# My super is in fixed interest and is decreasing: any advice?



## hoo izzie (26 November 2016)

My super is all with Colonial First State FirstChoice  Fixed Interest Select, Aussie and international fixed interest and it has decreased quite a lot over the past month. Anyone have any idea about why this might have happened? What has happened to fixed interest markets over the past month or so? Should I bail out of fixed interest and put more super in a profile that has more exposure to the stock market now that it seems to be improving?
hoo izzie


----------



## Smurf1976 (26 November 2016)

This is just my opinion and not advice on what you should do but:

Interest rates have been at historic lows for quite some time, at or close to zero in much of the developed world. 

That's a bit like saying it's 45 degrees outside - how much hotter can it really get? Seriously, the answer would seem to be "not much".

So there's not a lot of room for interest rates to fall / bond prices to rise (the two being inverse - one goes up the other goes down, that's how it works).

Without entering a political debate, there has been a rather clear shift recently with first Brexit and more recently the election of Trump as US President. Voters are rejecting the past 35 or so years of "economic rationalism" and there's a shift underway.

Now, looking at Trump's policies and assuming he implements them, in broad economic terms he's going to borrow money in a big way. Closer to home it's much the same, we're running deficits and regardless of who is in power (Liberal, Labor, anyone else) the 1990's - 00's focus on minimal deficits or actual surpluses seems to be over. Now we're in borrowing mode and that trend isn't confined to Australia and the US.

So, more borrowing = more bonds being issued. Now it's just basic supply and demand economics. Supply going up, more bonds being issued, and assuming no change in other factors that ought to mean lower bond prices (higher interest rates) going forward.

I saw on the news yesterday that one of the big banks, think it was Westpac but not sure on that point, has increased interest rates on loans. Another random data point but it's in the same direction and adds to the evidence of a shift underway.

That's a simplified view obviously but there's plenty of information online and I suggest some independent research to confirm what I'm thinking before you do anything. If you conclude that interest rates aren't going lower and are more likely to go up then fixed interest isn't where you want to be investing right now. Reverse that if you think that rates have further to fall.


----------



## hoo izzie (26 November 2016)

age 62, salary about 90,000, have about 1,050,000 in super and wife (doesn't work) has about 700,000 in bank account earning about 4000 a quarter, so we're well off...am on yearly contract at work and am thinking of packing things in around July next year maybe...will get about 30000 retirement gift from employer...
it's just that over the past month or so my super has dropped about 22000...it was 1,076,000 about two months ago...not sure what to do....leave it there or pull out and put it in another super profile with Colonial First State with more exposure to the stock market and a lot less to fixed interest?....just hate seeing the balance drop every day....


----------



## systematic (26 November 2016)

I do enjoy responding to these types of threads usually, but I need to ask first; since you've done a great job building up your nest egg - haven't you seen 2% drops before?  Or did you build your wealth in cash and not the market in the first place?


----------



## Junior (27 November 2016)

hoo izzie said:


> age 62, salary about 90,000, have about 1,050,000 in super and wife (doesn't work) has about 700,000 in bank account earning about 4000 a quarter, so we're well off...am on yearly contract at work and am thinking of packing things in around July next year maybe...will get about 30000 retirement gift from employer...
> it's just that over the past month or so my super has dropped about 22000...it was 1,076,000 about two months ago...not sure what to do....leave it there or pull out and put it in another super profile with Colonial First State with more exposure to the stock market and a lot less to fixed interest?....just hate seeing the balance drop every day....




If you can't tolerate any capital losses, you will unfortunately need to get used to returns of less than 3% per annum, before tax.

If you wish to do better, you will need to invest in shares, listed property and alternative assets.  This will give you a superior yield and gains over time, but also introduce volatility and the chance of capital loss.

The need for you to invest in growth assets also comes down to your financial goals.  How much income do you want/need in retirement?  Do you wish to leave a legacy for children/grandchildren?  Will you downsize your home?  etc. etc.

I think finding a good financial adviser who can have a detailed conversation with you about risk and return, about the characteristics of different asset classes, and the trade-offs which take place if you want to achieve a return above the cash rate would be worth considering.


----------



## OmegaTrader (27 November 2016)

*I am not an adviser, I am a amateur in investing, DO YOUR OWN RESEARCH*



Please do not be offended by what I am about to say,

I think you are getting rooked. This is not a judge of your character but rather of the decision.

We all get rooked in our life, we trust  men is suits and professionals. It's in our nature.

Your decision is not  amazingly bad but I still think you could do better.


Below is a summary of the fund.







I will outline why I think it is bad.

*1) The fund is not producing alpha or risk adjusted returns after fees*

When you are investing one should be thinking about the returns you are getting relative to a benchmark. 
Alpha usually refers to the returns of a fund relative to the stock market. 

Normally it is using standard deviation/volatility as a proxy for risk and return as a proxy for reward.

An over simplified example is if the stock market returned 7% this year with a volatility of 12% and my fund returned 10% after fees ceterus paribus -all things equal and with a volatility of 12%.

Then my fund has produced an extra 3% in risk adjusted returns

In this example you should be comparing your funds performance to interest rates or the risk free rate.

Having a quick look  the return this year was about 3.5% and overall return sine inception was about 3%
Now what needs to be remembered is that there is also a fee. On the image shown the fee is .9%. On further I found fee around .77% p.a management fee anda .2% transaction cost to enter and or leave.

Now even if you say it is between .5 and .75% to be conservative then one is paying .5 to .75 % out of your 3% return that is a massive amount. Of course being in super complicates matters.

But a quick google search will see that ubank(NAB) is paying around 2.81% for self managed super.

Of course this is not directly applicable to your situation, but it shows that with simple googling you could find a major bank  to hold your super that would give you similar rates around 3% and not such steep fees....

So you are not getting any additional benefit to using the fund and are taking on more risk.

But it gets even worse.... 

*2) There is additional  risk involved including default,rates,currency,basis etc
*

You are not investing in the bank!!!

I was a bit perplexed as to why if you had money in the bank or at fixed interest that your balance would be decreasing.

Then looking in more detail I realised it was in fixed interest securities not fixed interest deposit.

The graph below clearly illustrates the realisation of this risk.





The standard alpha measure does not fully take into account the additional risk one is taking.

The fund is investing a portion of funds in sub AAA rated investments!!!
ding ding ding  But return is not much higher

This introduces default risk.
But one is not being rewarded for this
Australian banks are esstentially supported by the goverment-at the moment - I hope
Looked what occured in the GFC
Enough said about that.

Also there is a risk that the fund will lose money because of currency or basis risk. Meaning that the currency of overseas investments moves against the securities. If this is hedged then there is  a cost to this and when investing in markets, there is a risk that one can lose money by entering and exiting the market or that the actual investment will not track exactly the asset it is trading due to commissions, volatility etc but mainly volatility.

Finally there is interest rate risk.

Rates overseas could increase or even domestically. You never know. This move could be magnified by the fact that it depend s on what type of bond the fund uses and the loss could be greater than fixing the interest rates yourself. This is a bit compliated but essentially is probably what your seeing cause the downard movement..


Because you have fixed it in the past...

Current increases will mean that the rate you are getting is worse than the rate you have fixed you bond at...

If that makes sense.

But if you are in a varible rate then you would gain and vie versa.

As mentioned rates can't move much lower but they can go higher.


*Here is some of the other options you could take*

1) Postion sizing into a riskier assets/s

One don't need to invest all your money into shares or proeprty or cash.

One can invest a portion. So for eaxmple if 10% of a portfolio is in shares then the volatilty will be greatly reduced. So even in a crisi of 50% GFC style collpase, then the portfolio has only lost 5%. Even in a massive crash. But ones returns willl also be limited, that's life.

2) Equity and option strategies

I won't go into this a but advanced.. even for me

cash and call 

or

 stock and put

One can research these 



*A general overview of what I am thinking about your situation*


I think that the fees are too high.
There is addtional risk compared to putting money into australian banks
There is no alpha being produced.
A comparable strategy of money the bank could be superior


1) inflation and tax adjusted returns
With rates so low and after inflation and tax a cash strategy has a really small return

2) The long term
In the long term conventional wisdom is that having money in equities is a good decision

3) physcology 
I understand one feels. There is fear of losing money. It is hard to save
One wants to hold on to what he has earned.



4) The adviser trap and taking responsibility

But there reaches a certain point where one has to take responsibility of ones own finances.

I am against advisers but I fell that they are not immune to greed and one needs to understand the options for investing .

Paying .77% managemnet fee for mediocre cash like returns and taking more risk than cash at bank is not always a good deal.



Good luck


----------



## Iggy_Pop (27 November 2016)

I am in a similar position nearing retirement and wondering what I should do with setting up for retirement. 

I am lucky to be in a defined benefit scheme for my main superannuation which is about 50% of our total investments.  The money not in the defined benefit scheme is in a mix of balanced fund industry superannuation fund, term deposits and blue chip shares.

On retirement, our plan is 75% in super industry fund most likely in a balanced pension fund. We may consider something more conservative in our late sixties. 

The other 25% will be in fixed deposits and shares outside of superannuation. With the tax thresholds as they are, we will get the returns tax free. Not sure what future changes may occur with superannuation so will keep some outside of superannuation. 

So in your position, my thoughts are to investigate other superannuation funds and/or investment options with a risk the lets you sleep at night. Always remember all investment have risk and will move to a period of negative returns for some time. Need to look at the long term view.


----------



## kermit345 (28 November 2016)

Even though I work in the financial advice industry, please do not take this as personal advice, merely an observation.

To hoo izzie:

If you don't like seeing your money go down and you're concerned about the recent drop that fixed interest has had then I don't think you could handle being invested in the property, aussie share or international share sectors. I'd say your only other option is cash because simply put those other sectors are 'growth' sectors and have much higher volatility then your fixed interest fund. If you're worried about the recent 2% drop you've had, you will be a mess unable to sleep if you had to go through a 5-10% drop being in shares/property. For instance last I looked some property funds had dipped 8% in the last two months - going by what you've posted I find it hard to believe that you could handle the stress of going through that.

To Iggy_Pop:

Whilst I don't necessarily have anything against industry funds please be careful when staying in a default or 'balanced' option. Typically these options are far from balanced and have around 65-80% in growth assets (shares, property, alternative, infrastructure) which isn't exactly balanced. If you want to truly be in a balanced fund then you'll need to look through the asset allocations for each of the industry funds investment options. Add up the cash/fixed interest %'s and whatever option has close to 50% in those areas that is more like a balanced option. It's important that everyone does this and not just accept the default  option of industry funds when in reality the default option could be invested much more aggressively then you'd like.


----------



## onthesword (28 November 2016)

Given you're close to retiring and what has been mentioned above re volatility then this is a very relevant read:
http://gestaltu.com/2012/03/retirements-volatility-bogeyman.html/


----------



## Iggy_Pop (28 November 2016)

Thanks Kermit, I do agree the balanced funds are aggressive and not much difference to Growth. The one thing all the funds seem to do is focus on the balanced option with the bulk of the members in this option, and the option used for comparison.  To keep their customers, need to keep it looking good and put considerable effort on the balanced option. 
I have played around with different mixes and found I could not do any better than the fund managers with volatility and return.  As mentioned, when we get in our late sixties, we will move to a more conservative approach.

Iggy


----------



## OmegaTrader (28 November 2016)

IGGY

In terms of your risk tolerance only you can answer that 




Iggy_Pop said:


> I have played around with different mixes and found I could not do any better than the fund managers with volatility and return.  As mentioned, when we get in our late sixties, we will move to a more conservative approach.
> 
> Iggy




In terms of your choice


I am asking



What fund is it?

What fees are being paid?


Then compare this to 

A self managed investment option
A passive low fee investment option

Also when you are conservative there is little point in paying fees for someone to hold cash* apart from the compliance fees and headaches required in managing super*

So the tax benefits of super  can be offset by management fees.

As I the previous example fees are taking a massive chunk of hoo izzies returns.

.77% to .9% off a  approx 3% return

That is a lot

With no gains or alpha produced.

It is very hard to produce risk adjusted returns in cash. I have never heard of anyone that can do that yet


----------



## Iggy_Pop (29 November 2016)

Agree cash is a struggle, though I do have about 15% of investments in fixed term deposits making 3%, no fees and in my wife's name paying no tax other than Medicare levy outside of super. From my perspective, it makes no sense to have money in cash in super due to fees and 15% tax on returns. (my wife has not worked the last few years so Fixed deposits and Shares are all in her name). This sum outside of super does allow us to draw on it as required for holidays etc. This year been to France, Switzerland Japan, Scuba diving on Great Barrier Reef,Melbourne, Sydney and Brisbane several times. 

I am in Australian Super balanced which over the last three years to June 16 has averaged 9.69% after fees. This financial year to date I have earned 4.1% after tax and fees. I have to wear some volatility with this but I am looking at a long time frame - several years before retirement and not touching super so over time I will come out ok, and doubt we will see another GFC in the short term. 

Fixed interest in Australian Super paid 5.3% over the last three years and 1.2% this fin year. 

Lower volatility and lower return. Whatever works for you and lets you sleep at nig

For me I can sleep at night after many years of monitoring super, tinkering with shares and planning retirement. 

Iggy


----------



## Value Collector (29 November 2016)

Fixed interest is probably the worst investment you can make, what's the reason you want to hold cash equivalents anyway?


----------



## kermit345 (29 November 2016)

It's pretty easy to build passive low cost portfolios using the vanguard ETF's these days which is my preference. I don't believe fund managers in the fixed interest or aussie shares space can really provide excess returns over the long term once you net their fees off. Particularly with aussie share funds ill provide a bit of an example. You have a boutique fund that selectively invests in small-mid sized companies. This fund does great for a couple of years as it can be very selective with its investments as it has relatively small level of funds under management. Performance gets noticed by the wider marketplace and their FUM starts increasing along with the investment returns increasing the FUM. Due to the size of the aussie market there comes a point where they simply cant continue to be selective and have to start placing money in the larger caps or in cash until the opportunities arise. Once this starts happening their returns revert to the mean or less once fees are netted off and you end up better off with the market index - note this scenario occurs quite often and this is even assuming it starts with a good manager that actually does add value.

AustralianSuper has been a pretty good performer over a relatively long timeframe and as long as you're aware that the balanced option isn't necessarily very balanced then thats the main thing. Also a little off topic but be careful not to go too conservative once you hit retirement, yeh you want to lower the volatility of your funds but you also might have another 20-30 years to live. Thats a long timeframe to accept lower returns by being in less volatile investments.


----------



## prawn_86 (29 November 2016)

Great thread here guys, some real knowledge being shared


----------



## Toyota Lexcen (29 November 2016)

Fixed interest, TD's or online cash accounts outside of super funds and retail funds have performed fine, we have an XAO that has gone nowhere for 8-10yrs and who knows where it ends this year, dividends have been cut or stayed the same

depending on circumstances tax can amount to very little (for both cash & other)

so the extra % from share investment can come at a huge mental and financial cost

why have fund managers increased their cash holdings over the past 12months?

its a tough gig getting a decent return


----------



## Bill M (29 November 2016)

kermit345 said:


> It's pretty easy to build passive low cost portfolios using the vanguard ETF's these days which is my preference. I don't believe fund managers in the fixed interest or aussie shares space can really provide excess returns over the long term once you net their fees off. Particularly with aussie share funds ill provide a bit of an example. You have a boutique fund that selectively invests in small-mid sized companies. This fund does great for a couple of years as it can be very selective with its investments as it has relatively small level of funds under management. Performance gets noticed by the wider marketplace and their FUM starts increasing along with the investment returns increasing the FUM. Due to the size of the aussie market there comes a point where they simply cant continue to be selective and have to start placing money in the larger caps or in cash until the opportunities arise. Once this starts happening their returns revert to the mean or less once fees are netted off and you end up better off with the market index - note this scenario occurs quite often and this is even assuming it starts with a good manager that actually does add value.
> 
> AustralianSuper has been a pretty good performer over a relatively long timeframe and as long as you're aware that the balanced option isn't necessarily very balanced then thats the main thing. Also a little off topic but be careful not to go too conservative once you hit retirement, yeh you want to lower the volatility of your funds but you also might have another 20-30 years to live. Thats a long timeframe to accept lower returns by being in less volatile investments.




There is a lot of common sense in these words which I agree with.

I mostly just buy ETF's now for my super. There is definitely no need to pay fund managers to get a return for cash. I joined ING living super and with that fund I can pick my own stocks and ETF's plus they offer term depositis @ 3.1% for 1 year. When your TD matures you get your capital and interest and you can clearly see how much get paid. There are no unit prices or fees for term deposits. There are cash funds out there offering much less with managers skimming a fee for doing nothing and guess what? Their returns are lower. 

My opinion is move your super to a reputable manager like ING Living Super (there are others) and make the decisions your self on your terms with low fees. 

About a year ago I bought VAF, https://www.aussiestockforums.com/forums/showthread.php?t=30450. It is the Vanguard Australian Fixed interest ETF. I bought it at a then price of around $49, it pays around 3.7% on my original cash input. During the holding period the price was in the green up about 4% and also in the red about 4%. One could get very worried about such price fluctuations. But during that time those 3.7% income streams kept on coming in. Right now VAF is showing a loss in my portfolio, who cares, the regular distributions keep on coming in. Nothing has changed and it returns more than cash, only the price has wobbled up and down a bit, it is not something I am concerned about.

What I would suggest to the OP is to be in control. Why pay a fund manager to give you 2% for cash when you can get 3.1% easy by yourself and for yourself? That is the questions you got ask yourself, look around and change if you have to, good luck.


----------



## OmegaTrader (30 November 2016)

Iggy_Pop said:


> Agree cash is a struggle, though I do have about 15% of investments in fixed term deposits making 3%, no fees and in my wife's name paying no tax other than Medicare levy outside of super. From my perspective, it makes no sense to have money in cash in super due to fees and 15% tax on returns. (my wife has not worked the last few years so Fixed deposits and Shares are all in her name).This sum outside of super does allow us to draw on it as required for holidays etc. This year been to France, Switzerland Japan, Scuba diving on Great Barrier Reef,Melbourne, Sydney and Brisbane several times.
> 
> 
> Iggy





Nice one mate. Enjoy your life  while you can 



Also remember depending on your asset structure and age pensions are also available.

This is after you have spent all your money on holidays hahaha

Unfortunately  there is an incentive to either have most of the money tied up in a house or to gift assets to children 5 years before pension.

 Then to pass on the gains relatively tax free by will after death .

Sometimes it feels like self funded retirees are being punished for being fiscally responsible and honest.

Not to mention all the externalities/benefits  of a pension and government programs for pensioners.




Iggy_Pop said:


> I am in Australian Super balanced which over the last three years to June 16 has averaged 9.69% after fees. This financial year to date I have earned 4.1% after tax and fees. I have to wear some volatility with this but I am looking at a long time frame - several years before retirement and not touching super so over time I will come out ok, and doubt we will see another GFC in the short term.
> 
> Fixed interest in Australian Super paid 5.3% over the last three years and 1.2% this fin year.
> 
> Iggy





The image represents $100,00 invested from 1986 to 2015 in various options



Aussie has produced alpha of about 2.2% and its returns are supposedly published after tax and fees.

My opinion is that this comes from the diversification across asset classes 

*My analysis is only cursory, I am an amateur, it is not advice or gospel truth.*















Alpha .022
Corell .51
Beta .2

Yearly GEO Average returns   

Aussie Super: 9.49% 


Cash Retail Rate RBA Data 6.33%

All Ords: Gains, Dividends,Imputation 11.21%



Yearly STD

Aussie: 7.23%


Cash Retail RBA 3.28%

All Ords :Gains, Dividends,Imputation 18.85%



Data taken from:



Aussie Super returns every financial year from 1987 inception

* according to aussie super net of fees and taxes*

15% tax I don't know???

This is so complicated. Is it 15 % or 10% because of the 1/3 rd discount, when was this and that..
Legislation changes this and that...

Anyway...

https://www.australiansuper.com/inv...performance/investmentsperformanceannual.aspx

RBA data on one year retail fixed deposit

Deposit is invested in January and again next January etc

http://www.rba.gov.au/statistics/tables/

Yahoo price data and market index dividend data

https://au.finance.yahoo.com/q/hp?s=^AORD&a=07&b=3&c=1984&d=10&e=29&f=2016&g=m&z=66&y=330
http://www.marketindex.com.au/statistics

*ASSUMED for simplicity*
Index is bought in January and dividends are paid in December
Index is theoretically bought in January with divis again etc




Yahoo for price, Market index for dividends, .29% dividend imputation, 10% capital gains tax -paid in the big drop at end

I took 1% off for brokerage and to be a bit conservative

I didn't include brokerage, as this would be .1% once at the beginning and .1% at the end

*Other considerations*

Tax differences need to be adjusted in reality

Depends on personal circumstances

Is a bit complicated...

Capital gains can be 33% discounted in super for long term, Dividend imputations 30% refundable but may not be franked 100%, cash is taxed at full rate 


Also don't forget inflation


Imputation was introduced in 1987 hahaha coincidence


Passive investing would incur costs, about .2% for ETF and .1% brokerage one way... this depends..


It depends when you buy during the year and what years you include as well...








Iggy_Pop said:


> Lower volatility and lower return. Whatever works for you and lets you sleep at nig
> 
> For me I can sleep at night after many years of monitoring super, tinkering with shares and planning retirement.
> 
> Iggy







Value Collector said:


> Fixed interest is probably the worst investment you can make, what's the reason you want to hold cash equivalents anyway?




*Value collector ...*


I understand what you are saying. Cash in the long term is terrible. 

BUT SAFE

That is the whole point of cash in retirement. To enjoy your life, smell the roses and not worry. Very few people can deal with a 30-50% GFC style drop. 

Imagine losing $250,00 to $500,000 of your hard earned money you have taken your whole life to save.

Balanced, diversified, whatever it is losses are still soul destroying.

I have seen a mature man go into depression because he lost 30+% of his savings and he was an
economics lecturer. 

Economics FFS.

That is why people go into cash. Even though the returns are so bad after tax and inflation.









Toyota Lexcen said:


> Fixed interest, TD's or online cash accounts outside of super funds and retail funds have performed fine, we have an XAO that has gone nowhere for 8-10yrs and who knows where it ends this year, dividends have been cut or stayed the same
> 
> depending on circumstances tax can amount to very little (for both cash & other)
> 
> ...




*

Interest has never performed fine in the long term history of financial markets*

*What are you on about*

Yes the capital gains have been similar

You are underestimating dividends.....

and the fact that they have imputations 30% which are refundable

and the fact that capital gains have a 50% tax discount for long term investments

and the fact that interest is taxed at the full rate

Given  similar assumptions


















Interest is only for safety.

Long term it is a killer. *Do your own research before commenting.*

cheers















Toyota look at the graph and compare cash to the market.
Even if you put 10% in stock you will still do better.
And the variance is really minimal


----------



## Iggy_Pop (30 November 2016)

Great analysis Omega

The other consideration in how to manage retirement is while I am comfortable sorting out the investment strategy, if something happens to me and I am no longer capable of doing this, my wife needs some method of managing with some comfort.  She is learning and I always involve her with things but the added advantage of a super fund is they can assist her with things. We do have a legal side sorted, but still looking for a good financial adviser/accountant who would be able to help. We have tried a few but generally, while I am no expert, I seem to be across things better than they are and each time the result has been, we can not add anything to what you have already set up. I will keep looking

Iggy


----------



## OmegaTrader (1 December 2016)

Yeah sometimes simple is best.

Apparently warren buffet has left his wife money in a passive etf.

Easy no hassle, just leave it .

Cash in the bank is easy to managed.
Super is already managed

Unless you can produce  more alpha yourself then what is the point. 
Just take it easy and invest a small amount as a hobby.


These two strategies do not require an adviser. The super found already does that to some extent.

The caveat is of course if the situation gets more complicated.

Aged care, pension, legislation changes, etc

But I generally find there are a lot of resources and agencies that can help out there, it just requires time, effort and a bit of mental work/stress.



In my experience advisers are only really worth it for people who are clueless or for complicated/wealthy individual situations.


----------



## hoo izzie (2 December 2016)

yes, perhaps simplicity is the best, soooo
here's an simple retirement idea that I've been considering..what do you think?
I put my superannuation million into an ordinary bank account earning say 2% yearly and my wife does the same with her 700000...I take out 60000 or so a year (on a monthly basis) and she takes out about 30000 in the same way. ..we won't spend that much yearly so can adjust our withdrawals from time to time or even redeposit it into our accounts and the interest on these two accounts won't attract income tax as it won't be high enough....the combined 90000 will be tax free and is more than we live on nowadays.....the money will slowly decrease of course even though it earns interest, but as we get older we won't be needing so much anyway and once the level drops sufficiently we can apply for a part pension and might well be dead before it runs out...a few things worth mentioning, though
1. interest rates might change, but they could go up
2. with such high balances it might be possible to negotiate a higher interest rate
3. can't predict the future--there might be some economic cataclysm that wipes out our dough, but that could happen to money in a superannuation fund as well
4. we could combine the two sums into one account


----------



## tech/a (2 December 2016)

Annuity

http://www.investopedia.com/articles/03/101503.asp


----------



## Triathlete (2 December 2016)

www.fiig.com.au


----------



## Iggy_Pop (2 December 2016)

hoo izzie - one thing you are overlooking with your plan is you will pay no tax in superannuation in the pension phase. What you are proposing can be done in a SMSF of some Superannuation Funds. Many allow fixed deposits and from memory ANZ had one fund that had no fees on the fixed term option. This is the attraction of superannuation even with the recent changes. 

Suggest you find a financial advisor or accountant and discuss the options you are considering as I am sure you can achieve what you want with reduced tax. 

Iggy


----------



## OmegaTrader (2 December 2016)

Iggy_Pop said:


> Great analysis Omega
> 
> . We do have a legal side sorted, but still looking for a good financial adviser/accountant who would be able to help.
> Iggy




This is a bit of a diversion But...

Still related to super and retirement

I AM NOT A LAWYER 
THIS IS NOT ADVICE.
DO YOUR OWN RESEARCH

Superannuation is a minefield in estate planning. It usually isn't in the estate...

But It may or may not be in the estate depending on the structure and circumstances.

However

As someone who has experienced the reality of estate matters

*It is better to have no money in your estate by:*

*Spending the money, *

or

*Giving it away before death *

or

*Having it in joint tenants*



A will is practically worthless apart from avoiding intestacy

Although in new south Wales the concept of notional estate can overturn the law of survivorship in certain circumstances. If within three years of death or one year depending on the circumstances again

Which begs the question of the point of a will.

These things need to be completed way before death around 5 years.


I know in countries with estate taxes e.g in uk can be 40%

A lot of people die with no money in the estate to avoid taxes.

Everyone puts their hand out upon death especially lawyers.

Even if the case is won, the cost to the estate are enormous and the intentions of the will may not even be respected. 





Just food for thought and another reason to spend the inheritance


----------



## OmegaTrader (2 December 2016)

hoo izzie said:


> yes, perhaps simplicity is the best, soooo
> here's an simple retirement idea that I've been considering..what do you think?
> I put my superannuation million into an ordinary bank account earning say 2% yearly and my wife does the same with her 700000...I take out 60000 or so a year (on a monthly basis) and she takes out about 30000 in the same way. ..we won't spend that much yearly so can adjust our withdrawals from time to time or even redeposit it into our accounts and the interest on these two accounts won't attract income tax as it won't be high enough....the combined 90000 will be tax free and is more than we live on nowadays.....the money will slowly decrease of course even though it earns interest, but as we get older we won't be needing so much anyway and once the level drops sufficiently we can apply for a part pension and might well be dead before it runs out...a few things worth mentioning, though
> 1. interest rates might change, but they could go up
> ...




*This is not advice, just a simple finance calculation for theoretical purposes*

*I am not an advisor*

*Assumptions*

1 mil at 2% with 5k withdrawals monthly
700k at 2% with 3k withdraws monthly














*Limitations*

Pension/welfare not included
Inflation not included
Tax not included

*Risks*
Inflation increases relative to interest returns
Tax increase
Rates decrease interest returns
Pension/welfare changes
Opportunity cost of not taking on riskier assets

Complete counter party failure or bail in 
ie the banks go bankrupt 


Nuclear annihilation, Zombies, Viruses, Aliens, Mind control, Communism, Socialism, Religious Apocalypse


----------



## hoo izzie (5 December 2016)

The idea of living on one's savings and interest is a sound one provided there is enough dough in the bank....huge Lotto winners never have to worry about having enough money to retire

Iggy,
I know that superannuation is tax free in the pension stage...if I entrust my super with Colonial First State after I retire I have to pay them a fee to look after my dough...if I manage it myself I have to be sure I know what I'm doing...

Omega Trader
Your chart showing how long our money will last is correct (I used he same calculator), but it presupposes that we will completely spend about 80000 yearly and I'm pretty sure we won't be doing that...in fact I think it will be quite likely that we will redeposit some unused dough back into our account bumping up the balance

Here are some things you pointed out
Pension/welfare not included:  once the level drops sufficiently we can apply for a part pension
Inflation not included:  it seems to me that we can expect inflation to stay low for a long while to come
Tax not included: but there will be no tax payable (or very little) as the interest earned is low...this might change if interest rates increase, though

Risks
Inflation increases relative to interest returns: see above re inflation
Tax increase: hopefully we will be able to wear any increase and for us this means the tax-free threshold
Rates decrease interest returns: yes, if the Reserve Banks reduces interest rates we will get less, but they're pretty low now..may not get much lower..even if we get less it will be enough to live on
Pension/welfare changes: this will have to be faced
Opportunity cost of not taking on riskier assets: if 2% can give us a good income with reasonably minimal drawdowns I'm happy not taking on greater risk
the banks go bankrupt: can't really see that happening in Australia
Nuclear annihilation, Zombies, Viruses, Aliens, Mind control, Communism, Socialism, Religious Apocalypse: non-issue

to recap: the plan is to combine my super and my/my wife's savings and bung it into the bank...it might be around 1,700,000 earning maybe 2% or so... the balance after 20 years or so will be about 766000, but it will be more than that as I can't see us spending a lot every year...


----------



## OmegaTrader (5 December 2016)

hoo izzie said:


> the banks go bankrupt: can't really see that happening in Australia
> Nuclear annihilation, Zombies, Viruses, Aliens, Mind control, Communism, Socialism, Religious Apocalypse: non-issue
> 
> .




hahaha

nice

The banks might not go bankrupt but you still can get hit
bail in, increase in taxes etc

Just look at Greece and the US and Japan and most of Europe.

We are just lucky that is all in my opinion....

My



hoo izzie said:


> Inflation not included: it seems to me that we can expect inflation to stay low for a long while to come
> .




Who knows but generally rates will move in line with inflation.

What you have to remember though is this:

Say rates and inflation stay at current levels...

Say you can get 3%
Say inflation is 1.3%
So you are getting approx ~ 1.7%

So when you use up the 3% that is not the whole story.
In theory you would only be allowed to use 1.7%. 

one doesn't really see this it is more expressed in increased prices, it subtle and indirect

Looking from 1983-2016

Data from RBA

Yearly inflation from Dec and retail 1yr retail deposit rate


Geometric average returns are

Interest: 6.67%
Inflation:3.54%

Approx Real returns:  3.14%

Given Taxes and inflation

10% tax : 2.54%

20% tax 1.84%

30% tax:1.16%

50% tax: -.022%


So your return of 2% wont actually be 2% ...



Interesting 1987 had deflation.... You could make money by holding it haha



























hoo izzie said:


> Pension/welfare not included: once the level drops sufficiently we can apply for a part pension
> .




These are actually quite meagre. But then again if you own your own $million +house then this is a bit cream on the top. Be careful relying on pensions, who knows if they will be as generous in the future...

It all depends on how much money you spend and the type of lifestyle you want.

It is the externalities, especially medical... are normally worth more than the money.


I don't blame you for being irrationally scared of losing money. It is is understandable. In the worse case scenario one can downsize their home. It is not a measure of you as a person, don't be offended.

Maybe when I get to mid 70's I will have a different mindset and want to take it easy  ....

I think you have already made up your mind whatever any  one says and any proof that they show you.

Sometimes being comfortable is more important even if it means losing money.

THE END

I have already posted enough on this forum.

I give up

haha


I am not going to save you...

You have to save your self.



Good luck with everything and DO YOUR OWN RESEARCH


----------

