Author Topic: Early Retirement Australian Style  (Read 11194 times)

Gone Fishing

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Early Retirement Australian Style
« on: July 02, 2015, 01:26:16 PM »
Anyone know of a comprehensive guide for early retirement in Australia as it relates to taxes, retirement accounts, etc?  If not could we get one going? 

deborah

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Re: Early Retirement Australian Style
« Reply #1 on: July 02, 2015, 05:07:30 PM »
Sounds like a very useful thing. What sorts of topics would you see being covered in it? We could put together a set of chapters (one per topic) and then get it written together as a guide, with everyone taking a topic that they know about or are interested in researching.

Anatidae V

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Re: Early Retirement Australian Style
« Reply #2 on: July 02, 2015, 06:07:43 PM »
That would be great. I've read australian personal finance books but they don't get in depth to taxes and super from memory. I'll dig them up and check through- but they'd be out of date anyway most likely.

marty998

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Re: Early Retirement Australian Style
« Reply #3 on: July 03, 2015, 03:46:58 AM »
err...umm:

No tax in super after you turn 60

the end?

_____________________________

I'll think of something more comprehensive. Admittedly you could go mad and over the top with family trusts, companies, super etc....

Lots to consider

Gone Fishing

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Re: Early Retirement Australian Style
« Reply #4 on: July 03, 2015, 08:34:06 AM »
err...umm:

No tax in super after you turn 60

the end?

I was thinking more about how to optimize your accounts/taxes for a retirement in your 30's or 40's. 

I hate to say it but I have zero to contribute. I'm American, but I have family in AU that think would be interested in any info available.  I've looked at a few things, but the rules seem so much different, that I actually quit looking as to not confuse the details with what I know about the US system.   

deborah

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Re: Early Retirement Australian Style
« Reply #5 on: July 03, 2015, 03:46:01 PM »
To me, to build a stash you can optimize four things - how much you earn, how much you spend, how you invest, and how tax effective you are with these things.

Superannuation is really just a tax vehicle - it reduces your tax until you can claim it, and it is tax free afterwards. You can put most investments into superannuation or have them outside it. When you are retired and getting older an ER person will probably start to have problems with the withdrawals. You cannot recontribute after 65 (assuming fully retired) so you end up with more and more money outside superannuation subject to higher taxes unless you do something about it - an annuity, or some other tax effective vehicle.

Family Trusts are also a tax vehicle. I think their tax implications are very similar to superannuation but they don't reduce tax as much and I think they have higher fees associated with them (I don't use them, so I may be wrong).

I understand that insurance bonds and annuities are other tax vehicles, but I have not used them and don't know the ins and outs, so I could be totally wrong.

Any investment has associated "costs of ownership" that are tax deductions from the income. It is difficult to think of costs of ownership of your Bank savings account, and at the other end of the spectrum, an investment property usually has so many costs of ownership that most people do not claim them all.

I understand that any investment (not just investment properties) can be negatively geared, so long as you can reasonably expect to make a profit some day. Something is negatively geared when the cost of ownership outweighs the income it is producing.

In Australia, I see investment properties as mainly tax vehicles. Very few people seem to actually make money from them without the tax write-offs you get from the maintenance you do, the interest write-offs on your mortgage, and the 50% off capital gains tax you get. Of course, if you have an investment property in a superannuation fund in pension phase you don't get any capital gains tax. And I agree with the economists that negative gearing really affects house prices here.

An ER person can really get ahead if they rent out rooms in their PPOR if they are keeping their PPOR for a while and they are doing maintenance at the same time as renting. My first PPOR was an old house which had had no upkeep for years, and needed rewiring, restumping, a new roof, new fences and all walls replastered after the restumping. All of these were considered maintenance issues (you need to check what is and isn't maintenance because the meanings did vary), and as I had a boarder during this time, these were all tax deductible on the part of the property that the boarder used as they were part of the "cost of ownership". I did other things that were not deductible, but the ones mentioned reduced my tax considerably, and since I only rented for the first few years I owned it, the capital gains tax was negligible.

Offset accounts on your PPOR are another tax reduction - allowing you to reduce mortgage interest while still having access to the money and not having to pay tax on the interest the money is earning. The tax implications of offset accounts are why it is better to have an offset account than money in the bank.

Similarly, loans for shares can be quite an effective tax minimization vehicle. The interest is obviously tax deductible. Shares themselves provide several tax effective outcomes - franking credits are the main ones, but costs of ownership deductions can include travel to AGMs, which are sometimes in places you may want to visit (just be careful with this though).

marty998

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Re: Early Retirement Australian Style
« Reply #6 on: July 03, 2015, 09:03:31 PM »
good post deborah.

My basic advice that I give to everyone who asks is:

1) Never go to a financial planner
2) Pay off your mortgage via an offset account
3) Use a 55 day interest free credit card and pay off balance in full every month
4) Salary sacrifice into super as much as you are able to
5) Keep your investments simple and avoid complexity. Use discount internet brokers. Either an ETF or a spread of top 50 shares. Avoid mortgage trusts, anything labelled "structured" or "secure" or "first ranking". It's just marketing crap.
6) Invest regularly rather than in lump sums. Builds good habits.
7) If buying property, don't over extend your leveraging and keep a cash buffer that allows you to sleep at night.
8) Put positive cash flow investments in the lower income earning spouse's name. Put negative cash flow investments in the higher income earner's name
9) Want to retire early? Have to figure a way to get income producing assets (shares). No use having lots of properties generating great capital appreciation but no income
10) Be diversified with multiple income streams.

marty998

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Re: Early Retirement Australian Style
« Reply #7 on: July 03, 2015, 09:11:47 PM »
Regarding tax implications for someone in 30's and 40's.

Australia has an incredibly complex tax and transfer system.

There's a myriad of interrelations between the tax and welfare system and it's very easy to get it wrong if you are on some form of centrelink payment (especially family tax benefits).

For someone "retiring" in their 30's you'll still be on the same tax scales as everyone else, except the system works in your favour because of the benefit of franking credits on share dividends.

The refundable nature of franking credits can be an additional source of income, meaning that possibly you could pull the ER trigger earlier than you thought possible.

Astatine

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Re: Early Retirement Australian Style
« Reply #8 on: July 04, 2015, 03:44:20 PM »
I don't really have anything to contribute, sorry. Just posting to follow :)

tob

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Re: Early Retirement Australian Style
« Reply #9 on: July 05, 2015, 06:10:41 AM »
I have just started looking at Australian ER in the last few years and, as far as I can see, the key observation to make is that for younger people super won't help you to achieve that goal!

Yes super is tax advantaged, but it's also very thoroughly locked up until preservation age (60), and even then there are complications and higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

For early retirement you need money outside of super, and my feeling is that if you can build a stash to safely see you through to 60 or 65 then it's likely to be able to get you the rest of the way too.

So the focus for younger Aussie's on the early financial independence path ought to be tax-deferred / tax-effective investments outside of super, likely built around the assumption that your marginal tax rate is going to drop as you leave your regular employment income behind.

Am I missing something?



marty998

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Re: Early Retirement Australian Style
« Reply #10 on: July 05, 2015, 06:19:23 AM »
I have just started looking at Australian ER in the last few years and, as far as I can see, the key observation to make is that for younger people super won't help you to achieve that goal!

Yes super is tax advantaged, but it's also very thoroughly locked up until preservation age (60), and even then there are complications and higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

For early retirement you need money outside of super, and my feeling is that if you can build a stash to safely see you through to 60 or 65 then it's likely to be able to get you the rest of the way too.

So the focus for younger Aussie's on the early financial independence path ought to be tax-deferred / tax-effective investments outside of super, likely built around the assumption that your marginal tax rate is going to drop as you leave your regular employment income behind.

Am I missing something?

A roof over your head.

Many will disagree, but I think it's important to have a fully paid off PPOR.

The battle is actually doing that, and having enough in investments working for you.

tob

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Re: Early Retirement Australian Style
« Reply #11 on: July 05, 2015, 06:46:53 AM »

So the focus for younger Aussie's on the early financial independence path ought to be tax-deferred / tax-effective investments outside of super, likely built around the assumption that your marginal tax rate is going to drop as you leave your regular employment income behind.

Am I missing something?

A roof over your head.

Many will disagree, but I think it's important to have a fully paid off PPOR.

The battle is actually doing that, and having enough in investments working for you.

I think it's great to have a fully paid off PPOR, the only question is what you give up to get it.

The income to house price ratios that the USians talk about as sensible maximums are pretty hard to achieve in an Australian city, our interest rates are higher, and PPOR interest isn't tax deductible.

With the tax disadvantages which apply to a PPOR versus an IP you really should only be getting a mortgage on a PPOR if the rates + maintenance + interest-only servicing costs add up to something rent-equivalent or better.

If you have enough $ to put into a PPOR purchase to get the mortgage down to a level where that's possible, then I think the smart thing to do is buy the PPOR and redraw the excess equity (less a reasonable safety margin) and stick it in a good long-term investment portfolio while you work hard to pay down the remaining non-deductible debt.


deborah

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Re: Early Retirement Australian Style
« Reply #12 on: July 06, 2015, 06:12:12 PM »

So the focus for younger Aussie's on the early financial independence path ought to be tax-deferred / tax-effective investments outside of super, likely built around the assumption that your marginal tax rate is going to drop as you leave your regular employment income behind.

Am I missing something?

A roof over your head.

Many will disagree, but I think it's important to have a fully paid off PPOR.

The battle is actually doing that, and having enough in investments working for you.

I think it's great to have a fully paid off PPOR, the only question is what you give up to get it.

The income to house price ratios that the USians talk about as sensible maximums are pretty hard to achieve in an Australian city, our interest rates are higher, and PPOR interest isn't tax deductible.

With the tax disadvantages which apply to a PPOR versus an IP you really should only be getting a mortgage on a PPOR if the rates + maintenance + interest-only servicing costs add up to something rent-equivalent or better.

If you have enough $ to put into a PPOR purchase to get the mortgage down to a level where that's possible, then I think the smart thing to do is buy the PPOR and redraw the excess equity (less a reasonable safety margin) and stick it in a good long-term investment portfolio while you work hard to pay down the remaining non-deductible debt.


It really depends upon how much you earn. What other sorts of tax-deferred / tax-advantaged investments were you thinking of?

Superannuation

If you earn more than $80k, superannuation is very effective. If you earn less you might be better waiting until you are ER to add extra to superannuation. Ideally (with the current rules), you would add enough as you were reaching preservation age, so that at preservation age you had no personal investments and all your investments were in superannuation. Because of the limits on superannuation contributions this might take a few years. This_Is_My_Username has a great spreadsheet in the Australian Investing Thread on how much you should put into superannuation by age. You may also want to see the preceding few posts on the thread, as people are talking about how much you should put in by age.

The latest changes to the old age pension effectively mean that if you have money above the minimum to start getting a part pension, you are penalised at a greater rate than you would probably earn from the investments. This effectively means that most ER people probably should not count on any old aged pension, and that your argument for not having superannuation was wiped out by this change.

However, this change also has other implications for superannuation itself and how future governments will change it.

PPOR

The latest changes to the pension also enshrine the ownership of a PPOR as being important for retirement, as people with a PPOR are much better off than people without. There are actually quite a few reasons to own a PPOR in old age appart from the old aged pension. If you end up going into a retirement village or needing one of the aged care packages (including going into a nursing home), the way they are calculated is heavily biased toward home owners.

But, getting back to early retirement, the US ownership implications come from a completely different perspective to ours. I have NEVER before heard anyone suggest that ours are WORSE! We have no CGT on PPORs - the US does, and therefore their deductions make sense. Any money stored in an offset account is making a guaranteed return much greater than most investments, and has almost no risk.

Mark31

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Re: Early Retirement Australian Style
« Reply #13 on: July 06, 2015, 07:58:03 PM »
Posting mainly to follow, but….

I think a fully owned PPOR is tax advantageous if you are early retired.

If you own your own house and live on 40k a year with income evenly split between partners, you’ll be paying bugger all tax. Also if you have kids, your lower income will mean you’ll be eligible for higher Family Tax Benefits.

To the best of my knowledge, Family Tax Benefits are assessed strictly on income – you don’t have to have a wages income.

Having the extra stash to cover rent expenses means 19% tax on the extra and several thousand less in FTB.

urbanista

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Re: Early Retirement Australian Style
« Reply #14 on: July 08, 2015, 09:17:40 PM »
... higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

Would you please exlain what you mean by "loss of access to social security benefits"?

marty998

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Re: Early Retirement Australian Style
« Reply #15 on: July 09, 2015, 03:15:40 AM »
... higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

Would you please exlain what you mean by "loss of access to social security benefits"?

When your income goes up you get taxed at your marginal rate + you lose centrelink payments for additional dollars earned above minimum thresholds.

This means that the effective marginal tax rate is much higher i.e you earn $1, you get taxed at say 19c and you may lose 50c in benefits. Therefore the effective marginal tax rate is 69%.

It's an odd way of looking at things, but think about how often you hear people say "I'm better off not working", usually the second earner in a household. This is what they mean - they earn a dollar, get taxed on it and lose benefits, so they may only "keep" 31c of that additional dollar

For the ordinary taxpayer not in receipt of social security, every additional dollar earned is only taxed at their marginal rate. You will keep at least 51c of that additional dollar.

« Last Edit: July 09, 2015, 03:17:19 AM by marty998 »

Ozstache

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Re: Early Retirement Australian Style
« Reply #16 on: July 09, 2015, 05:03:58 AM »
I have just started looking at Australian ER in the last few years and, as far as I can see, the key observation to make is that for younger people super won't help you to achieve that goal!

Yes super is tax advantaged, but it's also very thoroughly locked up until preservation age (60), and even then there are complications and higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

For early retirement you need money outside of super, and my feeling is that if you can build a stash to safely see you through to 60 or 65 then it's likely to be able to get you the rest of the way too.

So the focus for younger Aussie's on the early financial independence path ought to be tax-deferred / tax-effective investments outside of super, likely built around the assumption that your marginal tax rate is going to drop as you leave your regular employment income behind.

Am I missing something?

I think you've summed it up pretty well. Others have mentioned a PPOR, but to me that's just one of those outside of super tax-effective investments you speak of. Also, as wonderful as super looks now, the younger you are the higher the risk that it will have morphed into something you that suits the Government more than it suits you by the time you can access it.

urbanista

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Re: Early Retirement Australian Style
« Reply #17 on: July 09, 2015, 06:14:48 PM »
... higher-than-you-think effective tax rates through loss of access to social security benefits. There's also a very good chance that the goal posts you see now will have moved further away before you reach them.

Would you please exlain what you mean by "loss of access to social security benefits"?

When your income goes up you get taxed at your marginal rate + you lose centrelink payments for additional dollars earned above minimum thresholds.

This means that the effective marginal tax rate is much higher i.e you earn $1, you get taxed at say 19c and you may lose 50c in benefits. Therefore the effective marginal tax rate is 69%.

It's an odd way of looking at things, but think about how often you hear people say "I'm better off not working", usually the second earner in a household. This is what they mean - they earn a dollar, get taxed on it and lose benefits, so they may only "keep" 31c of that additional dollar

For the ordinary taxpayer not in receipt of social security, every additional dollar earned is only taxed at their marginal rate. You will keep at least 51c of that additional dollar.

Sorry, I phrased my question poorly. I understand the above. I don't understand how it applies to super?

Let me elaborate more. For example, we are a 37y.o. couple. We currently max out our super (30K+30K each year) precisely because of super tax advantaged status.

Now, tob was saying there were "higher-than-you-think effective tax rates through loss of access of social security benefits". I see just the opposite: our effective tax rate is lower (not higher) due to super salary sacrifice.
« Last Edit: July 09, 2015, 06:28:45 PM by urbanista »

urbanista

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Re: Early Retirement Australian Style
« Reply #18 on: July 09, 2015, 06:27:06 PM »
For early retirement you need money outside of super, and my feeling is that if you can build a stash to safely see you through to 60 or 65 then it's likely to be able to get you the rest of the way too.

Um, no.

If one retires at 40, they need only 20 years to get through to 60 and therefore, can use 8% withdrawal rate for a 94% success (according to the Trinity study). No way 8% rate can get them the rest of the way too.

HappierAtHome

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Re: Early Retirement Australian Style
« Reply #19 on: July 09, 2015, 07:08:25 PM »
Does anyone have a great resource on family trusts (when they're appropriate / useful, income levels at which it's worth considering, etc) they could share a link to?

FFA

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Re: Early Retirement Australian Style
« Reply #20 on: July 12, 2015, 06:33:44 PM »
err...umm:

No tax in super after you turn 60

the end?

I was thinking more about how to optimize your accounts/taxes for a retirement in your 30's or 40's. 
...

Interesting thread. Surprised there's little or no mention of the F word yet...

Franking.

For most mustachian type early retirees investing mostly in shares, I don't see any need for complex tax vehicles. Just crunching a few numbers... Typical retirement cost numbers are $35k (basic) / $55k (comfortable). Let's assume a mustachian couple can cope with $40k p.a (and own PPOR outright). Some other assumptions...

asset allocation : Aus shares 37.5%, global 37.5%, FI/cash 25%
yields : Aus shares 4.5%, global 2.5%, FI/cash 3%
Aus share franking : 85%

By my calculation, a stash of $1025k, invested per above will give a gross income of $34.6k and imp credit $6.3k. Taxable income $40.9k. Assuming this is a couple holding the assets 50/50, the tax free threshold is 36.4k. You only pay 19% on the increment above and you pocket back the imputation credit. tax refund = $5.4k. After tax income = $34.6 + $5.4k = $40k... voila.

I hope I got the franking calc correct, I've been away from Oz for a while and never had to worry about it. But the point is, unless you have much higher stash / retirement income needs, you might not need to do much at all to minimise tax. This basic structure of holding assets in own name split equally between partners, results in a decent tax credit.

As we debated a lot in the Australian Investing thread re: asset allocation/home bias, i did a quick sensitivity on this:
asset allocation : Aus shares 50%, global 25%, FI/cash 25%
stash needed for $40k after tax = $920k

I see others planning for much lower stash with higher Aus % (plus high yield strategies). Just be aware the trade off is much lower diversification.

The above ignores capital growth and assumes you live off dividends/interest only. Hopefully capital growth matches inflation. Super, when it eventually becomes available, can be the icing on the cake.

I appreciate this is a tax thread and not to hijack it on investment. The key point I'm trying to make is tax is much more an issue while accumulating. It can be a tailwind though in the RE phase.
« Last Edit: July 12, 2015, 06:53:36 PM by FFA »

urbanista

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Re: Early Retirement Australian Style
« Reply #21 on: July 12, 2015, 08:55:41 PM »
I think the whole point of tax optimization is to optimize while one is still in the accumulation phase. That is, minimize payment of income tax while still working. Thus salary sacrifice into super.

FFA

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Re: Early Retirement Australian Style
« Reply #22 on: July 12, 2015, 09:32:12 PM »
I think the whole point of tax optimization is to optimize while one is still in the accumulation phase. That is, minimize payment of income tax while still working. Thus salary sacrifice into super.
sure that's a big focus for most people, myself included, and I agree salary sacrifice is a good thing to do.

still it might be useful to look at the entire picture/lifespan of your tax? I was replying in context of early retirees in 30's/40's. a) accumulation might be 20 years (or less for some), b) RE pre super 25 years, c) RE post super another 25 (or more if you're lucky). I don't think it hurts to consider where you want to end up in b) and c), and keep that in mind when planning a). Especially considering there can be a lot of cost/tax/hassle to switch your portfolio around at those junctures.

HappierAtHome

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Re: Early Retirement Australian Style
« Reply #23 on: July 12, 2015, 09:36:54 PM »
Does anyone have a great resource on family trusts (when they're appropriate / useful, income levels at which it's worth considering, etc) they could share a link to?

And to add to this - I've found lots of interesting very vague articles about family trusts, but nothing that really sets out how they work, what they cost to set-up and administrate, etc.

I *believe* that a family trust is likely to be useful for my household, as my partner earns more than I do and it's very likely that this gap will only widen. I'm sure there's some significant tax advantages available in being able to allocate some of his income to me. 

Should I just chat to a really great tax accountant about this to get advice?

Anatidae V

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Re: Early Retirement Australian Style
« Reply #24 on: July 13, 2015, 02:10:03 AM »
Does anyone have a great resource on family trusts (when they're appropriate / useful, income levels at which it's worth considering, etc) they could share a link to?

And to add to this - I've found lots of interesting very vague articles about family trusts, but nothing that really sets out how they work, what they cost to set-up and administrate, etc.

I *believe* that a family trust is likely to be useful for my household, as my partner earns more than I do and it's very likely that this gap will only widen. I'm sure there's some significant tax advantages available in being able to allocate some of his income to me. 

Should I just chat to a really great tax accountant about this to get advice?
I would probably just do that. I know my uncle has one set up, which meant that when I went to uni he added me as a beneficiary and got himself a tax break that was large enough to give me a significant chunk of money to live on - it was a win-win. I'm not sure about the details, though.

marty998

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Re: Early Retirement Australian Style
« Reply #25 on: July 13, 2015, 05:12:45 AM »
Does anyone have a great resource on family trusts (when they're appropriate / useful, income levels at which it's worth considering, etc) they could share a link to?

And to add to this - I've found lots of interesting very vague articles about family trusts, but nothing that really sets out how they work, what they cost to set-up and administrate, etc.

I *believe* that a family trust is likely to be useful for my household, as my partner earns more than I do and it's very likely that this gap will only widen. I'm sure there's some significant tax advantages available in being able to allocate some of his income to me. 

Should I just chat to a really great tax accountant about this to get advice?

LOL Gina Rinehart can explain how they work.

deborah

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Re: Early Retirement Australian Style
« Reply #26 on: July 13, 2015, 06:03:37 AM »
I did mention franking as being the main tax effective outcome for Australian shares in the big screed above. Of course, you have to be careful because not all shares are fully franked - and this changes from time to time with any one company. It depends a lot on the profit generated and how much company tax that company is paying.

I feel that people should look at the effects of their investments on both their before RE and after RE phases - perhaps there are four phases in Australia - earning, ER before preservation age, ER after pension age. The different times may require different assets, but moving assets generates capital gains events, which probably should be avoided.

BigChrisB uses family trusts according to some posts - as does MsRichLife. Maybe we need them to comment.

stripey

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Re: Early Retirement Australian Style
« Reply #27 on: July 13, 2015, 06:31:17 AM »
I will probably be interested in any more information about family trusts too. If BF becomes DH at some point, there is an age gap and BF has some health/fatigue issues that mean I will always earn consistently more.

FFA

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Re: Early Retirement Australian Style
« Reply #28 on: July 13, 2015, 08:04:02 AM »
hi Deborah, yeah sorry you did mention it, and Marty also... Even if we put the franking to the side, really my main point is for mustachian spending level / early retirees (based on say 40k pa per couple or maybe 25k if single) you will be paying negligible tax anyway post RE. If you RE at 35-40 years, this negligible tax period will be a much larger chunk of your life than accumulation. Do your sums carefully before jumping into negatively geared properties, family trusts etc, to lower tax bills while accumulating. Look at the full lifecycle benefit/costs and consider your planned asset allocation after RE including the cost to switchover the portfolio, if needed. For most low spending early retirees, my gut feel would be to keep it simple even if it means paying more taxes while you accumulate. If you are a higher earning / higher spending / conventional age retiree, then the equation is different of course.

Family trusts. That's actually one of the things i have in mind while saying this. My folks have one and it seems a headache for them nowadays. Every year at taxtime they deliberate on whether to wind up or keep paying the accountant. I don't know the specifics and I gather it might have been beneficial earlier. I suggest you listen to people who have had family trusts all the way through to retirement (not just while accumulating). Be a little weary with accountants, they are also selling you a product and might be biased whether they intend or not.
« Last Edit: July 13, 2015, 08:21:44 AM by FFA »

deborah

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Re: Early Retirement Australian Style
« Reply #29 on: July 15, 2015, 01:36:32 AM »
I think it also depends upon just how much money you make while you are accumulating, how long you will be at it, and other "life" things. For example, if you were earning heaps, accumulating for a number of years and likely to die young (so your children would be beneficiaries for a long time), a family trust would probably be very worth while.

The people who I know who benefit from these trusts have formed their own companies and the companies have grown to be worth significant amounts.

I agree that a typical ERer is not trying to accumulate enough to benefit from trusts. However, I do think that a SMSF can be very beneficial for an ERer because the benefits accumulate at both sides of retirement - but I think that this is more reasonable for the late 40s and 50s ER rather than the 30s ER.

FFA

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Re: Early Retirement Australian Style
« Reply #30 on: July 15, 2015, 01:44:34 AM »
Yup Deborah, I think we are on the same page.

For my own situation, I am more tempted to do a SMSF than Family Trust, for the reason u mentioned. But even still, as an index investor it seems better and easier for me to just stay with a low cost industry fund (i'm a late 30's ER)

Grogounet

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Re: Early Retirement Australian Style
« Reply #31 on: July 15, 2015, 04:52:23 AM »
Just responding to follow...
« Last Edit: July 19, 2015, 12:39:52 PM by Grogounet »

Big_Paul

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Re: Early Retirement Australian Style
« Reply #32 on: July 18, 2015, 06:20:46 AM »
Responding to follow

detrimental12

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Re: Early Retirement Australian Style
« Reply #33 on: July 21, 2015, 01:07:58 AM »
I guess the problem with using super as a tax strategy is great if you are looking at reaching FI anytime from your late 40s/early 50s - you know that super is just around the corner. Unfortunately for those in the fortunate position of reaching FI earlier, this just isn't an option for us.

So I'm very open to hearing suggestions on how to minimise tax on income after FI.

For me, the only way to achieve this is through franking credits. It's just a shame we have to pay tax in our retirement, outrageous! :)

Grogounet

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Re: Early Retirement Australian Style
« Reply #34 on: July 21, 2015, 03:27:11 AM »
If you re a couple and share realestate income 50/50 and both are below the minimum revenue for taxes, bingo !

Not related but a great way to continue growing $$ accumulation after FI: Go and travel the world. Most of time, cost of living will be a lot lower than Australia.
So still resident for tax purposes and great saving rate: No taxes and lower cost of living.

marty998

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Re: Early Retirement Australian Style
« Reply #35 on: July 21, 2015, 06:03:07 AM »
I guess the problem with using super as a tax strategy is great if you are looking at reaching FI anytime from your late 40s/early 50s - you know that super is just around the corner. Unfortunately for those in the fortunate position of reaching FI earlier, this just isn't an option for us.

So I'm very open to hearing suggestions on how to minimise tax on income after FI.

For me, the only way to achieve this is through franking credits. It's just a shame we have to pay tax in our retirement, outrageous! :)

The cheeky answer to this is "don't earn any income"

A proper, considered answer is to own property, and draw "income" from an every growing line of credit against that property/ies.

Google living off equity.

FFA

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Re: Early Retirement Australian Style
« Reply #36 on: July 21, 2015, 07:07:46 AM »
I guess the problem with using super as a tax strategy is great if you are looking at reaching FI anytime from your late 40s/early 50s - you know that super is just around the corner. Unfortunately for those in the fortunate position of reaching FI earlier, this just isn't an option for us.

So I'm very open to hearing suggestions on how to minimise tax on income after FI.

For me, the only way to achieve this is through franking credits. It's just a shame we have to pay tax in our retirement, outrageous! :)

The cheeky answer to this is "don't earn any income"

A proper, considered answer is to own property, and draw "income" from an every growing line of credit against that property/ies.

Google living off equity.
based on the examples I outlined earlier in the thread you can earn well above comfortable retirement income (i.e. 55k per couple) from a balanced share portfolio and still have a tax refund, after franking credits. this is especially so for couples having effectively double the tax free threshold
« Last Edit: July 21, 2015, 07:10:11 AM by FFA »

detrimental12

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Re: Early Retirement Australian Style
« Reply #37 on: July 21, 2015, 06:00:15 PM »
Thanks FFA, I'll unfortunately be alone on the FI journey! So no couple income here :(

FFA

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Re: Early Retirement Australian Style
« Reply #38 on: July 21, 2015, 06:38:23 PM »
just re-ran my s/sheet with your AA (45% Oz, 50% global, 5% FI) and a single tax threshold. Also adjusted the franking assumption to 80%. It tells me a stash of 900k will throw off 30.8k gross income, 6.2k imp credits. taxable income 37k which is up to the top of the 19% tax bracket. Tax on the income approx. 3.5k, more than offset by the credits leaving a refund of 2.7k. After tax income 33.4k, which is quite comfortable for a single ! I guess one could be FI on much less (and reduced stash levels). But the point is, you are still getting a tax refund after the franking credits.

detrimental12

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Re: Early Retirement Australian Style
« Reply #39 on: July 21, 2015, 06:57:33 PM »
just re-ran my s/sheet with your AA (45% Oz, 50% global, 5% FI) and a single tax threshold. Also adjusted the franking assumption to 80%. It tells me a stash of 900k will throw off 30.8k gross income, 6.2k imp credits. taxable income 37k which is up to the top of the 19% tax bracket. Tax on the income approx. 3.5k, more than offset by the credits leaving a refund of 2.7k. After tax income 33.4k, which is quite comfortable for a single ! I guess one could be FI on much less (and reduced stash levels). But the point is, you are still getting a tax refund after the franking credits.

Very interesting, i'd love to see your spreadsheet, can I find it on your blog? My goal is $52,000/year after tax so I would be interested in seeing what amount you would think I would need for that, given Oz tax rates/franking credits? I'm the type to actually spend more once I reach FI than before, as I currently only spend around $26k/year, with a lot of job benefits helping to ease my spending (some food, mobile and fuel).

FFA

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Re: Early Retirement Australian Style
« Reply #40 on: July 21, 2015, 07:39:55 PM »
it's only a simple 5-10 mins spreadsheet, why don't you try the calc yourself and we can compare results ? I wouldn't mind a crosscheck to make sure i'm doing these calc's correctly too :) I had given my assumptions in the earlier post regarding yields. I didn't include medicare levy as yet.

Ozstache

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Re: Early Retirement Australian Style
« Reply #41 on: July 21, 2015, 07:51:39 PM »
In my second year of FIRE, my wife and I are paying around 17% tax between us (including medicare), with most of that coming out of my Defence pension and from my wife's casual job. The franking credit surplus we get from our index fund in her name more than offset the tax we pay on interest from our emergency cash fund, also in her name.  When I turn 60 I get a 10% tax offset on my pension and my wife should be retired by then too, so our effective tax will drop to around 8%.

detrimental12

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Re: Early Retirement Australian Style
« Reply #42 on: July 21, 2015, 08:15:09 PM »
it's only a simple 5-10 mins spreadsheet, why don't you try the calc yourself and we can compare results ? I wouldn't mind a crosscheck to make sure i'm doing these calc's correctly too :) I had given my assumptions in the earlier post regarding yields. I didn't include medicare levy as yet.

You're going to make me do my own spreadsheet aren't you?! I'll create one tonight after work.

deborah

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Re: Early Retirement Australian Style
« Reply #43 on: July 21, 2015, 08:17:00 PM »
In my second year of FIRE, my wife and I are paying around 17% tax between us (including medicare), with most of that coming out of my Defence pension and from my wife's casual job. The franking credit surplus we get from our index fund in her name more than offset the tax we pay on interest from our emergency cash fund, also in her name.  When I turn 60 I get a 10% tax offset on my pension and my wife should be retired by then too, so our effective tax will drop to around 8%.
You could contribute to super (before tax) and reduce your tax now.

Ozstache

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Re: Early Retirement Australian Style
« Reply #44 on: July 21, 2015, 09:24:52 PM »
In my second year of FIRE, my wife and I are paying around 17% tax between us (including medicare), with most of that coming out of my Defence pension and from my wife's casual job. The franking credit surplus we get from our index fund in her name more than offset the tax we pay on interest from our emergency cash fund, also in her name.  When I turn 60 I get a 10% tax offset on my pension and my wife should be retired by then too, so our effective tax will drop to around 8%.
You could contribute to super (before tax) and reduce your tax now.
I realise that, but I already have plenty of super not included above which already kicks my stash into overdrive at the booster phase of my ER. Also, as attractive as the tax breaks are on super, the risk of the Government making detrimental policy change affecting super tax treatment , when I can actually access it, estate entitlements and allowable withdrawal methods before I can currently access it in 13 years time is just far to great to justify the extra return I would get that I don't actually need.


FFA

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Re: Early Retirement Australian Style
« Reply #45 on: July 22, 2015, 01:33:02 AM »
it's only a simple 5-10 mins spreadsheet, why don't you try the calc yourself and we can compare results ? I wouldn't mind a crosscheck to make sure i'm doing these calc's correctly too :) I had given my assumptions in the earlier post regarding yields. I didn't include medicare levy as yet.

You're going to make me do my own spreadsheet aren't you?! I'll create one tonight after work.
you got it.. would be wrong of me to deprive you of such learning opportunities.

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Re: Early Retirement Australian Style
« Reply #46 on: July 24, 2015, 08:09:25 PM »
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nick69

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Re: Early Retirement Australian Style
« Reply #47 on: August 05, 2015, 01:19:06 AM »
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stripey

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Re: Early Retirement Australian Style
« Reply #48 on: September 07, 2015, 02:16:04 AM »
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dungoofed

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Re: Early Retirement Australian Style
« Reply #49 on: September 11, 2015, 06:26:34 AM »
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