortgage. Having this could reduce the risks associated with early retirement until you have access to your super.
Thanks MJR and Deborah, thatís all very helpful. I wonít have anything like what you have MJR. Iím hoping to have around $300k in super, $600k in Vanguard and $100k cash by 52. In theory, theory, that should get me $40k for life. I guess the idea would be to access the cash first, Vanguard second, leave super until 60 and transfer whatever is left in Vanguard to super at 60?

No Deborah, no offset account as I buying a property would probably set me back at least 2 years from retiring.
You'll have 8 years between retirement and superannuation.

During this time your Vanguard dividends will be income, and your interest (if any) on your cash deposit will be income, so I suspect that you will count as a low income earner for the money the government gives out when low income earners put money into super. You probably won't want your Vanguard dividends to increase, as that will increase your taxable income. So, instead of dividend reinvestment (during this period), if you don't need all the dividend to spend, you probably should put it into super. You get the low income rebate directly from the ATO into your superannuation account, based on your tax return, so you can put the money into super on the last day of the financial year, and still get the rebate.

This has the added bonus of reducing your CGT liability if you transfer any of your Vanguard to super.

You have 2.5 years of cash, so I'd be gradually running it down during this period, using it as an emergency fund and as a top up for the dividends (if necessary). Then, at the end, when you've got all your money needs for the remainder of the period, I'd look at how I want to distribute my money between super and non-super accounts, and start to do so.

I personally think that having as much as you can in super by age 65 is a definite advantage. Super receives enormous tax benefits, which is why they are putting the cap on it. After 65, unless you meet the work requirements, you can't put anything into super and you can withdraw as much as you want to at any time.

There are two forms of tax on super. Inside super itself, and your own income from super.

Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you donít need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire itís all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.

How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.

Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they arenít considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you canít pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didnít need to look into these, and after youíre 60, income from super is generally tax free, so itís only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).

If I was doing it again, Iíd live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.

Deborah you always provide such great financial insights! can I clarify:  If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
Why do you have $1.3million outside super? How much do you expect to need each year after you have retired early?

There are several numbers related to superannuation contributions:

Concessional Contributions

Each year you can put  maximum of $25,000 into super as a concessional (before tax) contribution. This number includes what your employer contributes (the 9.5% super guarantee). As there are huge fines if you put in too much, you need to be very careful as you reach the full amount. You can put in extra yourself, or you can get it directly docked from your wages as a salary sacrifice. But it must not exceed $25,000 or whatever the government decided this year you can put in. You can now put in more the following year if you didn't reach the limit in the preceding five years - https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap/

Quote
From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which you can access unused concessional contributions is 2019Ė20.

You will only be able to carry-forward your unused concessional contributions cap if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.

Non-concessional Contributions

You can put up to $100,000 per year into super as an after tax contribution if you have less than $1.6million inside super. Again, there are penalties if you get it wrong and put in too much. There is a bring-forward rule, where you can put in 3 years worth at once, but then no more for a few years - this is useful if you are about to turn 65, or have a year when you have a much lower income than normal and you are incurring CGT to move the money into super.

Contributions Cap

$1.6million.


So, if you want to put $1.3million into superannuation, I suspect that you can't. You certainly can't do it in one hit - it would take a minimum of 11 years to transfer that amount into superannuation - thus the reason for my initial questions. If you don't need much during your early retirement, you should be putting more into super now.

Secondly, if you have more than $300,000 in super already, you can never put the whole $1.3million into super. You will be able to put in as many full $25,000 concessional contributions as you want to, but you won't be able to add any non-concessional contributions after you have hit the contributions cap.

Note: all the above assumes that you aren't already doing some of this stuff. The non-concessional contribution limits (for example) have been reduced from $180000 last year to $100000 this year, so people who have already started the "bring forward" before this year have the ability to do things that are different to what I have said.

Also, you really have to watch when your employer contributions arrive into your superannuation account, if you are trying to put the maximum concessional contribution in, as they have the option of depositing your contribution up to about three months after your pay slip (legally), and some are more behind than that.
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
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Why do you have $1.3million outside super? How much do you expect to need each year after you have retired early?

Thanks Deborah.

An overview of our situation : Aim to get to $1.3M in about 6-8 months. I am 43 and my other half 46. We both want to go into part-time work in about 1- 2 years, then maintain this for maybe another 2 years before early retirement. Currently each of us almost hit the $25k Super contributions via our employers and each have about $180k in our super accounts. 

The $1.3M is to provide us with about $40-60K per year in distributions is to carry us through the 10 year gap before we can assess our super Ė by which time combined we estimate an amount of approx. $600k.   We donít intend to sell off any units from our $1.3M over the period leading up to our super, hence why it caught my attention when you mentioned that you can transfer investments without any CGT impacts over into super.

Given the information you have provided we would need to start to move $100k non-concessional amounts starting from our 50ís to move a significant amount. Having said that by pulling down on the $1.3M to move into super this would mean the yearly distributions would be impacted negatively. In addition, for each sale of the $100k there would be CGT impacts so we would need to work out the cost of the CGT and also how it affects our distributions and really if all that is worth it.

Firstly, there are two of you, not one. So every number can be halved or doubled because you are separate people. This means you can do it.

When you make a concessional contribution into super, you are reducing your income by that amount. This should offset the CGT associated with withdrawing from Vanguard. If you have EFTs in Vanguard and a SMSF, you could do an ďin specieĒ transfer from yourself to your SMSF. I understand that some WRAP accounts also allow this. However, this is just part of the mechanics.

Let us talk about one of you. You have $650k that you will want to put into super, from 60-64.9. You also estimate that you will have $300k in super at that time, and you wonít have made any concessional contributions for 5 years (or more). So, in the first year, you could make 5 years of concessional contributions ($125k), and 1year of non concessional contributions ($100k). This will put you over $500k, which means that you will only be able to make 1 year of concessional contributions from then on, with no catch up allowed. From then, each year you can make a full concessional, and a full non concessional contribution ($25k + $100k). In the last year, you can use the ďbring forwardĒ rule with non concessional contributions to put up to $300k into super (plus the concessional contribution of $25k).

This could work if the rules donít change. Iíd check it with someone from your superannuation fund to make sure.

CGT is reduced in early retirement because you simply donít have the income that you had. The $100k that youíre taking out of Vanguard each year may consist of $80k of original savings, and $20k of capital gains. The capital gains are halved to $10k, and this is added to your income. If youíre on a lower tax rate, the tax is much smaller. Once your super is giving you a pension, it isnít counted, so you could be on zero income from a tax perspective. As you move your Vanguard to super, you'll be lowering your income each year, and paying less CGT. You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.

As @deborah said, it's not dodgy.

IIRC I'll have racked up something like $18K all up this year.  A bit of residual work and my Long Service payout (8 years worth - moving due to my wifes transfer got me early access to it) from the job I had to quit before we moved from Brisbane to Melbourne.  I topped up my super with $1K to get the $500 match.  It's not even a drop in the pond compared to what would have been added if I still worked, but I'll take it, as it's there for people like me who don't earn enough money to have Super go up in happy increments on a regular basis.
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

My case is; My super $207k, wife's $78k, $353k in arg, veu, vae (total), and about $10k in cash. Single take home pay of $85 (net of super and tax). We're both 39 and two kids at primary school. We own our low maintenance, solar equipped, home in a bike friendly(ish) LCOL location. My aim is to get to a 25*$35k and then retire. My calcs have suggested that super will take care of itself simply by compounding between my retirement date and the 65 years I need to live to access it. We also anticipate at least some inheritance from parents, which further reduces the value of super savings.

Any reason to put more in super?? The low income matching is attractive (for my wife). But future money seems so far away!
@one piece at a time - I'm in a similar situation and my opinion is that you need to save outside Super. You need to be able to get to Super. Your total portfolio matters so I have two components. One is total portfolio including Super and the other is my portfolio excluding Super that needs to get me to Super. I wouldn't want to fail getting to Super but actually be okay from a total portfolio perspective.

deborah

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Re: Early Retirement Australia
« Reply #5 on: June 28, 2018, 09:00:34 PM »
The case for putting more into super now...

It probably is taxed at a lower rate - 15% rather than your marginal rate. So it will compound faster.
Investment income wonít be added to your income, potentially putting you into a higher tax bracket.
You wonít be able to touch it until preservation age (canít gamble it away).
It will be in a less taxed environment, so if they change the rules again to lower the amount you can put into super, it will already be there.

The case for keeping it out of super...

You have more control over it - you might use the money to branch out into an investment property, or withdraw it for an extended holiday or start a business.
You will be able to access it during the period between early retirement and your preservation age, when you may need every cent.
You can put a lot into super after you become eligible to draw a pension from it.

lush

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Re: Early Retirement Australia
« Reply #6 on: June 29, 2018, 04:51:01 AM »
Great idea pulling this thread together!

I am 44 and do not believe the pension will be readily available for me at 67, so hence like probably most people here, I am not making a plan around what the government can provide me.

Super for me has always been a pain - too complicated, too far away, out of my control and ever changing rules -  so have never paid too much attention to it.

That has changed more recently as I try to work out how to manage ER and the remaining 54 years estimated I could have left (taking me out to 100). So Super has caught my attention, especially since Deborah provided some insights (captured above) about how to maximise its returns, and got me pulling together some numbers in my spreadsheet.

I say I, however it is planning for my partner (47) and I. Our goal:  Have $1.3M in Vanguard investments by 2019.  Then transition to part-time work to pay the bills for a 2-3 more years in order to let Vanguard Portfolio re-invest and mature for a few more years, hopefully bringing the value of the portfolio up to about $1.4M. During this time we will contribute as much as we can to our super, although I donít see it being very much, maybe a few thousand combined in total each year above our employerís contribution.

When my partner hits 55 we intend to start reversing out funds from the $1.4M to the tune of $50k each per year (if allowed) (100k in total) until the portfolio value drops to about $650k. This will take about 10 years. This will see the Vanguard portfolio drop to $650k so should keep us within the low income bracket for distributions. Our Super accounts by the end of the 10 years should be around $600k each.  The slow approach is to limit CGT impacts and also allow time to see what risks Government changes could bring to Super accounts that we may not like, for example, they might decide to start taxing super pensions, so then maybe there might not be much of an incentive to keep moving money out of our ex-super fund portfolio.

Doing the maths: when the portfolio hits about $1.2M and continues to decrease each year by $100k there could be about 3 years where we risk not being able to get enough distributions to pay our bills for those years, so will really need to consider how we can manage this.

So in summary for us it has been far more important to build a passive income for ER over building our Super. As we get closer to closing the preservation age of 60 (but who knows that could change to in the next 10 years!) then we will slowly put into play (if it still makes sense) moving money into super, merely to limit our tax in order to stretch out our money until death really, because as I said earlier - I really donít think the pension is going to be around for generation X and on wards.

Note - I will be seeking professional advice around this over the coming years, but love hearing what people in these forums think and everyoneís journey to me is so educational and fascinating.

Ozstache

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Re: Early Retirement Australia
« Reply #7 on: June 29, 2018, 06:20:49 PM »
Here is something I posted a while back re pre/post super access stash allocation considerations:

Yep, good calculator would be sensational.  No way the superfunds will introduce one - they just want you to contribute max to their fund.   At the moment I'd just go with the ratio of planned years in "pre-retirement age retirement" to "life after 65" then deduct say 10-15% from the super allocation to give yourself some flexibility as per the earlier posts. 
I've toyed with the idea of putting together a detailed generic super/non-super balance calculator in the past, but have been put off by seeing enough variety of inputs in existing non-super calculators that cause great variability in output to think that adding more complex variables may simply render the model useless. This variability is further exacerbated by the (IMO) high potential for super rules to change in future, regardless of whether grandfathered or not.

Nonetheless, I like the idea of splitting the stash into pre and post super portions, however the maths of SWR shows that as the pre-super timespan exceeds 20 years, you end up needing to have most of your stash in non-super regardless of how long you think you will live post-super ie. it is not a direct ratio of the two time spans. eg. say your pre and post super time span estimates are 20 and 20 years respectively and you plan to draw down at the standard 4% SWR.



From a chart like the one above, the information from which aligns with my experience playing with cfiresim, a stash with a 20 year time span can endure a 5% SWR, the corollary of which is that you only need 80% of that stash to achieve the aforementioned 4% SWR. As such, for a 50/50 time span split like this, it turns out you really need an 80/20 non-super/super stash split. This is before even considering super's favourable tax treatment in both accumulation and access phases which further reduces the amount needed to progressively put into super because it grows faster and provides more tax efficient income when you get access to it.

Ozstache

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Re: Early Retirement Australia
« Reply #8 on: June 29, 2018, 06:33:34 PM »
When my partner hits 55 we intend to start reversing out funds from the $1.4M to the tune of $50k each per year (if allowed) (100k in total) until the portfolio value drops to about $650k. This will take about 10 years. This will see the Vanguard portfolio drop to $650k so should keep us within the low income bracket for distributions. Our Super accounts by the end of the 10 years should be around $600k each.  The slow approach is to limit CGT impacts and also allow time to see what risks Government changes could bring to Super accounts that we may not like, for example, they might decide to start taxing super pensions, so then maybe there might not be much of an incentive to keep moving money out of our ex-super fund portfolio.

This is a very similar strategy to what my wife and I are adopting right now in our early 50's, although the transition into super is focused entirely on my wife as I am already on the cusp of hitting my super pension phase cap thanks to my DB pension and my golden handshake from finishing work.

Quote
Doing the maths: when the portfolio hits about $1.2M and continues to decrease each year by $100k there could be about 3 years where we risk not being able to get enough distributions to pay our bills for those years, so will really need to consider how we can manage this.

I suggest for those three years just using some of your portfolio sell-off in those years to make up the shortfall you need for annual living expenses, meaning slightly less goes into your super that should already have quite a healthy balance regardless.

one piece at a time

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Re: Early Retirement Australia
« Reply #9 on: July 01, 2018, 04:22:48 PM »
Thanks for pulling this together guys. I think I'm still too poor to worry about it all, but the $5k direct to my wife's account each year will start in about 11 months time.

marty998

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Re: Early Retirement Australia
« Reply #10 on: July 02, 2018, 02:30:25 AM »
Thanks for pulling this together guys. I think I'm still too poor to worry about it all, but the $5k direct to my wife's account each year will start in about 11 months time.

I don't consider myself as poor but even I am over a million away from having that much in Vanguard to play around with :)

itchyfeet

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Re: Early Retirement Australia
« Reply #11 on: July 02, 2018, 12:32:05 PM »
This thread has caught my eye. Thanks Deborah.

Itís looking like Iíll FIRE next year aged 47,so will have 13 years before I can access most of my super.

I believe I should be able to take my small fed govt defined benefit pension from my days as a public servant once I reach 55.

Regarding Martyís point re: property, I think itís good to have some property in the portfolio. It reduces sequence of return risk (due to diversification, and 12month rental contracts) and you get a nice little tax shelter from the capital allowance/ depn, which is helpful before age 60. Post 60 with most income tax free itís not so interesting as tax will no longer be much of a concern, unless I am rich. One never knows, but it wonít be a bad problem to have. Of course capital gains are also concessionally taxed, which also helps.

We currently get around 3.4% net rental yield on our property, so itís not as good as a dividend yield, but ok for now, but it will also mean we will need to sell at some point to access the capital. Ideas on when best to sell would be appreciated. We wonít need the capital before 60. The property was not purchased inside super.

The defined benefit pension, plus rental income will be sufficient to cover all of our necessities. The balance of our stash is and will be 100% stocks, (except for around 6 months spending in cash), with as much in super as possible. We have some work to do on this front.

We will have enough saved outside super to last till 60 as we have been living overseas for a while and not contributing to super. When I negotiated my salary for my current job I negotiated an additional 12% allowance as my employer would not be paying to super nor to a European pension. This has been a part of our savings. We have been earning a tax free income, so contributing to super didnít make sense, and hence we have accumulated an ok sum outside super.

Our ex-super stash will be further supplemented when we sell our Sydney PPOR and opt for a sea change at a lower cost. We have carefully planned to move back in our home within the 6 year window to avoid CGT on the sale, which would otherwise be massive.

Post FIRE we will live back in Oz and DW will continue to work casually, at least for the time being. By choice only. We will send as much of her income as possible into super but it wonít be much. Weíll have to push a little more into my accounts as well over the next 13 years.

So thatís our grand plan 😁

Grogounet

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Re: Early Retirement Australia
« Reply #12 on: July 02, 2018, 08:00:17 PM »
I'm looking at putting a calculator out there.
I'm not entirely happy with the ones I have found so far.

We need to take super into account but putting a date of release of funds at 60 is hazardous. What if the release date is amended to 65 and you counted on this money to kick in at 60?
Same, retirement calculators take 9.5% of super but most companies apply a cap and therefore your calculation becomes wrong
You need to take into account salary sacrifice options, etc...

Anatidae V

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Re: Early Retirement Australia
« Reply #13 on: July 02, 2018, 08:30:21 PM »
Just posting to follow along, my folks are 50+ and it's looking likely my dad will give up on office politics within the next few years, or *may* stick it out to 60 (then they retire and won't work unless they want to!)

deborah

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Re: Early Retirement Australia
« Reply #14 on: July 02, 2018, 09:12:41 PM »
Superannuation Changes

One of the problems with superannuation is that people think it changes all the time, and it does. It would be nice if governments kept their mitts off it, so we had some surety. However, what changes really affect the early retiree, and how likely are they to change?

Preservation Age

To start with, preservation age changes (when we can collect our super) could drastically affect us. In 1997, people were told that there would be a gradual change in preservation age from 55 to 60. This started to actually happen in 2015 (the earliest year when preservation age changed to 55.5) and will be complete in 2024/2025.

So we have had between 17 and 27 YEARS from when we were told the age would increase to it actually affecting us.

The push to continue increasing preservation age again came some time ago (I can't find the budget when that was mooted - I suspect it was 3 years ago), and was knocked back by the superannuation industry, as well as the unions and many of the retiree groups. A lot of people simply become too old for work after they reach 60, and any change in the preservation age needs to somehow account for this. Several of my friends/acquaintances died recently when they were only just over 60.

I think that people who are older than 40 now can probably rely on getting access to super at 60.

I suspect that it will be much easier for governments to change how much you can withdraw between preservation age and pension age. From some things I have read, people tend to withdraw about 1/3 of their super during this time. However, most retirees still have very small super amounts because the guarantee has only been around for a small part of their working lives (a median of $110,000 for men
and $36,000 for women who are retiring - see https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y). If you withdraw enough to buy a RV to travel around Australia in your retirement, you're not going to have much left. So, it's a bit surprising that it is only 1/3.

GT

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Re: Early Retirement Australia
« Reply #15 on: July 02, 2018, 09:13:07 PM »
I'm looking at putting a calculator out there.
I'm not entirely happy with the ones I have found so far.

We need to take super into account but putting a date of release of funds at 60 is hazardous. What if the release date is amended to 65 and you counted on this money to kick in at 60?
Same, retirement calculators take 9.5% of super but most companies apply a cap and therefore your calculation becomes wrong
You need to take into account salary sacrifice options, etc...

What about those that aren't getting their super until 67?

Grogounet

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Re: Early Retirement Australia
« Reply #16 on: July 02, 2018, 10:05:06 PM »
exactly
that s the reason i m building a calc including super flexible preservation age

Phryne

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Re: Early Retirement Australia
« Reply #17 on: July 03, 2018, 04:37:17 AM »
I'm looking at putting a calculator out there.
I'm not entirely happy with the ones I have found so far.

We need to take super into account but putting a date of release of funds at 60 is hazardous. What if the release date is amended to 65 and you counted on this money to kick in at 60?
Same, retirement calculators take 9.5% of super but most companies apply a cap and therefore your calculation becomes wrong
You need to take into account salary sacrifice options, etc...

What about those that aren't getting their super until 67?

Who isnít getting their super until 67? I thought the oldest preservation age was 60 but (if eligible) the age pension kicks in at 67 (for those currently <55ish)?

I agree with deborah- Iím 41 and I think my preservation age is safe (age pension less likely but Iíve no plans for that). I do have the safety net of a husband who is 53 though so havenít worried much about it.

Ozstache

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Re: Early Retirement Australia
« Reply #18 on: July 03, 2018, 04:39:11 AM »
What about those that aren't getting their super until 67?

I think you are confusing the change of the age pension age to 67 with preservation age for super, the maximum age of which is currently 60 (as long as you have "retired"). See https://www.ato.gov.au/individuals/super/accessing-your-super/

GT

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Re: Early Retirement Australia
« Reply #19 on: July 03, 2018, 05:32:55 AM »
What about those that aren't getting their super until 67?

I think you are confusing the change of the age pension age to 67 with preservation age for super, the maximum age of which is currently 60 (as long as you have "retired"). See https://www.ato.gov.au/individuals/super/accessing-your-super/

No, I got confused by the reference to 65.

Sapphire

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Re: Early Retirement Australia
« Reply #20 on: July 06, 2018, 10:16:12 PM »
Great thread and really helpful to have this in one place - thank you Deborah.


deborah

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Re: Early Retirement Australia
« Reply #21 on: July 07, 2018, 03:03:29 AM »
Superannuation Changes

Contribution Thresholds

Currently you can deposit up to $100,000 per year into super after tax (a non-concessional contribution), and $25,000 before tax (a concessional contribution). Only a year ago the non-concessional contribution limit was $180,000. The contribution threshold has been continually changing over the years. I think this, more than anything else, is the reason people think super is always changing.

It's worth looking at the history of super to see why the thresholds change.

Until 1993, super was really only available to a few people - public servants and the management portion of large companies. And if you left a company before you reached retirement age, you only got back your contributions when you left the company, so very few people actually had any superannuation. In 1993, superannuation became generally available, and employers started paying 3% of your base salary into super (this was instead of a pay rise), and you could keep your super when you changed jobs. This very slowly went up to the current 9.5%.

It has been estimated that if 12% of your salary goes into super, you would be able to live on that once you retire for the rest of your life. There are some people who dispute this, but let's go with that for now.

Because very few people who are reaching retirement age now have had superannuation for their whole working life, people have been encouraged to put more into super - thus the non-concessional contributions, and salary sacrifice. Super is an amazing tax lurk, and every dollar in super costs the government income (in the form of tax). So, over time, people are gradually spending more of their working lives with superannuation at reasonable levels, so the government is continuously reducing the contribution thresholds.

Personally, I think that non-concessional contributions would be doomed but for the problem we have with women's superannuation. Currently, women get paid less, work part time (because we don't have good, readily obtainable child care), and leave the workforce early (because they often need to look after elderly parents) - consequently ending up with half the superannuation of men. As a result, we have a much lower female participation in the workforce than you would expect, as against other similar OECD countries. The government wants to raise women's participation rates, but it's difficult. If the latest super changes work (where you can play catch up with 5 years of concessional contributions - which is squarely aimed at women), I suspect that non-concessional contributions will stop.

So what about the early retiree?

Superannuation is a tax lurk. You can have most investments within super that you can have outside super. If you can't have an investment in super, it may be a dodgy investment. However, anything that doesn't make much income (eg houses) is not a good super investment, because once you have it in pension phase, you have to take varying amounts out of super each year, depending on your age. After you reach your preservation age, you should have as much in super and in pension phase as possible (within the caps) because you pay no tax on it (as a general rule) - either what is inside superannuation or what you get as income from superannuation. This saves you a lot of money once you are retired.

If you are early retired, you can add concessional contributions and non-concessional contributions to your super. But you may want as much of your money as possible outside super until you reach your preservation age (so you have enough to live on). Once you reach preservation age, you would be drawing a pension from super each year, so you won't need to worry about putting too much in. That means you would like to contribute to super after you reach your preservation age, and to contribute as much as possible between then and when you no longer can (currently 65 if you don't work). Currently, if preservation age was 60, you could contribute 5 x $25,000 + $100,000 when you turn 60, $25,000 + $100,000 each year between then and when you reach 64, and $25,000 + 3 x $100,000 in the year before you turn 65 - so long as you didn't contribute for 5 years before, and have enough room in your super $1.6mill cap, and had less than $500,000 in super when you start...

But that's now. If the contribution thresholds are lowered, your ability to transfer money to super will be lowered.

Note: the above has been simplified to the general case. It is only really talking about contribution thresholds.
« Last Edit: July 07, 2018, 05:07:16 AM by deborah »

itchyfeet

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Re: Early Retirement Australia
« Reply #22 on: July 07, 2018, 04:14:52 AM »
Awesome summary!!

Prob safer to get money into super sooner if one can afford rather than wait till 60 when the rules could be less accommodating.

HappierAtHome

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Re: Early Retirement Australia
« Reply #23 on: July 07, 2018, 04:18:24 AM »
PTF :-)

Eucalyptus

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Re: Early Retirement Australia
« Reply #24 on: July 09, 2018, 12:39:54 AM »
Awesome summary!!

Prob safer to get money into super sooner if one can afford rather than wait till 60 when the rules could be less accommodating.


Agree.


Its worth noting that in some sectors some of the Super rules are currently different (and may be permanently so). Eg in Health Care (in SA at least), there's no limit in concessional contributions, so you can literally salary sacrafice your whole salary if you wanted. The preservation age is also 55 (as long as you retire, also, 55-60 withdrawals from the portion that wasn't previously taxed eg salary sacrafice, are taxed at 30%). So if you are in the right area, you get some perks that shift things towards more in Super.

mjr

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Re: Early Retirement Australia
« Reply #25 on: July 09, 2018, 12:49:00 AM »

Its worth noting that in some sectors some of the Super rules are currently different (and may be permanently so). Eg in Health Care (in SA at least), there's no limit in concessional contributions, so you can literally salary sacrafice your whole salary if you wanted.

Do you have any details on this ?   I find it hard to believe that our national super scheme has per-sector/state differences.

deborah

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Re: Early Retirement Australia
« Reply #26 on: July 09, 2018, 12:56:19 AM »
Awesome summary!!

Prob safer to get money into super sooner if one can afford rather than wait till 60 when the rules could be less accommodating.


Agree.


Its worth noting that in some sectors some of the Super rules are currently different (and may be permanently so). Eg in Health Care (in SA at least), there's no limit in concessional contributions, so you can literally salary sacrafice your whole salary if you wanted. The preservation age is also 55 (as long as you retire, also, 55-60 withdrawals from the portion that wasn't previously taxed eg salary sacrafice, are taxed at 30%). So if you are in the right area, you get some perks that shift things towards more in Super.

Health Care is one area where the rules are a bit different (itís national), and some people who are still on old schemes (for instance long term public servants and military schemes that have closed to new members) also have a different preservation age.


If youíre retiring more than 20 years before your preservation age, it is difficult to justify putting any money into super before you reach your preservation age (unless you have more money than you will need - but you would have retired even earlier if that was the case). Of course, this assumes you do have a little super because of your employer contribution, and that it grows in that 20 years.

If you only have a few years between retirement and preservation age, the opposite is the case. If you had three years, for example, Iíd just have three years of expenses outside super - possibly in a mortgage offset account.
« Last Edit: July 09, 2018, 12:59:03 AM by deborah »

marty998

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Re: Early Retirement Australia
« Reply #27 on: July 09, 2018, 03:43:00 AM »
Awesome summary!!

Prob safer to get money into super sooner if one can afford rather than wait till 60 when the rules could be less accommodating.


Agree.


Its worth noting that in some sectors some of the Super rules are currently different (and may be permanently so). Eg in Health Care (in SA at least), there's no limit in concessional contributions, so you can literally salary sacrafice your whole salary if you wanted. The preservation age is also 55 (as long as you retire, also, 55-60 withdrawals from the portion that wasn't previously taxed eg salary sacrafice, are taxed at 30%). So if you are in the right area, you get some perks that shift things towards more in Super.

Health Care is one area where the rules are a bit different (itís national), and some people who are still on old schemes (for instance long term public servants and military schemes that have closed to new members) also have a different preservation age.


If youíre retiring more than 20 years before your preservation age, it is difficult to justify putting any money into super before you reach your preservation age (unless you have more money than you will need - but you would have retired even earlier if that was the case). Of course, this assumes you do have a little super because of your employer contribution, and that it grows in that 20 years.

If you only have a few years between retirement and preservation age, the opposite is the case. If you had three years, for example, Iíd just have three years of expenses outside super - possibly in a mortgage offset account.

This must apply to defined benefits schemes only... and if you take your pension or lump sum at 55 then you are going to end up with far less than taking it at 60 or even 70.

No one on a defined contribution scheme can go over the $25,000 concessional limit. If they can I'd like to see the legislation...

Eucalyptus

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Re: Early Retirement Australia
« Reply #28 on: July 12, 2018, 08:04:46 AM »
Here's an example of one Marty, that pretty much every public health worker in SA goes onto. Actually I think everyone new working for SA gov is Triple S unless their income is very very low.


https://www.supersa.sa.gov.au/our_products/triple_s


mjr

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itchyfeet

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Re: Early Retirement Australia
« Reply #30 on: July 14, 2018, 09:24:47 PM »
I note that the 2018 Russell Long Term Investing report is out.

https://russellinvestments.com/-/media/files/au/insights/2018-russell-investmentsasx-long-term-investing-report.pdf?la=en-au

I look forward to seeing this each year.

I donít know that it is much help for predicting the future, but the returns from Aussie stocks over the past 20 years despite dot.com and GFC provide some comfort when contemplating FIRE. If I knew that over the next 20 years stocks would consistently (there lies the trick) return more than 6% above inflation then I have already worked too long.

Overall, Iíd say itís beem a damn good past 20 years to be an investor.

Clearly residential property has outperformed and I am sure we will see this corrected over the coming 5 years.

Grogounet

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Re: Early Retirement Australia
« Reply #31 on: July 15, 2018, 10:53:43 PM »
i have read some very interesting reports from a personal subsctiption - chris at capitalist exploit -
While i don t necesseraly agree with the whole approach based on fear to sell his services, he is making a point that some asymetric movements around the world and protectionists measures might once again benefit those countries with high resources...
so contrary to my previous believes that australian economy 25 years of growth would come to an end, it is very possible that the huge resources of uranium of our dear country might help us greatly into the future... and the future of our returns for investors..

Lukim

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Re: Early Retirement Australia
« Reply #32 on: August 08, 2018, 09:55:37 PM »
In my view, the problem with superannuation is that the rules have changed too many times.  Once you put money into superannuation, you cannot get it out until you reach the preservation age and retire (stop working).


In 2007, the Government was actively encouraging people to put in up to $1m into superannuation.  I basically had zero in superannuation at that time so I tipped in $1m.


We there then allowed to put in $150,000 per year in non concessional (after tax) per year - which I did.  Later that increased to $180,000.


Then after doing what I was encouraged to do by the Government (save for retirement), the Government changed the rules again and put a cap of $1.6m on accounts and once you reach the cap you cannot make any further non concessional contributions.


So I now find myself with $3.8m in super but the excess $2.2m over the cap cannot be withdrawn unless I retire and cannot be split with my wife and put into an account in her name.  The excess has become a stranded asset and over 90% of the funds in my account were put in as non concessional contributions so effectively it is my money I elected to put into superannuation based on the then existing rules.


I agree that superannuation is a good form of savings with substantial tax benefits but I wish they would lock in the rules - just like we have to lock in our money.

Grogounet

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Re: Early Retirement Australia
« Reply #33 on: August 08, 2018, 10:50:12 PM »
Are the changes retroactive in essence?

deborah

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Re: Early Retirement Australia
« Reply #34 on: August 08, 2018, 10:51:46 PM »
That $2.2mill will still only be getting 15% tax, so you're probably better off with it in there.

However, I absolutely agree with you that the rules should be locked in or at least grandfathered so that the rules in place when you put money in are the rules for that money from then onwards.

There should be much more thought put into these things by government before they make the rules.

deborah

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Re: Early Retirement Australia
« Reply #35 on: August 08, 2018, 10:55:27 PM »
Are the changes retroactive in essence?

The only real retroactive rule that I can think of is the lifetime cap that was introduced last year to effectively stop anyone putting more than $1.6mill total into superannuation.

However, it seems that just about every year there are changes in how much you can add - in both concessional and non-concessional contributions. There is now a 5 year retrospective rule for adding concessional contributions (as of this year)...

Lukim

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Re: Early Retirement Australia
« Reply #36 on: August 09, 2018, 12:03:31 AM »
That $2.2mill will still only be getting 15% tax, so you're probably better off with it in there.

However, I absolutely agree with you that the rules should be locked in or at least grandfathered so that the rules in place when you put money in are the rules for that money from then onwards.

There should be much more thought put into these things by government before they make the rules.

Yes, the $2.2m is only subject to 15% and if I was able to structure the dividend imputation in that portion then the rate overall could be even lower....ahhh but the ALP says they will abolish dividend imputation - yet another change.

Maybe it is simpler just to keep working and earning an income.

Ozstache

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Re: Early Retirement Australia
« Reply #37 on: August 09, 2018, 01:25:54 AM »
Maybe it is simpler just to keep working and earning an income.

While the introduction of a cap to super in pension phase has been detrimental to your position, that detriment has only shifted the tax treatment of your super from ridiculously generous to very generous. With the exception of total income being less than the tax-free threshold, it is highly unlikely you can achieve lower than 15% tax with income outside of super without resorting to a tax arrangement that you could also apply to super (eg. negative gearing).

marty998

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Re: Early Retirement Australia
« Reply #38 on: August 09, 2018, 02:50:26 AM »
That $2.2mill will still only be getting 15% tax, so you're probably better off with it in there.

However, I absolutely agree with you that the rules should be locked in or at least grandfathered so that the rules in place when you put money in are the rules for that money from then onwards.

There should be much more thought put into these things by government before they make the rules.

Yes, the $2.2m is only subject to 15% and if I was able to structure the dividend imputation in that portion then the rate overall could be even lower....ahhh but the ALP says they will abolish dividend imputation - yet another change.

Maybe it is simpler just to keep working and earning an income.


Not quite. Imputation is still there. But only to the point at which you have other tax liabilities to offset against. They are only abolishing the refundable nature of it.

If you're not getting a refund of franking credits, consider yourself lucky you don't have to pay income tax to begin with like the rest of us workers.

Regarding grandfathering. How ridiculous, imagine grandfathering changes every year for 42 working years from 18 to 60. You'll end up with 42 different rules for contributions made each year.

Do you really want 42 different accounts to deal with?

Lukim

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Re: Early Retirement Australia
« Reply #39 on: August 09, 2018, 09:14:52 PM »
That $2.2mill will still only be getting 15% tax, so you're probably better off with it in there.

However, I absolutely agree with you that the rules should be locked in or at least grandfathered so that the rules in place when you put money in are the rules for that money from then onwards.

There should be much more thought put into these things by government before they make the rules.

Don't worry, I have paid plenty of tax along the way and never received a cent of social security (nor any of my family).


I was planning to be self funded in retirement and was following the rules and reacting to the incentives government put in place.  My complaint is the constantly changing rules.



Yes, the $2.2m is only subject to 15% and if I was able to structure the dividend imputation in that portion then the rate overall could be even lower....ahhh but the ALP says they will abolish dividend imputation - yet another change.

Maybe it is simpler just to keep working and earning an income.


Not quite. Imputation is still there. But only to the point at which you have other tax liabilities to offset against. They are only abolishing the refundable nature of it.

If you're not getting a refund of franking credits, consider yourself lucky you don't have to pay income tax to begin with like the rest of us workers.

Regarding grandfathering. How ridiculous, imagine grandfathering changes every year for 42 working years from 18 to 60. You'll end up with 42 different rules for contributions made each year.

Do you really want 42 different accounts to deal with?

kiwiozearlyretirement

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Re: Early Retirement Australia
« Reply #40 on: August 20, 2018, 09:07:04 AM »
I do understand the frustration of people trying to plan for the future. It is not as if you can change your mind as the circumstances change and get your money out before you retire or am I missing something? It doesn't seem like informed financial consent. What other investment exists where your money is stuck for 40 years?
I guess you have to look at it like this; the government is kind enough to tax you less than your marginal rate but then can change the conditions of that super investment any time they like. So you take the risk when you put your money in 40+ years ago.

But I guess you can only make decisions based on todays rules and take your chances. There are many existing situations where conditions are grandfathered. In the WA public service super system there are 3 tiers of super funds with decreasingly generous conditions.  Only those who got in on the ground floor  15 years ago have the most generous condition and all the newcomers are envious. But I agree teasing it all out at retirement would be a nightmare.

deborah

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Re: Early Retirement Australia
« Reply #41 on: August 20, 2018, 06:21:42 PM »
The advantages associated with superannuation change, but this is just a framework around the investment type you decide to have within it. No matter what investment you have decided upon, it theoretically has less risk within superannuation than outside it, because of the reduced tax you pay inside superannuation.

However, as the Royal Commission has shown, some investments have been deliberately designed poorly for superannuation customers.

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Luckyvik

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Re: Early Retirement Australia
« Reply #43 on: August 25, 2018, 08:09:54 PM »
I just read this article -

https://www.canberratimes.com.au/money/super-and-retirement/how-life-insurance-in-super-discriminates-against-women-20180821-p4zyre.html

That is strange. In my experience insurance is often classified on blue collar vs white collar etc but I hadn't noticed differences based on amount earned.

happy

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Re: Early Retirement Australia
« Reply #44 on: August 25, 2018, 08:20:33 PM »
I no longer bother to hold life insurance, since my grown kids will be better off if I die early - i.e.  I won't have my retirement to fund. The article does show how its always important to look at the fine print...all sounds like an excuse to extort high premiums to me.

mjr

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Re: Early Retirement Australia
« Reply #45 on: August 25, 2018, 08:45:50 PM »
A more reasonable headline/theme would have been "Lazy insurance company policies penalise part-time workers".  But Elana, a writer specialising in social issues and women's roles, chooses to make the theme "discriminates against women".

Grogounet

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Re: Early Retirement Australia
« Reply #46 on: August 26, 2018, 03:12:12 AM »
I no longer bother to hold life insurance, since my grown kids will be better off if I die early - i.e.  I won't have my retirement to fund. The article does show how its always important to look at the fine print...all sounds like an excuse to extort high premiums to me.

 can you detail a bit more?

happy

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Re: Early Retirement Australia
« Reply #47 on: August 27, 2018, 02:09:22 AM »
I'm not sure which bit you want more detail so here goes.
I'm nearly 60 and nearly at retirement. My kids are in their 20s. I have no need for income or life insurance, since I don't have dependents to support in the untimely event of an early death.
The article shows that its always worth looking at the detail of the numbers you are being charged and understand them, ( i.e. querying the premium), rather than just paying up because thats what the bill says.
I guess differential premiums on the basis of risk  might be a reasonable concept, but I wonder how transparent it is...ie is the risk really different and truly reflected in the price? Obviously this is a fairly widespread practice these days across a variety of insurance products. A bit of a throw away line from me, not argued from evidence.

deborah

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Re: Early Retirement Australia
« Reply #48 on: August 27, 2018, 05:02:07 AM »
As someone who had no kids, I always removed the life insurance from superannuation. However if I had a young family, only one worker, and no stash Iíd have the life insurance, as itís generally the cheapest form of it. However, that also presupposes that Iíd be putting in a bit extra super (to cover the life insurance premiums).

Itís worth reviewing your different forms of insurance each year, and deciding whether you should have them. Self insurance is cheaper if you have the stash to cover a catastrophic event. However, I do have some insurance because it would be easier. For instance, when I was young, I accidentally set fire to my bedroom and lost everything I possessed. The insurance organised everyone to come and repair and repaint the whole house (smoke damage). There was enough to do replacing every piece of clothing I possessed, without all the repair work. Of course, some insurance is also mandatory.

Grogounet

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Re: Early Retirement Australia
« Reply #49 on: August 27, 2018, 07:12:00 PM »
This debate is interesting.
I have just renewed my income protection insurances. The prices have increased dramatically and was thinking of taking them until FIRE. I might reconsider the level of insurance we need with the path to FIRE - We're 5 years away approx.
Same goes with Life insurance and TPD, etc etc.
But for the latter, I'm also taking into consideration the fact that in case of TPD, not only you don't bring revenue... you also cost revenue usually in case of trauma or illness