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Ditch the one size fits all model of retirement planning and find the solution that works for YOU.
Column by Noel Whittaker, September 4, 2016
Recently in a TV program I pointed out that for many retirees superannuation is not a good option. This produced a barrage of queries about why somebody who had been advocating superannuation for more than three decades has suddenly changed his tune.
There is no paradox – superannuation is a tool, which when used properly is highly effective.
For anybody building wealth while they are working, superannuation is a highly effective tool. But it’s a different matter entirely when a person is retired.
Jack and Mary are retired and their sole financial asset is $400,000 in super. They can leave it in super and move it to pension mode, where the money will be in a tax-free environment. However, the cost of doing so will be ongoing fees, the risk of the rules changing, and the possibility of a death tax of 17% when they die.
Alternatively, they could simply cash the money out, and invest the assets in managed funds in their own name. They may well have 30 years to live, so money in the bank is not appropriate. A typical balanced portfolio comprising 20% cash, 40% Australian shares, 30% International shares, and 10% listed property would probably suit them best.
The income from the portfolio should be around $14,800 a year, plus franking credits of $2752.
They are way under the tax-free threshold, so the money is still in a tax-free environment. Furthermore, they should get a full refund of the franking credits, which gives them a bonus. And they’ll still be eligible for a part-pension, just as they would have been if they’d left the money in super.
Now I appreciate that there is no one-size-fits all solution here. Every case is different, but one thing is certain: the higher the net return retirees can achieve on their assets the longer their money will last. But there’s also the sleep-at-night factor: I understand that many retirees will not feel comfortable managing their own money, even when full-time professional fund managers are making decisions for them. At the end of the day, it’s about self-education and making the best decision in the light of that knowledge.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.
Email: noel@noelwhittaker.com.au
