# Anyone care to check my math?



## pinkboy (3 March 2014)

Hypothetically:  $1mil after tax paid cash to use for a share portfolio.

Purpose:  To provide income to live.

All the cash used to purchase shares which provide at least a 5% dividend yield, and all 100% franked.  This will be a limited amount of shares, but achievable?  ASX top 200, or is that risking it a bit, and should aim for a select few in ASX top 50? 

$1mil x .05 = $50,000 per annum.  Then due to the franking credits, $50,000 / .7 = $71,428

Assuming no other income from wages, property, cash interest.  Assuming no other margin lending either (unless of course you can put forward a scenario which will benefit).

Inherent risks:  Possible capital erosion, Business lower or cut dividends, franking credits reduced or cut.  (If margin lending, you can include margin call, and payment of interest).


This by the way is not my strategy.  It may well be part of my overall strategy, but ascertaining the workings of the dividends and the franking credits.  Because I hold property and draw a wage from my business, the above scenario wont apply, as the franking credits will be altered and Ill pay a higher margin of tax on the dividend income above the 30%.

I also understand the basics of company intrinsic value, so wont just be dumping large amounts of cash in the market over a matter of days or weeks, but waiting until a sound entry position.

Further to the above, I could then work and receive an income of $18,000 p/a (lowest tax threshold rate before tax kicks in), and not pay a single cent in tax? My wife could also do this?  Giving an income of $107k p/a for 2 shifts a week at Woollies or Bunnings?


pinkboy


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## howardbandy (3 March 2014)

Why work at all -- unless you like the job?  In the US, $50,000 per year, even if taxes must be paid on it, is enough to live on very comfortably.  That includes rent (or equivalent monthly amortization for purchase), food, clothing, transportation, and entertainment -- as long as you are healthy.  Don't get sick in the US -- that one thing will bankrupt you. 

Best,
Howard


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## craft (3 March 2014)

pinkboy said:


> Hypothetically:  $1mil after tax paid cash to use for a share portfolio.
> 
> Purpose:  To provide income to live.
> 
> ...




Unless your dividend stream is coming via superannuation and is tax free (over 60) you will be subject to basically a full clip of tax.  Splitting 107K between two will put you over the cut-out threshold for SAPTO, the only reduction in tax will be a bit of residual LITO and $500 each for mature age worker tax offset if you were born before 1957.

Tax/Medicare will be something in the order of 20K p.a combined for the scenario you outlined. 

Also worth remembering when planning – everything is subject to change and if you’re following the baby boomers you are in a crap demographic, so _plan_ on those changes being unfavourable.


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## burglar (3 March 2014)

howardbandy said:


> Why work at all -- unless you like the job?  In the US, $50,000 per year, even if taxes must be paid on it, is enough to live on very comfortably.  That includes rent (or equivalent monthly amortization for purchase), food, clothing, transportation, and entertainment -- as long as you are healthy.  Don't get sick in the US -- that one thing will bankrupt you.
> 
> Best,
> Howard




Is pinkboy in USA or in the land down under?
I see the americanism, "math" in the thread title.
Does not prove much though.


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## pinkboy (3 March 2014)

howardbandy said:


> Why work at all -- unless you like the job?




Because Im 30, and I can only ride my bike and play golf so many hours of the day/week! 



> Unless your dividend stream is coming via superannuation and is tax free (over 60) you will be *subject to basically a full clip of tax*. Splitting 107K between two will put you over the cut-out threshold for SAPTO, the only reduction in tax will be a bit of residual LITO and $500 each for mature age worker tax offset if you were born before 1957.
> 
> Tax/Medicare will be something in the order of 20K p.a combined for the scenario you outlined.
> 
> Also worth remembering when planning – everything is subject to change and if you’re following the baby boomers you are in a crap demographic, so plan on those changes being unfavourable.




Again, Im only 30, so not through Super, as I feel Super is way too far off to lock away for another 30+ years, when I can use my funds to 'live financially comfortably and free' soon/now.  So, even after tax has been paid by the company, I will get slugged income tax on the dividend earning?  I thought that was the point of paying shareholders a franked dividend, so there was 30% tax paid on the earnings from their end.  Sounds like a double dip.


pinkboy


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## pinkboy (3 March 2014)

burglar said:


> Is pinkboy in USA or in the land down under?
> I see the americanism, "math" in the thread title.
> Does not prove much though.




C'mon maaaaaate!

I may be a thinner sniffing spray painter, but I sure aint a yank!

Queenslander FWIW!

pinkboy


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## McLovin (3 March 2014)

pinkboy said:


> So, even after tax has been paid by the company, I will get slugged income tax on the dividend earning?  I thought that was the point of paying shareholders a franked dividend, so there was 30% tax paid on the earnings from their end.  Sounds like a double dip.
> 
> 
> pinkboy




You pay tax at normal marginal rates of tax. 30% has already been paid, so if you $70k in FF dividends and were on the top marginal rate you would pay $16,500 in tax on the $70k.


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## skc (3 March 2014)

craft said:


> Tax/Medicare will be something in the order of 20K p.a combined for the scenario you outlined.






pinkboy said:


> So, even after tax has been paid by the company, I will get slugged income tax on the dividend earning?  I thought that was the point of paying shareholders a franked dividend, so there was 30% tax paid on the earnings from their end.  Sounds like a double dip.




Well you are both correct. As Craft said you will need to pay ~$20k p.a. in tax. The tax office will then see that you've ~$21k in franking credits to offset this tax payable. So you are out of pocket by only very little if at all.



pinkboy said:


> Again, Im only 30, so not through Super, as I feel Super is way too far off to lock away for another 30+ years, when I can use my funds to 'live financially comfortably and free' soon/now.




I know you said it's hypothetical, but I am guessing you don't have that $2m spare cash lying around at the moment? If you've have the drive and talent to amass $2m by 30, you will not be satisfied to earn $70k a year while sitting there idling. You are only 30! Dream bigger!

P.S. Unless you just won the lotto or got some inheritance than all the best to you.


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## pinkboy (3 March 2014)

McLovin said:


> You pay tax at normal marginal rates of tax. 30% has already been paid, so if you $70k in FF dividends *and were on the top marginal rate *you would pay $16,500 in tax on the $70k.




What if no other income?  I wouldn't be in any tax bracket, purely earning fully franked dividends.

So you're saying I will still:

First $18,200 tax free, then 19c up to $37,000 ($3572), then 32.5c up to $71,000 ($11,050) = $14,622 + Medicare $1775 = $16,397!

However, tax of $15,000 (30%) has already been paid on $50,000 by the company (net yield, not grossed up), so wouldn't I therefore only have to pay the difference of ~$1,397?


pinkboy


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## craft (3 March 2014)

skc said:


> Well you are both correct. As Craft said you will need to pay ~$20k p.a. in tax. The tax office will then see that you've ~$21k in franking credits to offset this tax payable. So you are out of pocket by only very little if at all.




Nope He included the grossed up amount of the dividend in his 107K income. The 20K is Net. Actual tax bill will be minimal at end of year because the imputation credits - but only 50K of dividends will have been received in hand not the 71K he included in his 107K.

Think we are probably talking same thing - just trying to make it clear he will be paying net 20K odd if he regards his income as 107K.


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## pinkboy (3 March 2014)

skc said:


> Well you are both correct. As Craft said you will need to pay ~$20k p.a. in tax. The tax office will then see that you've ~$21k in franking credits to offset this tax payable. So you are out of pocket by only very little if at all.
> 
> 
> 
> ...




I dreamed big at age 22 when I started my business.  7+ years on, working my @$$ off, Im pretty tired and need a rest.  Not to say I wont have another crack again, plenty of time for that.  I don't have that kind of cash lying around, but I do have the equity.  After selling costs, CGT and paying out LOCs, Im trying to ascertain what is minimum to cut back working.  Isnt stopping working and living financially free dreaming big anymore? 



craft said:


> Nope He included the grossed up amount of the dividend in his 107K income. The 20K is Net.




Ignore the extra $36k I added as wages in the $107k.  So only using the $71k figure.  I only mentioned the extra income, if it were able to be included as tax free income.


pinkboy


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## skc (3 March 2014)

pinkboy said:


> Further to the above, I could then work and receive an income of $18,000 p/a (lowest tax threshold rate before tax kicks in), and not pay a single cent in tax? My wife could also do this?  Giving an income of $107k p/a for 2 shifts a week at Woollies or Bunnings?






craft said:


> Nope He included the grossed up amount of the dividend in his 107K income. The 20K is Net. Actual tax bill will be minimal at end of year because the imputation credits - but only 50K of dividends will have been received in hand not the 71K he included in his 107K.
> 
> Think we are probably talking same thing - just trying to make it clear he will be paying net 20K odd if he regards his income as 107K.




Upon re-read I think he actually meant a combined income of $107k between him and his wife, consisting of 2x$18k Woolies income + $50k dividend + $21k franking credits = $107k.


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## burglar (3 March 2014)

pinkboy said:


> C'mon maaaaaate!
> 
> I may be a thinner sniffing spray painter, but I sure aint a yank!
> 
> ...




Howard Bandy replied to your post, as thou you were in the U.S. of A.!

Just thought I would let you clarify!



P.S. A joke about a painter:
https://www.aussiestockforums.com/forums/showthread.php?t=1202&p=815036&viewfull=1#post815036


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## craft (3 March 2014)

pinkboy said:


> Ignore the extra $36k I added as wages in the $107k.  So only using the $71k figure.  I only mentioned the extra income, if it were able to be included as tax free income.
> 
> 
> pinkboy




Probably talking across each other - Just as long as you realise the _cash income_ available to live off in your scenario will be approx. 86K not 107K.


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## pinkboy (3 March 2014)

burglar said:


> Howard Bandy replied to your post, as thou you were in the U.S. of A.!
> 
> Just thought I would let you clarify!
> 
> ...




I thought Bunnings and Woolies would have been a give away as to my Aussie status. 

Nice joke.

Thinning paint right down is a thing of the past unfortunately.  My only real job to do with the paint is to measure and do the testing these days, and take photos.   Even then, we contract a 3rd party to satisfy most clients requirements. Last year I only managed to actually work on the tools twice painting.  Having painted for 10 years (and industrial tiling and polyurethane spraying), I am quite sensitised to chemical interaction.

Im allergic to hard work these days.


pinkboy


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## burglar (3 March 2014)

pinkboy said:


> ... Isnt stopping working and living financially free dreaming big anymore? ...




Some here are obsessed with wealth creation. :

Many threads pertain to the question, "How much is enough? How much is too much?"

One such thread maaate:
https://www.aussiestockforums.com/forums/showthread.php?t=25838


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## pinkboy (3 March 2014)

burglar said:


> Some here are obsessed with *wealth creation*. :
> 
> Many threads pertain to the question, "How much is enough? How much is too much?"
> 
> ...




Hypothetically, the $1mil invested would be also 'creating wealth' if the stocks were carefully selected enough to create capital gains.

Too many people focus on physical wealth.  We all need to live, so there should be some direct focus on earning/creating/maintaining a level of wealth, but also need to live life and experience the world a little as well.

However:




pinkboy


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## hiddencow (3 March 2014)

Any extra work you do will be taxed at your marginal rate.
Dividends still count as income, you just get an offset for them.

Important to consider whether it's worth it to work at bunnings to earn 25 an hour and get taxed at 38.5%.

Might be better to aim for $1.5m.


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## pinkboy (3 March 2014)

hiddencow said:


> Any extra work you do will be taxed at your marginal rate.
> Dividends still count as income, you just get an offset for them.
> 
> Important to consider whether it's worth it to work at bunnings to earn 25 an hour and get taxed at 38.5%.
> ...




I wonder if Wesfarmers or Woolworths will pay me in shares instead of cash? 


pinkboy


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## Julia (3 March 2014)

Pinkboy:  congratulations.  Not too many 30 year olds in such a position.   

I endorse your attitude.  For some the compulsion to keep on creating ever more wealth is an obsession.
All the best.


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## waimate01 (3 March 2014)

pinkboy said:


> Hypothetically:  $1mil after tax paid cash to use for a share portfolio.
> [...]
> If margin lending, you can include margin call, and payment of interest.




If you've got $1m after tax, then no margin call or interest. Are these the same scenario?

Short answer, yes $1m clear =~ $70k pre-tax recurrent. Then pay tax at whatever the marginal rate is for $70k (I have no idea). It'll be more than $50k after tax, if that's your first mil.

Even better, if done even slightly properly, your $70k will be "inflation immune" (your other risk assessments are spot on).

Well done to be in this position at that age !

But, please consider: is $70 k/pa enough? If you are 60 years old and keep yourself happy by snipping discount coupons from the NRMA magazine, then perhaps so. But at 30, you're gonna want to have a boat, travel, have fun, etc. You'll need way more than $70k unless you're happy to be the king of the caravan park and dedicate your life to relish in the avoidance of further work. I would suggest you sock that mil away in appropriate investments, and get to work on the second one. Retire when you're 40, with 3 mil and $150k/pa inflation immune. Much better. Don't forget to buy a place to live somewhere along the way.


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## pixel (4 March 2014)

pinkboy said:


> I wonder if Wesfarmers or Woolworths will pay me in shares instead of cash?
> 
> pinkboy




Hi pinkboy;
please check your Private Messages (click on Quick Links and follow the lead)
Cheers, Pixel.


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## pinkboy (4 March 2014)

waimate01 said:


> If you've got $1m after tax, then no margin call or interest. Are these the same scenario?
> 
> I was asking if there were any benefit to gearing up, but realistically not.
> 
> ...




Thanks all for the input.  Now to put into practice.


pinkboy


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## dave39 (9 May 2014)

in theory OK, in practice too risky with individual shares. 
1. to cover market downturns such as the GFC where some companies dropped their dividends or stopped paying dividends you need ~2 yrs pension draw down in cash so you don't have to sell assets at knock down prices.  Dividends are paid mainly in Dec and July although CBA is different so the cash account covers the period waiting for dividends.
2. you have to monitor all your shares on a weekly/monthly quarterly basis - even good companies e.g. FGE can go belly up.
3. most people reckon tracking ~ 16 shares is hard work, if you've been investing for years maybe upto 25 is OK.
4. my strategy now is to have a basic portfolio of LICs or ETFs such as ARG, AFI, MLT, AUI, DUI and ETFs SFY, STW and perhaps some others with different strategies such as YMAX.  These will never go belly up and if one or 2 stocks in their portfolio go belly up it has little effect on their performance.  Then I have the 4 banks and some International ETFs.  The International ETFs don't pay much dividend and now the A$ has fallen to 93cents are probably not worth buying now.  I bought them when the A$ was US$1.07 and expected to fall and therefore you make profit from the falling A$ and the rising US markets.  At 93cents you are relying solely on the US markets going up. 
5. so my portfolio is about 14 stocks - 8 Australian LICS/ETFs, 4 banks and 2 International ETFs and 15% cash for pension drawdown.
6. I used to have 25 individual stocks but got burnt out monitoring them and worrying about quite large swings in price which was worrying so I had stop losses set and often they got taken out only to find a month later they were back higher and I should have bought back in.  I needed to sleep at night so the LIC portfolio has done that.

Dave


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