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

[hoo izzie]

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]

Annuity

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

 

[Triathlete]

www.fiig.com.au

 

[Iggy_Pop]

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]

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]

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

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]

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]

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

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

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