Superannuation - a good thing?

[Reasons]

I have had access to and contributed to Super for about 30 years; in the early days because I worked for the government. My father taught me about the rudimentary benefits as he had been paying into it successfully for considerably longer prior to that.

Super rules have provided an opportunity over the years to undertake some extremely effective tax minimization strategies if you put your mind to it. I had a great mentor in Kerry Packer (even though he didn’t know it) once I stopped getting angry about how he paid very little tax legally, yet as a PAYE employee, I theoretically had no similar options.

In the last decade or so, I have treated it as a wonderful low tax environment for building assets for retirement. If you are an employee, you have limited (legal) tax minimization strategies compared to someone who owns a business (pay all business bills and then pay your tax on the remainder).

I have friends who derided me over the years for being involved in Super for all the reasons and more stated in this thread; they will change the rules, you could be dead by 55, you will be too old to use the money, they will take your money, the managers will rip you off, property is better, I want to use the money how I see fit (consume crap), etc, etc. Like others have indicated here, the vast majority are still working and will be for years.

I fortunately learned very early that, sure, they change the rules, but not retrospectively. They provided occasional one-off opportunities to put in huge amounts of cash, allow you to put in $450K over 3 years of ‘undeducted’ amounts of capital into it, enabled you to salary sacrifice up to $100K p.a., etc. There have been many incentives provided and then withdrawn, but when the opportunity was there, anyone who paid the required attention to the rules of the Super system and utilized it to the ‘nth’ degree got the legal tax minimisation benefits from it. And no doubt will into the future.

People don’t plan to fail, they just fail to plan and undertake the required hard yards when necessary. I worked out many years ago how much capital I needed to fund our lifestyle and at what age, took responsibility for the outcome and used an SMSF to effect the required outcome. If you have made plans to be self-sufficient by the time you are ~55 and can get access to your Super, you are fairly bullet-proof job-wise if you don’t feel like continuing as an employee, or would rather just share trade because managing your assets have actually now become your main business. If you have to wait longer than 55, you just need to plan for the gap to be filled with cashflow outside Super.

A low tax environment is great for trading in and compounding your capital more rapidly over the years. I am now teaching my own kids about the benefits and getting them to think long-term about when they want to be generating enough passive income to be self-sufficient and how much they need in today’s money. I don’t want to ever have to rely on the government and I am teaching my kids the same. And like others in this thread, I am here to tell you at 55 you don’t feel too dead and are confident you still have a few months left to travel and spend some money.

My experience is that those that deride Super, who don’t plan and ignore the tax benefits offered, do so at their financial peril.

 

[Bill M]

A low tax environment is great for trading in and compounding your capital more rapidly over the years. I am now teaching my own kids about the benefits and getting them to think long-term about when they want to be generating enough passive income to be self-sufficient and how much they need in today’s money. I don’t want to ever have to rely on the government and I am teaching my kids the same. And like others in this thread, I am here to tell you at 55 you don’t feel too dead and are confident you still have a few months left to travel and spend some money.

My experience is that those that deride Super, who don’t plan and ignore the tax benefits offered, do so at their financial peril.

That was an excellent post Reasons. I too had my doubts about Super when I first started contributing over 20 years ago but I forced myself to put extra in from my salary. This is now paying off big time and I will soon be able to collect and in the mean time I am pumping all surplus cash into it. I like the comment about "at 55 you don’t feel too dead" , I feel pretty fit too right now and can still do back packing adventures and go anywhere I like. 55 and 60 years old isn't as far away as some think, it does creep up on you and who the hell wants to be without that pool of of money that you have putting away for all those years when you need it most? Good luck to you.

 

[awg]

How much brother???

If they start tinkering with it too much people will just stop putting in. That is what we have to be careful of as we could end up at square 1. Some will not want to contribute and they could blow their money same as before and end up on the gov pension.

That is the question cuz! agreed on the tinkering though

My reasoning would be assets and income above the threshold for what any govt pension was available.

To pluck a figure from the air, somewhat over $1m per person, indexed.

If you dont: a) your national tax base will erode, b) it becomes an inheritance situation, c) are the assets working effectivly for the national economic good

You can expect the baby boomers to keep screwing us, they have too many votes and governments listen to that.

mate, do u like it slow or fast?

my mantra was always to accept every $ of legal entitlement, not more or less. Anything else does yr head in.

One reason I dont object if people drink, smoke and gamble..they are voluntarily paying big tax on my behalf.


Good post by Reasons..I am really surprised how ignorant/lazy most people are about super, it is a very efficient investment vehicle. Within my SMSF, I can trade with no capital gains, income tax, use leverage for options and CFDs..Imagine giving your returns a 30%+ very low risk boost, and not have to worry about holding for 12 months etc etc

 

[tothemax6]

My experience is that those that deride Super, who don’t plan and ignore the tax benefits offered, do so at their financial peril.

As a derider of Super, its more that pay-day is a looong way away, and I would rather 'have' the money, than 'be given it in the distant future'. It is my money, and should not taken out of my hand and into government enforced escrow until my hairs are grey.

Regarding tax, that presupposes that normal tax levels are acceptable. They are not. Tax should simply be low, not low in special circumstances. The ideal (but unrealistic) tax level is 0%.

 

[jbocker]

As a derider of Super, its more that pay-day is a looong way away, and I would rather 'have' the money, than 'be given it in the distant future'. It is my money, and should not taken out of my hand and into government enforced escrow until my hairs are grey.
...

Just so long as you appreciate the magic of compounding returns, dont lose sight of that, those few bucks put away in your early years will return buckets of money when you have only grey hairs. Just run a simple Excel, with different rates of 'interest' returns to remind you.
It dont need to be in Super but it does need to be put away, a consistent small % of what ever you earn. It is a stupidly simple principle of paying yourself first.
That loooong away pay day, will be surprisingly sooner than you think.

 

[basilio]

I like the idea of Superannuation. I can see the point of having systematic savings into investments that will eventually provide a pension when we have retired.

But I still have some nagging doubts and outright concern on the whole picture.

1) I think that far too many superannuation plans have costs and fees which take too much of the gains being made. In particular the for profit schemes and the insurance and bank super plans. The rise of the Industry super schemes which try to ensure that profits are made for members not the providers is a big step in the right direction here.

2) Even inside the industry super schemes I feel the ticket clippers managing the myriad share funds are taking too much of the value. Of even more concern is the fact that the opportunity of charging high fees encourages financial advisers to push dishonest projects. Look at Westpoint, Pine plantations, agricultural schemes.

3) I'm not convinced that the super schemes will be able to handle the payout of pensions adequately. As I see it we are still in the relatively early stages of national super schemes and we have not seen how they will work when they are required to make continual payments to members. This will require the paying of actual cash and probably from dividends and share sales as distinct from simply pointing to higher paper share value to show growth.

4) I have misgivings about the proposition that the markets and therefore the investors have been as profitable as claimed. For instance just because the ASX 200 is rising doesn't mean all shares are doing well. In fact The ASX 200 is always changing as failing companies are removed and newer ones take their place. This it is an index of winners whereas funds will have the winners and the losers in their portfolios.

5) I don't trust the financial services industry as a whole. When I look at the whole picture of large investment banks, deal making, betting on the minute by minute rise and fall of shares, indexes, futures, derivatives etc I can't see how this is helping the longer term investment in industrial development. When I look at the stupendous profits taken out as cash by participants in these institutions I can't see how there will be sufficient left behind to actually deliver the longer term pensions we are looking for. It seems to me that much of the industry is a big casino with the house taking the lions share of the profits.

And our superannuation savings are intrinsically tied up with this game. Any thoughts ?

 

[Reasons]

1) I think that far too many superannuation plans have costs and fees which take too much of the gains being made.

2) Even inside the industry super schemes I feel the ticket clippers managing the myriad share funds are taking too much of the value.

Then take control, do your research and find a good one that minimises fees, and then pay them until you have enough assets to sack them and start your own SMSF. I have watched people all my life procrastinate and find reasons not to start. There are heaps in this thread. Most use all the reasons you have indicated and more to do very little until it is too late. Go and talk to a pensioner about how how much they get paid from the Govt. and about their lifestyle. If constantly struggling to pay bills and a short bus trip per year sounds good to you, do nothing; my money is on you rapidly adjusting your ideas about planning for your financial future if you had that conversation.

3) I'm not convinced that the super schemes will be able to handle the payout of pensions adequately.

That is not your problem if you take control of your finances instead of acting like a victim of some phantom force. That is why there are so many SMSF's out there, lots of people reaslise they have total control if they want it in an excellent low tax environment. Once you have accumulated ~$100-200K, setup your own SMSF and then invest as you see fit to ensure you get the amount of capital you want for when you retire.

4) I have misgivings about the proposition that the markets and therefore the investors have been as profitable as claimed.

Therefore learn about trading or investing, develop a plan and strategy that works and compound your assets over time so you meet your wealth goal at some age down the track, and have some fun spending it while you are young enough to do so. Once again, you are only a victim if you do not learn and take control. The majority of the population are victims and procrastinators by choice as they don't work on their financial intelligence. The Super industry is full of these victims; the choice is yours.

5) I don't trust the financial services industry as a whole.

As above, then do somethig about it; you have the power, or pay someone to show you how. I have paid finance advisors lots of money over time directly or through fees. I always used their skills to learn from them and then sacked them once they had taught me all they knew. It is a bit like share trading courses, most people pick the wrong ones or are too tight to pay for good ones. If you do your research, be prepared to kiss a few frogs to find what you want, it pays high dividends over time. You won't learn what you need to know from the majority of people on these types of forums. I mean that nicely, but look at your odds. There are only ~174K high net worth individuals in Australia (0.8% of the population), and as successful investors they are the sources of info that, I personally, would like to tap into as they have a track record in managing and making money and learning from. Your chances of one of them responding to you here is therefore low.

And our superannuation savings are intrinsically tied up with this game. Any thoughts ?

Yep - do little or nothing like the majority of the population and then become an 'If only' in your 50's and 60's and broke like them, or do something about it now by planning and executing that financial plan to achieve you goal.

Your financial and life choice - Victim or Self-Controlled Outcome?

 

[Garpal Gumnut]

Although still many decades away from it, can the nursing home get their hands on your super like they can make you sell your home? when its time to join the club.

gg

 

[Julia]

Reasons, I agree with everything you've suggested. On the whole the population is way too passive and unwilling to take responsibility for their own outcomes.

However, I didn't take from Basilio's post that he personally was feeling unable to take charge of his own investing, rather that he was reflecting on the industry as a whole.

Basilio, you might like to comment further here?

 

[tothemax6]

Just so long as you appreciate the magic of compounding returns, dont lose sight of that, those few bucks put away in your early years will return buckets of money when you have only grey hairs. Just run a simple Excel, with different rates of 'interest' returns to remind you.
It dont need to be in Super but it does need to be put away, a consistent small % of what ever you earn. It is a stupidly simple principle of paying yourself first.

Well this is more or less why I started this thread. I'm just saying that I am more than capable of saving, without the fist of the government demanding I save for my own good. I probably save more than most anyway, but not for when I am 40 years older, but for when I am 5 years older, and 5 years older after that etc etc.

Also, regarding the compounding returns: yes people are always keen to point out the size of the end-sum. However, people always miss out the end-age. The situation of '10k when you are 20' is arguably more valuable than '1mill when you are 70'. There's always a balance. Or as my old man would say 'you can't take it to your grave'.

 

[Reasons]

Although still many decades away from it, can the nursing home get their hands on your super like they can make you sell your home? when its time to join the club.

gg

I don't know the answer, (hoping to avoid for quite a few years), but I will not leave it at that until it is too late. There will be ways to minimise any exposure prior to that time and a bit like planning for Super years ahead, there will be trusts or other financial mechanisms that I can invoke well prior to the time that will minimise exposure if that becomes the logical option.

 

[Garpal Gumnut]

I don't know the answer, (hoping to avoid for quite a few years), but I will not leave it at that until it is too late. There will be ways to minimise any exposure prior to that time and a bit like planning for Super years ahead, there will be trusts or other financial mechanisms that I can invoke well prior to the time that will minimise exposure if that becomes the logical option.

I don't think it's that easy to avoid losing dough when the time comes to go to a home.

gg

 

[Reasons]

Well this is more or less why I started this thread. I'm just saying that I am more than capable of saving, without the fist of the government demanding I save for my own good. I probably save more than most anyway, but not for when I am 40 years older, but for when I am 5 years older, and 5 years older after that etc etc. .

Unfortunately you are one of the few who can and the Govt. knows it. Gerry Harvey has most people's money by the time they are 50 as they have still not done any financial planning and consider the pension a gold mine.

Also, regarding the compounding returns: yes people are always keen to point out the size of the end-sum. However, people always miss out the end-age. The situation of '10k when you are 20' is arguably more valuable than '1mill when you are 70'. There's always a balance.

Think of it this way, for every $100K you have, if you can get 10% interest, it will generate $10K of passive income. So someone is giving you that $10K without getting out of bed fairly early in your life and the more $100K's the better. Your can use it when you are younger, but you might live to 80+ and I know some fairly active 70+ year olds who appreciate having significant capital to enable them to maintain their active aged lifestyle and those nasty medical requirements.

'you can't take it to your grave'.

I often hear this saying, but interestingly it only comes from those who have few assets.

 

[Reasons]

I don't think it's that easy to avoid losing dough when the time comes to go to a home.

gg

My guess, is that if you just guess, you will most certainly lose dough. My experience is that if you ask questions, go talk to accountants and then lawyers if necessary, and do your due dilligence, there most certainly will be a way.

 

[basilio]

Reasons, I agree with everything you've suggested. On the whole the population is way too passive and unwilling to take responsibility for their own outcomes.

However, I didn't take from Basilio's post that he personally was feeling unable to take charge of his own investing, rather that he was reflecting on the industry as a whole.

Basilio, you might like to comment further here?

Spot on Julia. It is well and good to take charge of ones finances, find the right investments and advisers and so on. But that is simply not practical for most people. They either don't have the skills, the time or the inclination to go through the whole box and dice. (And frankly if we are not careful those of us who do focus our attention on securing our financial future can become too obsessive - to the detriment of living more rounded lives...)

The concept of a well run superannuation scheme is that it should be effective at providing a worthwhile savings vehicle for people without them personally having to sweat over the details.

My observations still stand. In effect our superannuation funds look like a bucket we are always filling with water but with a number of holes that just continually reduce the amount of water we save and the overall risk that a clumsy person, a corporate crook or a black swan event will knock the whole thing over.

The answers? I threw up a proposition earlier in this discussion where I suggested that the government should offer a simple super account with a guaranteed return of 3% real (above inflation) . It wouldn't be compulsory - simply an option. I see this as providing a choice in the market place that would act as a powerful incentive for private superannuation providers to keep their fees low and offer at least as good a result.

Of course the entire industry would go apoplectic at such an idea screaming that the government must stay out of the marketplace, government waste BS,BS. But in fact guaranteeing such a modest return shouldn't be hard to equal or better if the industry was honest and didn't see super as simply a milk cow for their own financial future.

And back to thinking about government ownership of financial institutions.. When we had government owned State and Commonwealth banks, the industry made good profits but were unable to charge the fees or pay themselves the wages they currently get away with.

Having seen how private enterprise works I just can't see how more rules, inquiries or regulations will work better than establishing a simple competitor that sets a realistic benchmark for the players.

 

[basilio]

My guess, is that if you just guess, you will most certainly lose dough. My experience is that if you ask questions, go talk to accountants and then lawyers if necessary, and do your due dilligence, there most certainly will be a way.

I have now seen a number of relatives go into homes. It is very, very hard to avoid being stripped of as much of your assets as they can possibly get away with.

Could you get the right lawyers and accountants to come up with a scheme that will reduce this? Perhaps but I suspect you might be just diverting the money from one shark to another.

 

[Reasons]

I don't think it's that easy to avoid losing dough when the time comes to go to a home.

gg

I will give you an example of how the Kerry Packers of this world plan ahead, but the rest of us are too stupid to do it because we don't think like they do, or simply assume it can't be done without researching.

They are always thinking about tax implications, the legal minimisation of the same, and maximising the benefits of any capital they have now or when they are dead.

The mainstream person has a will that when they die the assets go to the designated recipients. If they have life insurance it gets paid to the estate and distributed as the will directs. If there are dependents in that will and they are under 18, any interest or other return on the money invested gets taxed at high rates once they earn over ~$460 p.a. If the recipient is an adult in a relationship that is rocky, the money is now within legal reach of your child's partner. If money is assigned to grandchildren it is not necessarily safe from abuse.

The rich often use something called a Testamentary Trust which is a will with all the bells and whistles. The trust does not exist until a person is dead. When the assets are divided they go into the now existing Testamentary Trust and are isolated from outside partners or relations until that money is moved out of the trust by the recipient.

Any dependent under 18 child’s assets in the trust is now treated like an adult for taxation purposes, complete with the tax free threshold of ~$6K. So the environment now affords a much better income to the remaining carer that most of the population (who can less afford it) don't take advantage of. The money is isolated from any feral outlaws until moved and grandchildren can be more safely accommodated through timed access in the future. Who said you can't control your money from the grave.

These trusts cost the huge sum of about $500 to setup. But who ever told you about them? It is one of the tricks I learnt from paying for advice many years ago. (and NO I am not a finance advisor or anything close to it before some brainiac suggests it )

Over time I have learnt that there are many financial things most of us don’t know about, but if you ask questions early enough of the right people, there is always a way, because someone with money has no doubt done it.

 

[awg]

Reasons, agreed with every word.

Also utilise binding death nominations in conjunction with Corporate trustee.


with respect to retirement home prospects, save properly, or live like a mangy dog

dont expect someone else will wanna pay

In Australia, a sense of entitlement exists that is entirely out of kilter to not only
most of the world, but flies in the face of history and reality imo.

No criticism intended to anyone in particular, I am as greedy a hypocrite as the next

 

[Reasons]

Spot on Julia. ...They either don't have the skills, the time or the inclination to go through the whole box and dice.

A good description of most financial advisors and managed funds and probably Super, but I now see where you are coming from and going to in that you have no interest in taking control. I can identify with your position as I have been there, I just made a decision many years ago that assuming the position by grabbing my ankles with advisors and managed funds was not pleasant and decided to take corrective action. It has taken some time and effort to do it and I can (almost) understand why most don’t do the same. You definitely have to have an interest in doing it.

The concept of a well run superannuation scheme is that it should be effective at providing a worthwhile savings vehicle for people without them personally having to sweat over the details.
My observations still stand. In effect our superannuation funds look like a bucket we are always filling with water but with a number of holes that just continually reduce the amount of water we save and the overall risk that a clumsy person, a corporate crook or a black swan event will knock the whole thing over.

The tough call on this one is the proverbial; can you have your cake and eat it? We want someone else to do our financial management for us so that we can just go and have fun, but want to can their fees and low performance and likely risk to our capital, and want to change/add to the system yet again. I always think about all the people I have paid over the years to assist me learn and why they were not retired or share trading on some tropical island. The upshot is that the majority of advisors/fund/Super managers have about as much idea as you do (or less if that scares you more) about beating the index (70% didn’t last year I believe) and making money.

The answers? I threw up a proposition earlier in this discussion where I suggested that the government should offer a simple super account with a guaranteed return of 3% real (above inflation) …But in fact guaranteeing such a modest return shouldn't be hard to equal or better if the industry was honest and didn't see super as simply a milk cow for their own financial future.

Unfortunately inflation is central bank (RBA etc) subjective in that it is based on core items, not irrelevant and variably priced trivia like food and energy, so your official 3% (or whatever) is not bullet proof. The Govt. also has age-based drawdown rules of percentages of how much you MUST take out per year, so that will have some effect on the amount you need saved against your proposed longevity (see latest drawdown % below).

Under 65
4% (2% until 30 June 2011)
65-74
5% (2.5% until 30 June 2011)
75-79
6% (3% until 30 June 2011)
80-84
7% (3.5% until 30 June 2011)
85-89
9% (4.5% until 30 June 2011)
90-94
11% (5.5% until 30 June 2011)
95 and over
14% (7% until 30 June 2011)

(And frankly if we are not careful those of us who do focus our attention on securing our financial future can become too obsessive - to the detriment of living more rounded lives...)

Yep, that is so very true and needs careful monitoring; one is a long time dead I am informed. I think you do sacrifice some things for the independence, but there's that damn cake again, in a different form, eh?

 

[Judd]

The rich often use something called a Testamentary Trust which is a will with all the bells and whistles.

You don't have to be that rich. Consider how much your residence may be worth at sale for a start. The full term is a Beneficiary Testimonial Trust Will - I know cause I have one. Also give consideration to making the Executor anyone but a relative, eg, an accounting firm and legal firm. Sure they will charge hourly rates but (a) it keeps the Public Trustee out of the equation and they charge way over the odds, (b) they are impartial and (c) both need to agree. If you have super consider a non-binding death nomination for its flexibility.

Also consider a Corporate Trustee arrangement for your Will. As the CT can act as trustee of multiple wills and estates, it can accommodate various family members, eg where the wife or husband dies first and the remaining partner is not only named as executor but also trustee and beneficiary of the deceased persons estate.

And $500 is not even a rounding error if you have a residence alone valued at $600k+

Just my