Superannuation Discussion + market volatility

[NM]

I think many more people will be affected in retirement by the proposed changes, than they realise.

Eg, a 55yo with $1m balance.

Contributes $30k pa through SG + deductable topping up. Say, 8% av. return in growth/share option. Super balance will be>$3 by retirement age 67.

Historical returns in some options has been higher so would also affect 55yo with< $1m.
(I have no issue with the higher tax rate, just with targeting super with unrealised CG)

I think you have underestimated my age. I wish I had $1M in super when I was 55 years old. Unfortunately was not the case.

And of course the current lack of indexation of the $3M threshold means that more people moving through the system aligned with your example will certainly result in increasing numbers being caught. But I do expect that the threshold will be adjusted by future federal budgets - just not automatically indexed.

 

[CaptJCool]

This would be a feature and not a bug. I suspect having those with super balances approaching $3M and who likely won't be eligible for the age pension taking "early" self-funded retirement prior to 67 would probably be seen as an added benefit of div296

My understanding was

Preservation age is 60 so long as “retired and not working” you can access it

That condition of release is removed at age 65 so anyone can access their super

The 67 age is the age pension eligibility age. Only 1/3 turning 67 are going on it.

When you consider that by age 67, the likely age expectancy at North in 2021-23 is 81.1 years for males and 85.1 years for females - a slight decline because of the impacts of COVID-19, that doesn’t leave a lot of years to “spend $3 million…

Life expectancy, 2021 - 2023

Statistics about life tables and life expectancy estimates for Australia, states and territories and life expectancy at birth for sub-state regions.

www.abs.gov.au

Having gotten to 67
Male life expectancy 18.47
Women 20.96

That means 85.5 and 88
So
That’s gives you the idea about how long super needs to last

 

[SYD]

But I do expect that the threshold will be adjusted by future federal budgets - just not automatically indexed.

Or just axe it. By the time the TBC is indexed to $3m, most of the holders of massive super amounts will be long dead and those accounts closed - the “issue” no longer exists….

 

[andye]

I think you have underestimated my age. I wish I had $1M in super when I was 55 years old. Unfortunately was not the case.

And of course the current lack of indexation of the $3M threshold means that more people moving through the system aligned with your example will certainly result in increasing numbers being caught. But I do expect that the threshold will be adjusted by future federal budgets - just not automatically indexed.

The 67 timepoint is not desperately relevant IMO as you will probably live for 15+ years. It's not out of the question for moderately aggressively invested super in retirement to grow by 10%/pa. Even with mandatory 5 % withdrawals, it could still double in 15 years.

Having said most affected people should just withdraw the excess. Could give the children an early inheritance and pay down their massive mortgages

 

[CaptJCool]

The 67 timepoint is not desperately relevant IMO as you will probably live for 15+ years. It's not out of the question for moderately aggressively invested super in retirement to grow by 10%/pa. Even with mandatory 5 % withdrawals, it could still double in 15 years.

Having said most affected people should just withdraw the excess. Could give the children an early inheritance and pay down their massive mortgages

Men 18.47 years
Women 20.96 years

 

[andye]

My understanding was

Preservation age is 60 so long as “retired and not working” you can access it

That condition of release is removed at age 65 so anyone can access their super

The 67 age is the age pension eligibility age. Only 1/3 turning 67 are going on it.

When you consider that by age 67, the likely age expectancy at North in 2021-23 is 81.1 years for males and 85.1 years for females - a slight decline because of the impacts of COVID-19, that doesn’t leave a lot of years to “spend $3 million…

Life expectancy, 2021 - 2023

Statistics about life tables and life expectancy estimates for Australia, states and territories and life expectancy at birth for sub-state regions.

www.abs.gov.au

Having gotten to 67
Male life expectancy 18.47
Women 20.96

That means 85.5 and 88
So
That’s gives you the idea about how long super needs to last
View attachment 450315

Needs to last but with a 5% withdrawal rate the chances of running out of money is single digit % (as long as you invest it and dont just stick it in a cash account). More likely that your balance will double than disappear (and that's ignoring the Aged Pension safety net)

 

[NM]

I've not been able to work out with certainty what (if any) CGT is payable currently if one withdraws from Accumulation (rather than Retirement stream). I thought it might be 10% (if asset held for >1y) but am not sure

That was based on the assumption that the Balance Cap acted as a limit on unlimited tax-free withdrawals in retirement.

Especially as for property and shares, the capital gain usually exceeds the rent/dividend income, the tax on capital gains is thus less than 15% and often 0%. In my mind, the tax has not already been paid as you imply

Yes, there are certainly challengers for those with assets such as property and specific shares in their super "fund". When the super fund is a traditional commercial fund (as mine is) there is 15% tax paid each year on the growth within the fund, and there is no fixed assets increasing in capital value.

The new rules and $3M threshold seems to have been developed to move towards tax parity between those with traditional super fund (like mine) and those with SMSF holding high value assets (e.g. property). So to that end, I understand the desire to move in this direction. But I still have issues opening Pandora's box for taxing unrealised capital gains. But there is no easy solution.

 

[Brissy1]

There must be a lot of "+ deductable topping up" going on here.

Assuming none and no tax on earnings and no fees, that 55yo would get to $2.015m according to the moneysmart calculator.

The calculator tops out at $95k/per year for after tax contributions, but say $52k/yr (ie $1k/week), then the balance at 67 would be $2.54m.

Getting to $3m will take some effort.

No in my example the top-up, depending upon how much one's SG might be, requires maybe an extra $10k pa (net) for 12 years.

 

[NM]

The 67 timepoint is not desperately relevant IMO as you will probably live for 15+ years. It's not out of the question for moderately aggressively invested super in retirement to grow by 10%/pa. Even with mandatory 5 % withdrawals, it could still double in 15 years.

Oh, only 15+ years?? I was planning on at living to at least 130 .... so far, so good

Having said most affected people should just withdraw the excess. Could give the children an early inheritance and pay down their massive mortgages

Oh, the thought of planning for an excess ... a problem I wish was coming my direction.

 

[Happy Dude]

No in my example the top-up, depending upon how much one's SG might be, requires maybe an extra $10k pa (net) for 12 years.

You'll have to share the calculator and assumptions you're using. I used $30k SG as per your post. The calcs treat anything above that as post tax contributions. If he had a mill at age 45 he'd have a chance at getting to $3m. That is a realistic for someone just starting out so it will catch a lot unless the 3m is indexed or raised.

 

[Flashback]

You'll have to share the calculator and assumptions you're using. I used $30k SG as per your post. The calcs treat anything above that as post tax contributions. If he had a mill at age 45 he'd have a chance at getting to $3m. That is a realistic for someone just starting out so it will catch a lot unless the 3m is indexed or raised.

Also, one thing to try and engrain in your children is ........ start super early. Even if it's just $100/month, it'll all add up over time and isn't a terribly large sacrifice (no pun intended) to make.

 

[Happy Dude]

Also, one thing to try and engrain in your children is ........ start super early. Even if it's just $100/month, it'll all add up over time and isn't a terribly large sacrifice (no pun intended) to make.

Yes I've been showing them the compound interest spreadsheets hoping to instill the saving mentality.

It's not very easy to invest in their names while they're under 18 though. The "unearned income" taxes are penal.

 

[SYD]

Yes I've been showing them the compound interest spreadsheets hoping to instill the saving mentality.

One of the greatest forces known to humankind - compound interest!

But not just as a one off for retirement. I’ve always looked at my investment strategy from the perspective of being able to access chunks along the way. Deposit for home, paying down debt, buying a car with a loan, while stuffing as much into super as I could.

 

[Brissy1]

You'll have to share the calculator and assumptions you're using. I used $30k SG as per your post. The calcs treat anything above that as post tax contributions. If he had a mill at age 45 he'd have a chance at getting to $3m. That is a realistic for someone just starting out so it will catch a lot unless the 3m is indexed or raised.

Sure, starting balance $1m
In year 1 add $25500 ($30k before 15% tax) x 1.08 = $1107540.
Repeat (+$25½, then x 1.08) 11 more times.

Takes 12 years,obviously from any age, and for simplicity it doesn't account for the contribution may be spread over 12 months but conversely also doesn't account if contributed the $30k but delayed submitting a "Notification of intention to claim tax deduction" (if that's one's situation) thereby getting extra interest on the $4500.

 

[JohnK]

Not my area of expertise but aren't rules around that now redundant?

You might be right. Either way I want to get to a point where I pay no tax. Enough tax this lifetime.

I think there is no tax on withdrawing super in pension phase?

And @Quickstatus I'm an expert in spending cash. I'll send $2000 to Thailand each and every day to my wife's cousin if I need to get rid of cash quickly. I owe him a lot of money.

But I'm now getting way off topic. I don't want government handout. I don't want to pay any more tax.

 

[burmans]

If in pension phase your pension payments (which are subject to a few rules) are tax free.

 

[Kerrodt]

Or just axe it. By the time the TBC is indexed to $3m, most of the holders of massive super amounts will be long dead and those accounts closed - the “issue” no longer exists….

But those assets that would have gone into superannuation (and taxed at low/zero rates) will be invested elsewhere and presumably taxed at rates higher than the superannuation system. So the "issue" may not exist within the superannuation taxation system in the future, but the tax revenue will then be coming from other taxable vehicles.

I think this is a design feature of the legislation.

 

[Quickstatus]

I think this is a design feature of the legislation.

Yes but there are simpler ways of achieving that

 

[Happy Dude]

Sure, starting balance $1m
In year 1 add $25500 ($30k before 15% tax) x 1.08 = $1107540.
Repeat (+$25½, then x 1.08) 11 more times.

Takes 12 years,obviously from any age, and for simplicity it doesn't account for the contribution may be spread over 12 months but conversely also doesn't account if contributed the $30k but delayed submitting a "Notification of intention to claim tax deduction" (if that's one's situation) thereby getting extra interest on the $4500.

Ok. The moneysmart calculator assumes 15% tax on earnings and some account fees though.

 

[Brissy1]

Ok. The moneysmart calculator assumes 15% tax on earnings and some account fees though.

Me too, 8% net av return, and as I said in "growth" investment option, I used"Superguide" as my source, which states 10yr average as 9% on growth and "Performance is shown net of investment fees and tax, and before administration and adviser commissions.

Our main differences are in indexation, in their notes Moneysmart states "Results are shown in today's dollars"; they subtract 2.5% for inflation and another 1.2% for rising living standards.