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Noel Whittaker discusses with The Senior how over 50s can make the most of their finances in challenging times.
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00:00the information presented here today is general in nature so everyone watching or perhaps reading
00:09at the senior down the track should seek their own professional advice before making financial
00:15decisions all right well we might get into the part one our first round of questions so the
00:25first topic of discussion today is the big picture no how long will my money last and i bet this is a
00:31question that you get asked quite a lot so would you like to sort of discuss that you know the
00:37longevity risk financial planning fundamentals that sort of thing look it's a big topic and
00:43obviously the more money you have when you retire means the more you can spend and the biggest factor
00:50that determines how much you'll have when you retire is the rate of return you can achieve
00:57that's also time now if a person is now 60 with 500 000 super and they retire now they've got half a
01:09million if they work for five more years it becomes eight hundred thousand dollars that's massive go to
01:1870 it's 1.4 million it's the value of time so it's so important to stay in super as long as you feel
01:26comfortable doing it and of course if you've got a partner and the partner can get a job as well i
01:32mean you can boost your super and also it's important to understand the super contributions come from
01:38pre-tax dollars normally now many people around 50 55 say well i want to be mortgage free at 65
01:47though i focus on my mortgage payments or my superannuation payments now your superannuation
01:53of funds should be giving you a better return than you're paying on your mortgage and super contributions
02:00come from pre-tax dollars and mortgage contributions come from after-tax dollars so therefore i'd be
02:07focusing on maximizing your salary sacrifice contributions that's putting in thirty thousand
02:14dollars a year tax deductible which includes the boss's contribution that's that's the way you
02:20boost your finances now then you need to do a budget you need to understand that in a transition of life
02:27you retire and you travel and go crazy but after a while that all gets a bit tiring
02:32and the rate of spending drops as time passes also the other factor is as you run your assets down
02:42if you're on a part pension the assets the pension increases as the as the assets drop
02:49so really it's very much a case of whether you fly business or coach
02:55what kind of wine you drink if you do drink you know most people handle okay but it's just a matter
03:04of doing a budget and cutting your your close to picture cloth second topic understanding the age
03:13pension how to get the best pension available so we're talking eligibility assets income tests
03:19maximizing entitlements that sort of thing well the first trick is apply early it can take six or nine
03:28months to get your pension a pension to approve so applying early is a good way to start
03:33secondly you've got to be 67 and if if it's a couple and one partner's 67 and the other one
03:41is is under 67 then the older one can apply i on an assets test or an income test the asset in the
03:51assets test your house does not count that's an exempt asset secondly things like insurance
04:00sorry sorry sorry funeral bonds up to 15 and a half thousand a person or a prepaid funeral doesn't count
04:09either and you can give away ten thousand dollars a financial year with a maximum of thirty thousand
04:18dollars over over five years so you can reduce your assets by getting rid of them travel renovations
04:28those kind of things don't count now what where people really don't quite get it there's an assets
04:35test at an income test the asset test you normally start on the income test once assets get to round
04:43about half a million dollars you become asset tested and how much you earn doesn't matter so it's the
04:50income test is only applicable for lower asset tested people that make sense yes and a lot of people
04:59over value their their furniture it's not replacement it's what you would get with your furniture in a garage sale
05:07on a wet saturday morning therefore we always say for most people your furniture is five thousand dollars
05:15that's it but also to to increase your pension there are now products called lifetime income streams
05:24and when you invest in one of them they don't count forty percent of your asset so if you put three
05:33hundred thousand dollars in one of those you would not just get an income for life your assets would
05:40reduce by one hundred and twenty thousand dollars you probably get about twelve thousand a year more
05:45more in pension so the product gives you more pension plus the income stream but they're very
05:51specialized you need expert advice on those there's about 10 providers and they're all completely
05:58different and what are those called again no lifetime income streams there's things like
06:05how if you die within a certain time how much do you get back if anything
06:10is your partner reversionary pensioner is it indexed or not you see those kind of things
06:19they've got to be tailored for each person individual circumstances but very effective for people at
06:24the high end of the asset scale i'd say between seven hundred thousand and a million would be the
06:32perfect target for them now franking credits i must admit i find cranky franking credits uh a bit confusing
06:39but you're going to demystify them for us what they are how they work and why they matter for retirees
06:45it's easier with a blackboard but basically if an australian company pays australian company tax
06:55that gives rise to a franking credit so all our listeners and i had a million at a company with
07:02one million dollars profit and we paid three hundred thousand dollars in thirty percent company tax
07:10tax we'd have seven thousand dollars in cash over and three hundred dollars in frank and three and
07:18three hundred thousand in franking credits so we give us all a dividend statement
07:25there's seven hundred thousand dollars going into your bank account which you get in cash
07:30plus a little thing called a franking credit credit which is like a mcdonald's voucher
07:34and you can get that back in cash so i've just given you a check for seven hundred dollars
07:43with the franking credit because it's valuable you might you pay tax on the franking credit
07:50so you've only got seven hundred dollars you add the credit of three hundred dollars your taxable
07:56income is increased by one thousand dollars but if you're on the thirty percent tax bracket like
08:04everyone under 135 000 a year the tax on the thousand is three hundred dollars the credit wipes it out
08:13which means it's tax free for you of course if you're a retiree on no income you get the franking
08:19credit back in cash it's fabulous it's a superannuation retirement income booster
08:27that's why people retirees love shares paying frank dividends because they might they might be paying
08:35five percent but the effective yield is about eight percent all right still sounds a tad confusing but i
08:42guess if people it's all you remember is that you get a little docket called a franking credit on your
08:49dividend statement and just get it back i spoke to a lady recently she she had a hundred grand of
08:55commonwealth bank shares i got her back twenty thousand dollars in franking credits she didn't
09:01know she could claim now one that uh i hear a lot at the senior and i'm sure you probably hear quite a
09:07lot noel is the bank of mum and dad you want to help out your family um you know whether it's a nephew
09:15or your own kids but how do you do it without hurting yourself there's one thing you never never never
09:22do is get your name on the kid's title deed
09:28because then 20 years pass and you're still on the title deed which means you own half a house
09:36which may now be worth a million dollars and you can't get the age pension
09:42and if you try to dispose of the property to the kids you're up for big capital gains tax bill
09:49so rule one do not go near the title deed go guarantor in thee now the next thing next the next big thing
09:57is it a gift or a loan now many people say well i don't trust my daughter's partner i'm not having
10:07my hard-earned money going to him if they split up and then you would make it a loan with a document and
10:16every six years it must be renewed now other people like us say no look we're going to give it to
10:24unconditionally it's a personal choice it depends on the circumstances but the big thing is if you're
10:31getting their age pension age and that's a loan it lasts until it's forgiven
10:37and if you forgive that just when you're about to apply for the age pension it'll be counted for
10:45five years so i think the two big issues is how's the relationship what will happen if it breaks down
10:54and how will it affect my pension entitlements so there's some of the topics we've discussed
11:00um so far we're going to move into part two which are questions that have been submitted by people
11:07watching the webinar today um just a reminder that this session is being recorded we'll have a
11:12transcript transcript available as well um perhaps if you're hard of hearing or you can't watch it
11:18um uh in its entirety and it will be made available at the senior.com.au and noel will also be sharing a
11:26link through his newsletter followers if you do want to see where noel is noelwhittaker.com.au you can
11:33find out more about noelwhittaker now part two as mentioned everyone who registered for the webinar
11:41today also submitted some questions this one comes from d tomlinson in bundura in victoria
11:49and it's probably one you've you get constantly noel when is the best time to retire
11:54well that depends on the person the two factors which really make a happy retirement
12:05is a social network and a sense of purpose so if you want to retire you've got to work out
12:12where you're going to live and how you will pass your time because when we're kids we got structure
12:20we get a job we've got structure we get a marriage we got structure all of a sudden if your job ends
12:27you've got no structure how do you spend your time that's the big one now there's things like sport
12:33there's church there's things that things that happen and the big danger is moving because given the
12:41social network is so vital if you moved say from sydney to bunderberg or something where are your kids
12:50you've got no sport you lose all your social network so i always say if you want to try somewhere
12:56else go and rent for six months and see how you go i had a great guy he was a very happy bloke he was
13:02captain of indible poly golf club he moved to asian shores he said i just can't make friends we play golf
13:10then they all go home back home so i suggest you rent if you want to move rent
13:15and that's the main thing now the better you prepare for retirement the better
13:22and also you must also think that at some stage one of you will need care so it's very important to
13:30think where am i living now where will i live and what will happen if i need care at some stage in the
13:37future these are the big questions it's a big topic next one comes from kay kajewski from quinn's rocks
13:46in western australia and they'd like you know to to give an example of a centrelink calculation for
13:52a pension application where one person is retired but the spouse is still working probably a common
13:59conundrum sure okay they will look at total assets on the same test and then the one of pension and
14:08wage gets half the couple's pension that's all it is so it's it's total assets and this is often
14:16important when the partner often the wife is working because if their assets are high enough
14:22then her income won't count but the other big one is this that superannuation does not count until
14:33your pensionable age unless you draw a pension from it so if i'm 67 and you're 55 we'll put all the
14:41superannuation in your name but it won't count unless you start to draw a pension that's what you do our next
14:49question comes from t brentnell from rockingham beach also in western australia now they're wanting
14:57to know a safe minimum risk annuity stream guaranteeing income competitive with rental investment properties
15:05that doesn't lose value against inflation okay i don't like investment properties all they do is age
15:14and to make money in real estate you must add value to which you can't do to an apartment
15:21now i mentioned before about lifetime income streams or sometimes called annuities
15:30about 12 major major companies provide them they will give you an income for life
15:37you talk about inflation the trick with this is you either have an index for inflation or you don't
15:44know now if you and i both have one of these and you choose indexed you start there and i will start
15:52there so do i meet a much higher pension early a much higher income in the early stages what would
16:01i i'd rather have an indexed one now i think that depends on your life expectancy
16:06i mean if you're 80 it wouldn't care if you're 80 i go straight line if you're 60 i'll go indexed
16:15yeah okay we're at our next question is from g hansen from mango hill in queensland that's near me
16:24uh there you go good old brizzy um so g hansen says there is seven years between my wife and i
16:33the year i turned 67 my wife turns 60 uh sort of touching on a similar area to one of the earlier
16:39questions and he asks what about our supers and pension entitlements well as we just said uh his
16:47will count at 67 hers will not count in super until she's 67 unless she starts to draw a pension from
16:56her super so if possible get as much in her name as possible all right um and so centrelink doesn't
17:07assess a person's superannuation until they reach um pensionable age it doesn't count so uh j alexander
17:14says they have uh a low hang on sorry when when they're legally um age of retirement which is 67
17:22they will have low balance of superannuation he asks do i draw it all out in one lump sum
17:29and use the age pension or take an account based super payment well it'll count for the age pension
17:38now whether whether it's in there or not so taking the money out won't change the age pension
17:44rules so he's got to then decide whether he'd just rather have the money in the bank and run
17:50and run the money himself or let the superannuation fund do it the big issue there i think would be how's
17:56the fun going i mean if funds returning eight percent it's got a nice mix of assets
18:02i don't feel that he'll do as well on his own that's the point so if your funds performing well
18:09i just let it run okay it's all done for you and that means you've got the automatic income stream
18:17from the super fund if you take it out as soon as night follows day they'll start to eat into it
18:26my father retired he got a five thousand pound bonus that was his retirement money he kept saying well
18:34mum keeps wondering why i keep using it and she said well we never used it when we never had it
18:42so you know if the money's in super it's it's controlled once you put that money in your own name
18:48it's open to all sorts of temptation
18:52you did mention it this if the superannuation fund was doing well we have seen a little bit of
18:57volatility with uh you know things happening in the us so what if your super fund isn't doing well would you
19:03still try and keep it in there as long as possible no i would not move it but i mean you can certainly
19:09change funds and the best performing funds are very public you know we know who they are uh no i mean
19:16the good funds are doing about seven percent or eight percent now uh next question is from ra
19:22sorry uh r not rah from camberwell and victoria now they'd like to know how self-managed super funds
19:31compared to retail and industry funds they are very different animals
19:39if you've got a self-managed fund you're responsible for the administration and the investment
19:47now the the administration's easy you've got plenty of very good people who you can outsource
19:53it too it's not expensive so you get back to if we take administration out of it what what will my
20:01funds invest in now self-managed funds are a great hobby for retired blokes they love it like me
20:12secondly they're good they're good for business premises and things
20:17they let you invest in things that the other funds don't and i just bought some shares recently
20:21in a very small cap company which is doing well i could never get that through a big superannuation
20:28fund so they're gonna so if you want to be in small caps or do your own thing i've got money in property
20:36syndicates now which means i've got a hundred thousand share in various little shopping centers and
20:44they're paying about eight percent that's got to be through a self-managed fund and a big thing is if
20:51you need to get your money out fast which you may it will never happen with a big fund
20:59there you go all right our next question comes from g keeler from hilton plaza in south australia
21:07they'd like to know the best way to value assets like cars home content and when that is counted
21:14towards pension payments i think we've sort of covered that uh furniture no more than five thousand
21:22dollars garage sale value um cars red book value you know don't don't over value
21:30because every hundred thousand of over valuation is costing you seven thousand eight hundred dollars
21:37a year in pension and also don't be frightened to spend but don't spend i mean enjoy your travel
21:46enjoy your renovations but don't spend a hundred grand to get the pension because to get a bigger
21:52pension it'll take you 13 years to get it back in pension so never spend to get pension
21:59but certainly spend to enjoy yourself yep here for a good time not a long time
22:06good one all right our next one is from w dobson from ocean grove in victoria
22:12so they'd like to know your views noel on reverse mortgages and what is a reasonable interest rate okay
22:22most people will need somehow to get the equity out of their home
22:26you do it by selling or by reverse mortgaging now if you sell there's at least two hundred thousand
22:36dollars in costs in selling costs commission stamp duty and things so by not downsizing you're saving
22:47yourself a big a big chunk of money in moving costs you also know what you've got
22:53the other danger in downsizing is if you move from a two million dollar house and you're on a full-age
23:00pension and go to a nine hundred thousand dollar house you've just unlocked 1.1 million dollars of
23:08assets and you've lost your 40 grand a year pension so you need to really watch it but the other side of
23:16the coin is you reach a stage where you don't want to be in the house shewing if you get sick at one
23:23cope it's full of repairs and maintenance so it's a decision to make based on the two choices
23:31now if you take out a reverse mortgage that means you you you take out a loan with no repayments
23:37of any sort which means every nine years your loan will double
23:43so if you're 70 and take out a hundred thousand dollar loan it'll be two hundred thousand dollars
23:48when you're 80. now if your house is worth a couple of million now the increase in value of the house
23:56will be more than the amount of the reverse mortgage there's also for people who want to top their
24:04pinch it pop their money up there's a home equity access game run by the government the rate is 3.95
24:13and you don't have a drawdown then you take the money as a
24:16as an income that's a good one the ordinary reverse mortgage funds for about nine percent i think
24:22it's expensive but also involve the family because it's their money and they may well say well we'll pay
24:29the interest so if your family can can pay the interest then then the loan never increases
24:37and obviously the older you are the better it is i mean if you if you're 85 fine but but you wouldn't
24:45do one at 60. i don't think except some people i take out a small one look all i want to do is fix
24:52up my kitchen 30 grand we'll do it enjoy it because moving has a massive cost
25:00and you might like where you go that's the next passive cost
25:05are reverse mortgages in australia different to say america or canada
25:11not to my knowledge as far as i know you're just taking out a normal loan but you make no repayments
25:17on principal interest and they're paid when when the house is sold
25:22and you mentioned a good point before talk to family when you do these things because we don't
25:28want uh you know you wouldn't want these sorts of things coming as a surprise later on
25:34absolutely the more transparent the worst chance of angst in the estate
25:41yes very good advice um the next question we've got for noel is from s newett of penshurst in new
25:49south wales can you please explain the superannuation re-contribution strategy including age limit
25:58frequency amount and any pitfalls and how to avoid taxes on super when it passes to your kids
26:04once you've passed on that's a great question now why would you do a re-contribution strategy
26:13which means you withdraw money and re-contribute it back
26:16because your superannuation has a taxable component and may be a non-taxable component
26:27if you leave your super to a non-dependent you pay 70 percent tax death tax on the taxable component
26:39so if i had a five hundred thousand dollar super fund was mainly taxable
26:43i could withdraw 360 000 tax free and put it straight back in and all of a sudden i've now
26:53got 360 000 non-taxable in there and do it again in three years time so people are doing it more and
27:02more to avoid the death tax before it happens and people can now contribute to 75 years of age
27:10without a work test as long as you've got less than two million dollars in super
27:17while we're talking about it the way to avoid the death tax is to give your attorney instructions
27:24that as your death is near he would he or she withdraws the entire balance tax-free and puts that
27:30in your bank account and that's when i said with self-managed funds you get the money out quick
27:36there's a case at the moment where this woman was sick her daughter financial planner advised the
27:44super fund to take it out they stuffed up the paperwork it took nine months during which time
27:49she died and she copped the death tax well notice a lot of headlines about certain super funds
27:56and not paying death benefits promptly that's one of the big big reasons against being in one of those big
28:04funds yeah okay just remember everyone the information we are giving today is general in
28:12nature so please before you do go out and cancel your super fund make sure you get your own independent
28:18financial advice as well so remember it's a big complex topic most people only absorb about what
28:25i'm saying anyway so it's it's in the books it's in the newspaper column but always get advice but the
28:31thing is to make you once you know there is a death tax you can start to think about it
28:35yeah it's planting the seed getting people thinking about all these uh these things
28:40our next question is uh from d evans of springvale in south australia is it best to pay a mortgage with
28:52super or cash and shares i'm not sure what the question means is the best to
29:01i guess if you've still got a mortgage once you've uh
29:05over to retirement so yeah yes okay a major thing with money is the quicker you start the better it is
29:13so i've always said once the mortgage is under control
29:18then reduce the payments a bit and invest elsewhere i said before about making deductible
29:26contributions to super in lieu of mortgage payments but obviously that's for older people
29:34that's not for 30 year olds but if you but once you get your mortgage for about
29:39under nine or ten years in duration you don't save much by paying it back faster and that's when you
29:47diversify thank you again noel for coming and chatting with us today bye-bye thank you
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