Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at The Australian.
Speaker 2: Welcome aboard everybody, you know.
Speaker 1: I think the most common question I get asked, and
Speaker 1: that gets asked across the broad world of investment, certainly
Speaker 1: in Australia, certainly at this time, is how much should
Speaker 1: I have in super? Now? What is the answer to that?
Speaker 1: A lot of that depends on who you are, what
Speaker 1: age you are. The short answer is, by the way,
Speaker 1: you don't need anything. Okay, you can get twenty six
Speaker 1: thousand a year from the government in the age pension
Speaker 1: if you know super whatsoever. Zero That is not going
Speaker 1: to be enough for most people most of the time.
Speaker 2: I know that.
Speaker 1: And then you say, well, what did the experts say?
Speaker 1: The ASPA, the Association of Superinnovation Funds, says for a
Speaker 1: modest retirement, a person should have one hundred thousand dollars
Speaker 1: for a comfortable retirement. A person a person being a
Speaker 1: single individual. And I'll talk about when we talk about
Speaker 1: numbers throughout this show today. On this issue, we're talking
Speaker 1: about a single individual, okay, before it gets complicated with
Speaker 1: couples and everything.
Speaker 3: Else.
Speaker 1: So single individual comfortable retirement five hundred and ninety five
Speaker 1: thousand dollars. Okay, so that's what you're supposed to have
Speaker 1: at sixty seven. There's a lot of issues around this number.
Speaker 1: People genuinely want to know the answer. They want a
Speaker 1: simple answer. There is no simple answer. They want a
Speaker 1: quick answer. There isn't a quick answer.
Speaker 2: Reader.
Speaker 1: Perhaps the best answer is you know as much as
Speaker 1: you possibly can, and when you get to one point
Speaker 1: nine million, and you can start to worry. When you
Speaker 1: get to one point nine million, you can start thinking
Speaker 1: about how how you'll get around the fact that you
Speaker 1: might have to pay tax from that point on. I
Speaker 1: read a terrific piece of work, and I read on
Speaker 1: this issue all the time, but I read a fresh
Speaker 1: thinking on this issue from Ashley Owen from Owen Analytics.
Speaker 1: He's well known in the investment space as an investment manager.
Speaker 1: Over the years, he's on various committees. He's on the
Speaker 1: Third Link Investment Committee, which you would know of course,
Speaker 1: that's the fund that funnels money to charity. Very admirable
Speaker 1: exercise going there, and I thought it'd be really good
Speaker 1: to have on the show on this subject and to
Speaker 1: answer some questions as well, how.
Speaker 2: Are you Ashley?
Speaker 3: Fantastic? Doing well?
Speaker 1: Very good to have you on the show. I have
Speaker 1: a theory that we could run a piece in the Australian.
Speaker 1: I don't know what the ultimate elasticity of this piece,
Speaker 1: but I can tell you every single time we run
Speaker 1: a piece which says how much did you have in Super?
Speaker 1: It rates very very well. It seems this is endless
Speaker 1: appetite for that. Tell me what you thought of my
Speaker 1: preamble there when I was saying there's no answer, there's
Speaker 1: no warn answer?
Speaker 2: Is that the case? How much should you happen super?
Speaker 3: It's the number one question that everyone always asks. You
Speaker 3: raise some good points and Australia is one of the
Speaker 3: luckiest countries in the world. And we've got this index
Speaker 3: Pension for Life. Bever in mind that two thirds, sixty
Speaker 3: four percent of Australians of pensionable age are on the
Speaker 3: age pension. So despite thirty two or three years of
Speaker 3: compulsory super post ninety ninety one and it's now eleven
Speaker 3: percent and going up to eleven and a half percent
Speaker 3: this year, thirty years of that and it's a good start.
Speaker 3: So sixty four percent of Australians of pensionable age over
Speaker 3: sixty seven years old on the Australian.
Speaker 2: Government pension to some degree.
Speaker 3: About half of those are on the full pension, and
Speaker 3: about half of the or a third of retirees or
Speaker 3: on the full pension, about a third of retirees or
Speaker 3: on a part pension. Bear in mind, you can still
Speaker 3: earn sixty three thousand dollars and get a pension in Australia.
Speaker 3: Well a couple can earn one hundred and six thousand dollars,
Speaker 3: so it's quite generous. Only so two thirds of Australia
Speaker 3: are on the public payroll. They've got their handout. You
Speaker 3: and I are paying for it all. Now they can say,
Speaker 3: of course they've paid tax all their life and they've
Speaker 3: earned it. So we're not going to get into those arguments.
Speaker 3: But basically, after thirty years of compulsory super in Australia,
Speaker 3: best system in the world, biggest system in the world
Speaker 3: if you look at them, just looking at the ACTS
Speaker 3: site now, the average or the median retirement balance superbalance
Speaker 3: for a sixty five year old in Australia today is
Speaker 3: about two hundred and one thousand dollars for females and
Speaker 3: about two hundred and eleven thousand dollars for males. Most
Speaker 3: people use that to payoff debt and go on the benson.
Speaker 3: So it's been an interesting exercise, but it has been
Speaker 3: not a failure. But it hasn't built the wealth that
Speaker 3: it's got three and a half trillion dollars, which is
Speaker 3: a lot of wealth, but most of that's at the
Speaker 3: big end of town. The average balance is one and
Speaker 3: a half million, but the median balance is only two
Speaker 3: hundred thousand, which means most of the money is in
Speaker 3: the lumpy end of the multi millionaires and billionaires who
Speaker 3: just use it for a tax dodge. Ordinary Australians have
Speaker 3: a couple hundred thousand dollars when they retire at sixty
Speaker 3: sixty five years old, which is the medium balance and
Speaker 3: super today most of the music to pay off debt
Speaker 3: and then go on to pension. So you're right in
Speaker 3: saying how much you need the enter zero because if
Speaker 3: you happen to rely on the public pension for life,
Speaker 3: then you don't need anything. It's index for life. There's
Speaker 3: a public problems with that. First one, for example, is
Speaker 3: I've got a ninety six year old mother who's been
Speaker 3: in four nursing homes and two hospices in the last
Speaker 3: year and a half. That's costing about one hundred and
Speaker 3: fifty thousand dollars after tax, and insurance covers nothing. So
Speaker 3: one hundred and fifty thousand dollars you've got to find
Speaker 3: from somewhere after tax, and that could go on for
Speaker 3: years and years and years, so pincuer doesn't cover that. Yes,
Speaker 3: you can tell your house and do other things, but
Speaker 3: that upset to other people and you got other family members.
Speaker 3: So it's okay to say, yes, the pension's there, but
Speaker 3: you and I know you don't want to rely on
Speaker 3: the pension. I want to rely on the welfare of
Speaker 3: taxpayers future taxpayers for the next twenty thirty years of
Speaker 3: your life. The next point is that you make very well.
Speaker 3: Is that ASPHA, which is the Australian's Supernuation industry body,
Speaker 3: which produces a lot of numbers and a lot of
Speaker 3: people use it. If you go on to the website
Speaker 3: of any industry fund from Australian super so you know
Speaker 3: Hester and SeaBus, they all use the same numbers and
Speaker 3: they talk about the comfortable retirement lifestyle, which is about
Speaker 3: sixty four thousand dollars a year, and that requires six
Speaker 3: hundred and forty thousand dollars, so ten. So to say,
Speaker 3: if your spending budget is sixty four thousand dollars a year,
Speaker 3: which is and they describe exactly how many times you
Speaker 3: go out to what restaurants and how many times you
Speaker 3: travel late, I itemize that if that is your comfortable
Speaker 3: lifestyle of sixty four thousand dollars as a starting point,
Speaker 3: then they say you need about ten times that I
Speaker 3: eat six hundred and forty thousand dollars to live a
Speaker 3: comfortable lifestyle to have enough capital to afford their comfortable lifestyle.
Speaker 3: So that's not a bad starting point. And every super
Speaker 3: fund in Australia, all the banks and the amps, they
Speaker 3: all use exactly the same calculators, which a couple of
Speaker 3: things go on in there. First of all, if you
Speaker 3: look at that sixty four thousand dollars comfortable lifestyle, I
Speaker 3: wouldn't last two weeks on that, and a lot of
Speaker 3: people would not be had if you actually listen out
Speaker 3: then items it's actually it's a pretty poor lifestyle. So
Speaker 3: sixty four thousand dollars sounds a lot, but it actually
Speaker 3: doesn't go fast, so it's a good starting point for conversations.
Speaker 2: Okay, yes, The first step.
Speaker 3: I always ask people is what is your spending budget?
Speaker 3: Most people I asked don't know. So now it's first
Speaker 3: week of July. You've got to wait for your statements
Speaker 3: to come before you start your tax return stuff. It's
Speaker 3: not a bad time to do two things. One is
Speaker 3: to look back at the last year to June, and
Speaker 3: so how is my funds returned? And the second point
Speaker 3: is to say, well, what am I spending or what's
Speaker 3: my spending budget? Has my spending budget gone up? Has
Speaker 3: the increasing power bills and petrol prices? Has that actually
Speaker 3: made mind spending budget go from sixty thousand to seventy thousand?
Speaker 3: And what are my travel plans? So it's not a
Speaker 3: bad time to start your tax work. And while you're
Speaker 3: waiting for that, to start looking at your spending budget.
Speaker 3: Everyone must have a spending budget, so when you talk
Speaker 3: about how much do you need, it comes down to
Speaker 3: a multiple of your spending budget. Some people are happy
Speaker 3: to spend fifty thousand dollars a year. Of course, you've
Speaker 3: got travel and fridge's break and cars need replacing, so
Speaker 3: you've got a budget. All that in so you're spending
Speaker 3: roughly x thousand dollars per year. If you don't have
Speaker 3: a spending budget or an estimator spending budget, that's not
Speaker 3: a bad time to spend a weekend estimating what you
Speaker 3: spent last year. Look at your credit card bills, look
Speaker 3: at your bank statements. Will work out what is your
Speaker 3: spending budget in rough territory? What is it you need
Speaker 3: to do that because that's the starting point for how
Speaker 3: much multiple of that do you need?
Speaker 2: Are you saying whatever that is, you multiply it by ten.
Speaker 3: No, What I'm saying is the first variable is a
Speaker 3: spending budget. The second big variable is how many times
Speaker 3: that do you need? Now the ASPHA and all the
Speaker 3: industry funds, all the banks, all the funbanage, you use
Speaker 3: the same model, which basically says you need a round
Speaker 3: about if you're sixty to sixty five years old and
Speaker 3: ready to retire, then they say you need around ten
Speaker 3: times you're spending budget. Now, there's a lot of assumptions
Speaker 3: in there. The first assumption, which is the key assumption,
Speaker 3: is they all assume you run down new capital to
Speaker 3: zero and then go on the full pension. They all
Speaker 3: make that assumption in their fine print on the back page.
Speaker 3: They all assume that includes the entire pension. That's not
Speaker 3: about assumption because two thirds of Australias do that, So
Speaker 3: that's just describing what happens in real life. But it
Speaker 3: does mean that you realize that you're actually running down
Speaker 3: your capital, and the idea of running into eating into capital,
Speaker 3: running down the capital terrifies a lot of people, including myself. Yes,
Speaker 3: one of the problems is you look at the life
Speaker 3: table and the median life table. For I'm sixty five,
Speaker 3: my Australian government published median life expectancy is eighty five.
Speaker 3: Big problem is that's a median. Half of us are
Speaker 3: going to live longer, yes, and half of us are
Speaker 3: going to live shorter. I mean, everyone's trying to get
Speaker 3: healthy and fit and looking at nutrition, looking at diet
Speaker 3: and exercise why to live longer, But that requires more capital.
Speaker 3: So if you're lucky enough to live longer, you're going
Speaker 3: to be in that half of people who are more
Speaker 3: than the median, and therefore we're going to live to
Speaker 3: more than eighty five years old. My mother's ninety six
Speaker 3: and she's still going So that's the big assumption. It
Speaker 3: assumes you live to your target date on your wrist,
Speaker 3: which in my case is eighty five. If I want
Speaker 3: to live longer than that, I'm going to have more
Speaker 3: captain need more capital to actually fund that. That's a
Speaker 3: big assumption that people get wrong.
Speaker 1: Okay, we'll just take a break there and we'll come back.
Speaker 1: I want to really want to zone in on this.
Speaker 1: It's really really good so far. Thank you very much.
Speaker 1: I had some questions pre prepared for what you're saying
Speaker 1: as sort of challenging even those, so we'll be back at.
Speaker 2: The moment of folks.
Speaker 1: Hello and welcome back to The Australian's Money Positive podcast.
Speaker 1: I'm James Kirby and I'm talking to Ashley Owen, analystics
Speaker 1: own is an investment manager and expert and it serves
Speaker 1: on several investment boards and a particular interest in superannuation
Speaker 1: and some of his recent work really caught my eye
Speaker 1: because on the enduring, endless and endlessly scary question of
Speaker 1: how much do you need in super We get this
Speaker 1: question all the time. We get it on the podcast,
Speaker 1: we get it in the paper of The Australian, and
Speaker 1: I get it socially and so does Ashley. The answer
Speaker 1: is going to be a formula, and to some extent
Speaker 1: that formula will be tailored or customized to you. Some
Speaker 1: of the points actually was making at the start of
Speaker 1: the show in the first part is that these assumptions
Speaker 1: about comfortable retirement amount five hundred and ninety five thousand
Speaker 1: dollars average age, life expectancy eighty five if you were
Speaker 1: in your early sixties right now, for instance, et cetera,
Speaker 1: et cetera. They're all fine, except that you know your
Speaker 1: life might not be average at all. You might live
Speaker 1: to be Ashley is mentioning his mom is I think
Speaker 1: in ninety five, my dad's ninety he had no idea
Speaker 1: he was going to be retired for thirty years and
Speaker 1: his income. We still have to work on that. Every
Speaker 1: time I go back, we sit down and we go
Speaker 1: through his investments and how it's all working. So something
Speaker 1: that goes on a long time. So I want to
Speaker 1: add on this segment. I'm going to try and look
Speaker 1: at the issue of the big questions like how long
Speaker 1: should we assume that we live and though the big
Speaker 1: funds and all the stakeholders in the industry, their assumptions
Speaker 1: assumes that we spend our core capital down to zero.
Speaker 1: A lot of people don't want to do that, and
Speaker 1: maybe they don't have to do it, so let's find out. Actually,
Speaker 1: so tell us, wouldn't it make sense to say, okay,
Speaker 1: I'll assume I live to one hundred and work backwards
Speaker 1: from there. Is that silly or sensible?
Speaker 3: It's not silly. The life tables, which these calculations are
Speaker 3: all based on snapshots in time. We also already talked
Speaker 3: about the fact that the meeting is only just the
Speaker 3: middle person half a lit longer and half a live less.
Speaker 3: So you got to a shoe. This is it. This
Speaker 3: is all you've got. You're on this planet once. You
Speaker 3: want to make sure you make the best of it.
Speaker 3: So you've got to plan to be in that second
Speaker 3: half if you want to be, or at least you're
Speaker 3: dependent or your partner's going to be there. So if
Speaker 3: it's not you, it's going to be your partner. So
Speaker 3: the problem is these snapshots in time, and the ABS
Speaker 3: publishes these numbers every year. These snapshots move over time.
Speaker 3: In the average person's lifetime, that curve moves about three
Speaker 3: decades to the right. So, for example, my mother born
Speaker 3: in nineteen twenty eight. I looked at the ABS, and
Speaker 3: beauty of the ABS is you can go and get
Speaker 3: the nineteen twenty eight year book which is published on
Speaker 3: the ABS and look at the life tables on about
Speaker 3: page three hundred. I've got it in my article. You
Speaker 3: look up somebody born in nineteen twenty eight female, Her
Speaker 3: life expectancy was sixty four years old. Today she's ninety
Speaker 3: six and she's still going, so that curve has moved
Speaker 3: three decades in a lifetime. I was born in a
Speaker 3: poor Asian country in the late fifties, and my life
Speaker 3: expectancy at birth was probably about forty or fifty at best.
Speaker 3: I moved to Australia, which is great. Somebody born in
Speaker 3: nine fifty eight in Australia, a male, if you look
Speaker 3: at the yearbook, would have been I think sixty eight
Speaker 3: years old. Currently my life expectancy is eighty five, so
Speaker 3: it's already moved two decades to the right and I'm
Speaker 3: still going. So I could do the same thing with
Speaker 3: any person. The beauty of the ABS is they publish
Speaker 3: yearbooks going back to nineteen oh one. You can look
Speaker 3: at your own year and say when I was born,
Speaker 3: my life expectancy table was X. What is it now?
Speaker 3: The life expectancy tables shift right. I down the old
Speaker 3: age in about three decades during the lifetime. So don't
Speaker 3: base anything on the current snapshot because it's going to
Speaker 3: move right.
Speaker 1: Because we're probably under estimating our life expectancy, are we?
Speaker 3: You are? I talked to a lot of clients and
Speaker 3: I have done the many many years, and I always
Speaker 3: insist on looking to the male and female together would
Speaker 3: be Jack and Jill, and I say one of you
Speaker 3: might live to one hundred. I look at Jack and say,
Speaker 3: and it ain't going to be you. It's more like
Speaker 3: you're going to be the female because often the female
Speaker 3: is younger, and often the female life tables are longer anyway,
Speaker 3: So someone's going to live to one hundred if it's
Speaker 3: not you, at your partner. So you don't want to
Speaker 3: get to eighty five, ninety years old and running out
Speaker 3: of money. You can't get back to work, you can't
Speaker 3: earn more. This is it. This is your time on
Speaker 3: the planet. So thank on living to one hundred. If
Speaker 3: you don't, that's good. If you live longer, that's even better.
Speaker 1: Can I ask you then about the core capital, like
Speaker 1: you were saying all those estimates when people go on
Speaker 1: all those calculators, the calculators are I won't say misleading,
Speaker 1: but they're incomplete right because they assume that you run
Speaker 1: down your capital, like you mentioned your mom. If my
Speaker 1: own dad had run down his capital, it would be
Speaker 1: a big trouble. Now big trouble this is he's been
Speaker 1: retired for thirty years solid. So what do you suggest
Speaker 1: on that issue.
Speaker 3: I got an email the other day from a reader
Speaker 3: who says he's eighty and his wife is sixty five.
Speaker 3: They have no dependents, they don't see any charities worth
Speaker 3: getting money too. They've given two houses to his school,
Speaker 3: and this is a live question. And he said, look,
Speaker 3: I want to run down my capital. I'm eighty years old.
Speaker 3: Let's say I'm going to live to one hundred. What's
Speaker 3: my formula to run down the capital to one hundred?
Speaker 3: And I said, first of all, it's not about you.
Speaker 3: Your wife is sixty five. She might have forty years,
Speaker 3: so it's not about you anymore. It's actually about her.
Speaker 3: So if she's sixty five years old, which is a
Speaker 3: live case, and he's planning on her living to one hundred,
Speaker 3: I said, look, the maths is not that accurate. If
Speaker 3: I'm running a portfolio for a forty year time arise
Speaker 3: and to amortize it over forty years, financially, mathematically, that's
Speaker 3: as good as running a perpetual portfolio, which I do
Speaker 3: for charities. Charities are perpetual portfolio. So that basis is
Speaker 3: you assume you retain your capital. In real terms, life
Speaker 3: is too variable to actually calculate the lengths of the
Speaker 3: runway over forty years. So rather than trying to calculate
Speaker 3: the lengths of the runway to land at one hundred,
Speaker 3: assuming a capital is going to last forever, because forty
Speaker 3: years is effectively forever in financial terms. So that comes
Speaker 3: back to my point. You're going to live to one hundred,
Speaker 3: You're going to rely on your capital. You're going to
Speaker 3: make sure that capital keeps growing for inflation and the
Speaker 3: withdrawals off it keep growing for inflation, which means you're
Speaker 3: running it a petual fund.
Speaker 1: Yeah, that's your core point. Then perpetual capital not to
Speaker 1: run down on the core capital unless, of course, and
Speaker 1: our listeners would know that there are rules in super
Speaker 1: that you actually must take out a certain amount each
Speaker 1: year and compulsory drawdowns but would allow for that. Okay,
Speaker 1: So just it's very hard to do this in I
Speaker 1: think the Shaublin has been really good to do this
Speaker 1: all the same, and it's got some fresh thinking I
Speaker 1: think here on this issue of how much people should
Speaker 1: have in SUPER. The other thing I supposed on a
Speaker 1: practical terms for younger listeners, there was a time you
Speaker 1: could put enormous amount. You could put any amount into
Speaker 1: SUPER and believe it or not, about ten years ago
Speaker 1: you could put in as much as you can put in. Today,
Speaker 1: for instance, it hasn't changed. In fact, it's shrunk and
Speaker 1: only through inflation indexing has it gone back up. What
Speaker 1: do you recommend in terms of contributions? Do you generally
Speaker 1: recommend that people put in the max that they can
Speaker 1: if they can't.
Speaker 3: It's a tax look, and there are tremendous tax advantages.
Speaker 3: As it's turned out, it's a tax loerk for the
Speaker 3: rich and therefore labor as they probably should are taking
Speaker 3: the big end of town. How they're doing it is
Speaker 3: interesting with the new division two nine six tax if
Speaker 3: it gets in and what will happen. But the idea
Speaker 3: is it is very tax advantageous in a lot of ways.
Speaker 3: So you may as well take advantage of that with
Speaker 3: as much money as you can the other side of
Speaker 3: the coin is for young people who are encourage to
Speaker 3: put it as much a way as possible over and
Speaker 3: above the eleven and a half percent is they're trying
Speaker 3: to buy a house. Even buying a house is difficult
Speaker 3: these days, so there's a big move on to divert
Speaker 3: money from Super into buying a house, or even dip
Speaker 3: into SUPER to buy a house.
Speaker 2: Yeah, there is.
Speaker 3: It's a difficult argument to go into and it's different
Speaker 3: for everybody, but I would say, still giving you eleven
Speaker 3: and a half percent going into Super, make sure you
Speaker 3: use that as much as possible. So it's compulsory savings
Speaker 3: for employees. Unfortunately, a good part of the workforce is
Speaker 3: not employees. There's small business and if you look at
Speaker 3: the numbers of Super coming out the other end, I'm guessing,
Speaker 3: but I'm saying most small business people it's the last
Speaker 3: thing on their plate they get to June thirty, there's
Speaker 3: cash leader they've got to find. It's the thing that
Speaker 3: they forget on June thirty. So the people at the
Speaker 3: poor end of the SUPER scale in the median balances
Speaker 3: when they retire a people typically who've been in small
Speaker 3: businesses or self employed for thirty forty years, because it's
Speaker 3: not something that your employee does compulsorily. So the missed
Speaker 3: out yep. So having seen that experience many many times,
Speaker 3: I would say, if you've got the chance, to make
Speaker 3: sure you use a system as much as you can,
Speaker 3: because it's locked the way, it's out of harm's way,
Speaker 3: and it's going to be there in some shape or
Speaker 3: form when you really need it when you're sixty seventy
Speaker 3: eighty years old. If you rely on your own self
Speaker 3: discipline to do it when you're a small business operator,
Speaker 3: invariably it doesn't get done and you reach the age
Speaker 3: where you look back and say, if only had done that.
Speaker 3: The good thing is, though, that a lot of small
Speaker 3: business own two or three or four properties, and properties
Speaker 3: are just as powerful as SUPER is.
Speaker 1: Yes, there just two points there we might make to listeners.
Speaker 1: Actually is talking about eleven and a half percent. If
Speaker 1: you record eleven and a half percent, the amount you
Speaker 1: must put into SUPER on a compulsory basis from July
Speaker 1: one that's just passed.
Speaker 2: Now.
Speaker 1: The maximum you can put into SUPER on a pre
Speaker 1: tax basis is thirty thousands. So what you do is
Speaker 1: you can put in whatever eleven and a half percent
Speaker 1: of your salary is that goes into SUPER, and then
Speaker 1: there's a gap between that and thirty thousands, you can
Speaker 1: put that amount in. So let's say you're eleven and
Speaker 1: a half percent works out at fifteen thousand, then in
Speaker 1: theory you can put in another fifteen pre tax into SUPER.
Speaker 1: That's the real tax advantage. So keep that in mind, folks.
Speaker 1: And also a lot of people now in consultants, gig
Speaker 1: workers in any way that you might be not if
Speaker 1: you are employed outside the traditional staff employer type situation
Speaker 1: where you simply get a pay packet every month, but
Speaker 1: you're super in it. As Ashley said, be careful there
Speaker 1: and if you can it's I know it's hard to
Speaker 1: be self disciplined, but to be able to contribute to
Speaker 1: SUPER you.
Speaker 2: Can do it.
Speaker 1: You can do it just like anyone in staff can
Speaker 1: do it. You simply just make an application and you
Speaker 1: put in the amount into SUPER on the same terms.
Speaker 1: And of course, obviously people who have property in the business,
Speaker 1: that's a different business. The direct real property can be
Speaker 1: included into super fund. It's one of the great tricks
Speaker 1: for small business and any small business who can do it,
Speaker 1: that can get their building that they own and their
Speaker 1: business into it, and that business in building into their superfund.
Speaker 2: It's a fabulous it's.
Speaker 1: A fabulous thing if you're able to do it. They
Speaker 1: call it direct property in the super circus. Okay, that's
Speaker 1: about as far as we can go on this issue.
Speaker 1: I'm sure we'll come back to it. I'm sure we'll
Speaker 1: have lots of questions. I wanted to raise it. I
Speaker 1: wanted to give our version of what the answer is
Speaker 1: to how much you should have in super I think
Speaker 1: Ashley's idea about how much you spend a year and
Speaker 1: then thinking about the multiples of that as a guidance
Speaker 1: it is very useful. Also his idea that whatever the
Speaker 1: calculators say, do your own calculations and don't assume that
Speaker 1: you're going to spend down your core capital because you
Speaker 1: might live a lot lot longer than you ever expected.
Speaker 1: All right, well, take a short break. We've got a
Speaker 1: great question to be back in a moment. Hello, Welcome
Speaker 1: back to the Australians Money Puzzle podcast. James Kirby talking
Speaker 1: to Ashley Owen Analytics. I've got three questions here, folks.
Speaker 1: Two interesting enough around super and one is kind of
Speaker 1: on super I'll just read the first one. It's from
Speaker 1: Rohan who says, a few weeks ago you had Chris
Speaker 1: Joy on the show and he said he expects consolidation
Speaker 1: in the superfund sector. It seems to me consolidation is
Speaker 1: in the interest of every super fund member, especially for
Speaker 1: people in poorly performing funds. Do you think the government
Speaker 1: should be accelerating this consolidation. Well, I think it's a market,
Speaker 1: and the more the government encourages their market to act
Speaker 1: as a market in super the better. And I think
Speaker 1: very quickly we are getting lots of consolidation in super
Speaker 1: I wouldn't actually fancy being in some super funds when
Speaker 1: they do merge with other ones behind the scenes, I
Speaker 1: think there's often problems that don't get highlighted there. But
Speaker 1: the other thing is, I don't know about you, actually,
Speaker 1: but it seems to me in the end we're going
Speaker 1: to have about ten megafunds that will really dominate everything.
Speaker 2: What do you think.
Speaker 3: I don't really have a view. There are a dozen
Speaker 3: megafunds and there are dozens of smaller ones. Now it
Speaker 3: should be a free market and the market should desire.
Speaker 3: But it's not a free market because it's compulsorily taken
Speaker 3: out of people's pay from when they're sixteen, eighteen to
Speaker 3: twenty years old, bits and pieces half cents in court
Speaker 3: of sense. No one cares or looks at it. Even today,
Speaker 3: the number of people who actually don't know how to
Speaker 3: find their balance little and what it is and what
Speaker 3: it means or whether it's enough. It's just mind buggling.
Speaker 3: So it's not something that they have any interest or
Speaker 3: knowledge of. It's compulsorily taken out. It disappears somewhere and
Speaker 3: they look at it maybe once every ten years, and
Speaker 3: they get they start to look at it seriously when
Speaker 3: they're about fifty years old. So the fact that it's
Speaker 3: out of sight, out of mind, means it's free for
Speaker 3: all who want to do what they want with it.
Speaker 3: So I'm in favor of regulation and oversight because simply
Speaker 3: it is so far it's three trillion dollars, which is
Speaker 3: completely out of people's minds or side or knowledge out
Speaker 3: what to do with it or how to fix it
Speaker 3: or whether it actually needs to be fixed. So I'm
Speaker 3: in flavorance of regulation. There's a lot of tests nowadays
Speaker 3: that OPRA apply to performance for super funds, and those
Speaker 3: that fail the test a couple of years in a
Speaker 3: row get closed down and get told to merge. The
Speaker 3: test itself is a very blunt instrument and it's very
Speaker 3: strange how the test works and how it can be gamed,
Speaker 3: but it has closed down dozens of funds that are
Speaker 3: poor performing on their particular measures for that particular period.
Speaker 3: It's a blood instrument. It's probably not a bad idea
Speaker 3: to clean out the poorer performers. The measurement should be
Speaker 3: much more sensible and inclusive, and it's easy to game
Speaker 3: the measurement currently, but it'll improve over time. There's people
Speaker 3: that say, look, why don't you do what Singapore and
Speaker 3: Norway do and just have one fund run by the government.
Speaker 3: We've got one called the Future Fund, and the Future
Speaker 3: Fund's done a pretty good job over twenty seven years. Yes,
Speaker 3: no industry fund has beaten the Future Fund. It's got
Speaker 3: funny rules and disclosure requirements, and it's got funny things
Speaker 3: that go on in the Future Fund. But basically something
Speaker 3: like that is big and ugly, or was he super
Speaker 3: There's one or two big ones which you've got to say,
Speaker 3: why don't you just use that one? But of course
Speaker 3: if that blows up, then you've got no others. So
Speaker 3: you relying too much on one institution looking after twenty
Speaker 3: million Australians.
Speaker 2: Yeah, that's the thing.
Speaker 3: So I'm in favor of regulation and scrutiny in cleaning
Speaker 3: out bad operators, but I'm also wary of one behemous
Speaker 3: fund which has got everyone's savings.
Speaker 1: Yeah, I take your point, all right, Yeah, and I
Speaker 1: would tend to I would sortually agree with that. I
Speaker 1: think if it does end up that we have ten
Speaker 1: huge funds and they're all damn good, then that will
Speaker 1: be fine. All right, final question, But there was two
Speaker 1: questions on Division two nine three tax. Division two nine
Speaker 1: three tax. By the way, is the tax you if
Speaker 1: we were talking about super contributions and the tax concessions,
Speaker 1: the problem is if you are in more than two
Speaker 1: hundred and fifty thousand, there's a clawback. Would you believe
Speaker 1: on the on the concessions that you get in Super?
Speaker 1: So Greg asked about judges and their special place in Super.
Speaker 1: That's that's that's another show.
Speaker 2: Greg.
Speaker 1: A lot of most judges are on defined benefits and
Speaker 1: they have their world within a world, and they are
Speaker 1: going to hang out to their Super really hard, and
Speaker 1: you can see them lobbying desperately not to get caught
Speaker 1: in the three million tax net which is coming through.
Speaker 1: That's called division two ninety six. On the basis of
Speaker 1: division two nine three, the one that matters here, Rob says,
Speaker 1: I listen every week quite often I hear your guest
Speaker 1: talk about catchups Super. This makes sense, of course. My
Speaker 1: understanding is capital gains and concessions SUPER contributions are considered
Speaker 1: for division two nine three. This may catch many people out,
Speaker 1: given the threshold for division two nine three is two
Speaker 1: hundred and fifty thousand.
Speaker 2: Is this correct?
Speaker 1: Yes, it is, It's correct, Rob, And I suppose the
Speaker 1: worst situation is if you were bang on two fifty
Speaker 1: thousand and you were contributing to Super at the max,
Speaker 1: and you you just bring yourself over the two fifty
Speaker 1: by doing so, maybe some profit on that anything else around,
Speaker 1: it would certainly find yourself in division two nine three.
Speaker 1: And it's a clawback. It's not index to either. Is
Speaker 1: there anything you want to add to that?
Speaker 2: Actually?
Speaker 1: About division two nine three, do people realize, you know,
Speaker 1: what about us? And do they read those there's an
Speaker 1: extra super tax that we really hardly ever hear about
Speaker 1: col Division two nine three.
Speaker 3: Yes, it's been around for decades. The idea that you
Speaker 3: pay an extra fifteen percent. You pay fifteen percent on
Speaker 3: concessional contributions on the way in into tax, and then
Speaker 3: you if your income including super for particular year is
Speaker 3: over two fifty thousand dollars, which any trading would be on.
Speaker 3: So it's quite widespread nowadays.
Speaker 1: Well and maybe not all of them, but a hell
Speaker 1: of a lot of them.
Speaker 3: Yeah, then you get tax an extra fifteen percent on
Speaker 3: your concessional contribution. It used to be something that's for
Speaker 3: rich people only, but it's not index so two fifty
Speaker 3: now catches a lot of people, and so they just
Speaker 3: get paid thirty percent. It's still not bad because the
Speaker 3: marginal rate is higher than thirty percent, so it's not bad.
Speaker 3: It's a small taxt break, but it is an additional
Speaker 3: tax you pay based on your entire income including super
Speaker 3: for each particular year.
Speaker 1: Yes, so basically, folks, if you make two hundred and
Speaker 1: fifty thousand or more, the tax advantages of contributing to
Speaker 1: Super are pinched basically by this tax. And as actually
Speaker 1: was saying, once upon a time when they designed this tax,
Speaker 1: it was designed for the rich per se these days,
Speaker 1: of course, because it's not indexed, every year, more and
Speaker 1: more people get into the net what they call bracket creep.
Speaker 1: And on this particular case, you might call it superannuation
Speaker 1: tax bracket creep, which is just as insiduous as all
Speaker 1: the other bracket creep. Income tax bracket creep is the
Speaker 1: main one, of course we hear about all the time. Hey,
Speaker 1: thank you very much, Ashley Owen of Owen Analytics. That
Speaker 1: was very very interesting. It really met people think there's
Speaker 1: no simple answer for how much you should have in super.
Speaker 1: There are key principles you should think about, including how
Speaker 1: long you will live, what sort of lifestyle do you want?
Speaker 1: How is that link to how much do you spend
Speaker 1: at the moment each year? Do you know how much
Speaker 1: you spent? Can you achieve that in super? And also
Speaker 1: you're probably going to live a lot longer than than
Speaker 1: you think, certainly our parents did.
Speaker 2: All right, hey, thank you very much, Ashley.
Speaker 3: My last little closing point would be bracket creepy is
Speaker 3: only one of the many creeps in camera.
Speaker 2: Thank you very much.
Speaker 1: All right, folks, that was Ashley over and over and analytics.
Speaker 2: First time on the show and now the last time.
Speaker 2: I'm sure all right.
Speaker 1: Do keep those pieces of correspondence coming in. I have
Speaker 1: lots of questions on property at the moment. I could
Speaker 1: do with more and happy to answer more on wider issues.
Speaker 1: So there's a call out the money puzzle at the
Speaker 1: Australian dot com dot au.
Speaker 2: Talk to you soon.
Speaker 3: Four