Superannuation Discussion + market volatility

[Quickstatus]

Why bust a gut to accumulate super that will only give you an annuity the equivalent of the age pension.

The smart ones in this position would withdraw their nest egg and do up their house, get a new car, go on a “once in a lifetime” and then claim the full age pension.

The super gurus can calculate approx what asset value gives an annuity equivalent of the age pension - say at 5%

I think it’s important to start retired life not just with a nest egg, and no nondeductible debt, but with a house and car(s) in excellent repair.

 

[Pushka]

Why bust a gut to accumulate super that will only give you an annuity the equivalent of the age pension.

The smart ones in this position would withdraw their nest egg and do up their house, get a new car, go on a “once in a lifetime” and then claim the full age pension.

The super gurus can calculate approx what asset value gives an annuity equivalent of the age pension - say at 5%

I think it’s important to start retired life not just with a nest egg, and no nondeductible debt, but with a house and car(s) in excellent repair.

It’s rather hard to argue with that. And I think is spot on for people who don’t have large super funds. Of course those with more money than I have will be able to use the superannuation provisions to great effect. So I think we are talking about two different groups. The average person whom as you say, will need to bust their gut to accumulate something just above pension level, and those who have significantly more assets and can achieve better investments (tax free on retirement) through super.

 

[Quickstatus]

The nest egg for a “rainy day” is a pertinent question - for emergencies, unexpected expenses, funeral expenses, home repairs. Some with limited super assets should be allowed to keep some super for a rainy day and at the same time gain the full pension.

Is this possible under current rules. My reading is that once in pension phase an annuity must be paid but I think it’s would be very helpful to a lot of people if they could quarantined a certain amount of super from that annuity for a rainy day. The annuity would be reduced but won’t be affected if a lump sum is taken out every so often.

I suppose the way to do that would be to keep that part of super in accumulation phase but then the earnings are taxed. I’m talking about keeping some super in the tax free pension phase from being used as an annuity and kept for a rainy day

 

[amaroo]

Sole traders and self employed running around town with an ABN ..... wonder how many of those have been good little super savers.

 

[Quickstatus]

The way they are splurging on Ford Ranger Wildtrax probably not

 

[Radio8tiv]

It’s rather hard to argue with that. And I think is spot on for people who don’t have large super funds. Of course those with more money than I have will be able to use the superannuation provisions to great effect. So I think we are talking about two different groups. The average person whom as you say, will need to bust their gut to accumulate something just above pension level, and those who have significantly more assets and can achieve better investments (tax free on retirement) through super.

So for those of us without a large super account, but trying to do the best they can, what's the magic number to aim for where you get the extra income from your super and still get the full pension.
And secondly past the grey area where it's not beneficial to have your own super, what's the figure where you don't need the pension?
I guess these answers will obviously fluctuate between different lifestyles, but I'm sure that there must be an amount in your super where you will be disadvantaged or penalised for being a good saver.
Just a theoretical question of course and not seeking financial advice.

 

[Pushka]

So for those of us without a large super account, but trying to do the best they can, what's the magic number to aim for where you get the extra income from your super and still get the full pension.
And secondly past the grey area where it's not beneficial to have your own super, what's the figure where you don't need the pension?
I guess these answers will obviously fluctuate between different lifestyles, but I'm sure that there must be an amount in your super where you will be disadvantaged or penalised for being a good saver.
Just a theoretical question of course and not seeking financial advice.

I wish I knew. I won’t qualify for the pension but my super fund has taken a battering in recent times. I’m looking at the proceeds of selling our house to plump it up but am limited as to how much I can put in. Because Governments keep messing with limits that impact on not just the rich.

 

[QF WP]

The nest egg for a “rainy day” is a pertinent question - for emergencies, unexpected expenses, funeral expenses, home repairs. Some with limited super assets should be allowed to keep some super for a rainy day and at the same time gain the full pension.

This is the current scenario for married homeowners and married non-homeowners. Different thresholds again for non homeowners.

Is this possible under current rules. My reading is that once in pension phase an annuity must be paid but I think it’s would be very helpful to a lot of people if they could quarantined a certain amount of super from that annuity for a rainy day. The annuity would be reduced but won’t be affected if a lump sum is taken out every so often.

Certain retirement income stream products allow commutations (lump sum withdrawals) but they are mostly Allocated Pension funds.

Once you have purchased a fixed term or lifetime annuity generally the capital is extinguished in exchange for an income for the fixed period of time or the annuitants lifetime. Some products allow for the return of part or all of the initial investment at the expiration of the term or lifetime (but the returns will be lower given it is essentially akin to a term deposit). Some providers allow for return of capital after 15 years or earlier death.

I suppose the way to do that would be to keep that part of super in accumulation phase but then the earnings are taxed. I’m talking about keeping some super in the tax free pension phase from being used as an annuity and kept for a rainy day

That is another viable option but you correctly pointed out one of the drawbacks - with the other main one that the investor maintains the investment risk. With an annuity, the investment risk is borne by the manager (if the annuitants outlives their life expectancy or there is a return of part or all of the purchase price in the future).

 

[QF WP]

So for those of us without a large super account, but trying to do the best they can, what's the magic number to aim for where you get the extra income from your super and still get the full pension.

And secondly past the grey area where it's not beneficial to have your own super, what's the figure where you don't need the pension?

I guess these answers will obviously fluctuate between different lifestyles, but I'm sure that there must be an amount in your super where you will be disadvantaged or penalised for being a good saver.
Just a theoretical question of course and not seeking financial advice.

That’s alright, I merely gave you factual (general) information

 

[burmans]

My reading is that once in pension phase an annuity must be paid but I think it’s would be very helpful to a lot of people if they could quarantined a certain amount of super from that annuity for a rainy day. The annuity would be reduced but won’t be affected if a lump sum is taken out every so often.

Well you arent forced to move all of your super into a pension but of course if you don't that part (not moved) does not get the benefit of lower tax rates that pensions have.

 

[Quickstatus]

A single person could keep $250k in super accumulation phase (therefore no income attributable to the person) and assuming that is all the assets apart from the primary residence and assuming no other income other than a measly $4000 per year - could still claim the full pension.

However the $250k will grow and will then cause the pension to be reduced..

So easier to spend it or stash it under the mattress......

 

[Buzzard]

For me @Radio8tiv the magic number would be where I get just $1 of Centrelink money as this would give me all the associated concessions. In years to come this is where I intend to be.

 

[Radio8tiv]

For me @Radio8tiv the magic number would be where I get just $1 of Centrelink money as this would give me all the associated concessions. In years to come this is where I intend to be.

I'm thinking the same, I am ~20 years away from the pension, I had kids young and starting late in the accumulation phase of it all, with both myself and my wife in retail (not very productive I know) so just trying to get a grasp on the whole ratio of how much to keep vs spend on travel, it's the ol' you can't take it with you versus saving for a rainy day conundrum.

 

[Radio8tiv]

<snip>

So easier to spend it or stash it under the mattress......

I'm thinking of accumulating more precious metals for this reason, it's like cash yet should grow in value , as apposed to cash which depreciates in value over time, it's pretty much untraceable (if bought privately as bullion) and has a high liquidity. Also it is impervious to natural disasters such as fire, a blob of melted silver or gold is still worth at least spot price, whereas cash will just burn away. My view may be a bit morbid, but I come from a Dutch Jewish background so that should be understandable

 

[Pushka]

Basic questions please. What does Centrelink count as Assets? Super? Family home? If there is an outstanding mortgage does that count against the value of an asset? Before you apply at 65 do the usual gifting rules of cash apply?

 

[Quickstatus]

Basic questions please. What does Centrelink count as Assets? Super? Family home? If there is an outstanding mortgage does that count against the value of an asset? Before you apply at 65 do the usual gifting rules of cash apply?

Assets - Australian Government Department of Human Services

Super counts towards income and assets test once you reach pension age

Family home and up to 5 acres of surrounding land is not counted toward assets test

Value of assets is net of mortgage

Gifting - Australian Government Department of Human Services

 

[Pushka]

Assets - Australian Government Department of Human Services

Super counts towards income and assets test once you reach pension age

Family home and up to 5 acres of surrounding land is not counted toward assets test

Value of assets is net of mortgage

Gifting - Australian Government Department of Human Services

Thanks. I knew about the gifting from my mother as she was on the pension. But if you aren’t (yet) on the pension and haven’t applied - let’s say you are 63 and give the kids some money for their home - is that counted?

 

[Quickstatus]

Thanks. I knew about the gifting from my mother as she was on the pension. But if you aren’t (yet) on the pension and haven’t applied - let’s say you are 63 and give the kids some money for their home - is that counted?

No it’s not unless there is some quid pro quo that Centrelink can detect - see “granny flat” or “life interests” rules under Assets

 

[QF WP]

A single person could keep $250k in super accumulation phase (therefore no income attributable to the person) and assuming that is all the assets apart from the primary residence and assuming no other income other than a measly $4000 per year - could still claim the full pension.

However the $250k will grow and will then cause the pension to be reduced..

So easier to spend it or stash it under the mattress......

Well, Centrelink will deem it to have a rate of income under the Incomes Test. But if that’s their only income, then they’ll likely be under the income threshold and still earn the full pension






Both Income and Assets are tested and the Test that gives the worst result to the recipient is the one that applies at that point (of course, it can change in the future, it’s a fluid situation)

But I don’t think the assets test reduction is really a factor - you are better off owning assets rather than being too dependent on Centrelink

 

[Buzzard]

When valuing your assets @Pushka, don't value them at what you think they might be worth, value them at fire sale prices. Let's say that $20k car you have, what would Dodgy Brothers car yard at Gepps Cross give you for it in cash?
What would that second hand furniture shop pay in cash for all your furniture? Those are the value of your assets. Too many people think their $3000 lounge is still worth $2000 and use that figure. Think of it as a $200 lounge for Centrelink purposes.