“How many millionaires do you know who have become wealthy
by investing in savings accounts? I rest my case.”
ROBERT G. ALLEN
Thank You for the Feedback
First let me give a huge thank you to all you members of the Whittaker tribe who responded so magnificently to my recent special bulletin. Over 5000 of you took part in the survey, and I also received over 300 emails with comments and suggestions which I am still working through at the moment. I believe if someone takes the trouble to email me, they deserve a response. Unfortunately, with tight deadlines for newspaper articles, life sometimes gets overwhelming. But you can be assured I read every email and you will get a reply in due course.
The overwhelming message is you want information, information and more information. Some of you are huge fans of paper books, many want podcasts and audiobooks, and webinars are becoming much more popular. But of course, what one person wants, another may not want. Also, I need to be mindful of my own capabilities. Therefore, in future newsletters I will be doing my best to include podcasts and webinars.
For example, in this newsletter is a brilliant webinar, all about equity release, which was filmed last month through Starts at 60. Plus, a fantastic podcast from my friend Ashley Owen of Stanford Brown, one of Australia’s leading financial advisory firms who talks about the outlook for markets, inflation and where interest rates might be going.
Also, I’m pleased to announce that negotiations are now in place for an audio version of Retirement Made Simple and I’m working hard on that small book which I mentioned in the recent bulletin. It’s a busy life right now, but that’s how I like it.
A Debt Free Retirement
Being debt-free when you retire should be a major goal. However, there are diverse ways to achieve this, and often advice from well-meaning friends can be misleading. Recently I received an email from Lucy, who told me that she was aged 59, earned $100,000 a year and had $429,000 in super. She still owed $169,000 on her home, with an interest-rate of 2.73% and monthly payments of $839. With those numbers it would take 22 years to pay the loan off, and she was looking for ways to improve her situation.
She had already spoken to her superannuation fund, whose advisor recommended she maximise her contributions to super. On the other hand, a work colleague said, “That’s a bad idea – if the market crashes, you could lose heavily”. She hoped I could put her on the right path.
For somebody over 50, making contributions to superannuation is a much better option than speeding up loan repayments. This is because super contributions lose just 15% contributions tax, whereas the after-tax dollars required to pay your home loan lose tax at your marginal rate, which in Lucy’s case is 34.5%. Furthermore, a good superannuation fund should be returning at least 8% per annum, whereas the interest on your home loan should be no more than 3%.
Thanks to the indexation changes that took effect from 1 July, Lucy can now make a concessional contribution of the difference between $27,500 a year and the employer contribution of $10,000. That $17,500 contribution would be tax-deductible to her. After the $2,625 contributions tax she would have $14,875 working for her in the low-taxed superannuation system, where it would continue to grow. In contrast, if she chose to invest $14,875 to reduce a home loan, the cost to her gross pay would be $22,710.
And there’s more – on Lucy’s salary, a tax deduction of $17,500 should give rise to a tax refund of $6,000, which could also be contributed to her superannuation fund, as an after-tax contribution. The combination of the concessional contribution and the after-tax contribution would mean an extra $20,000 a year would be going to superannuation. If the fund earned 8% per annum, that puts an additional $146,000 into her super in six years.
If her salary grew at 2% per annum, and her employer fund achieved 8% per annum, she would have $751,000 in her employer fund at age 65, giving her a total of $897,000 in super.
Let’s turn our thoughts to what would happen if markets tumbled and her superannuation balance fell. Without doubt, it will do just that at some stage, due to market movement, but just as certainly it will bounce back. Lucy can expect at least 30 years living ahead of her, and should take a long-term view.
When she is 65, her debt should be $134,000 if she keeps up her present repayments. The extra contributions she’s been making could cover paying this off, but there would be no requirement to pay out her loan. Depending on interest rates, Lucy might still be better off keeping more money in super.
Let’s run some figures. The interest payable on $134,000 at 3.5% would be just under $5,000 a year, so she could simply take $10,000 a year from her superannuation fund to make the repayments on the loan. This would allow Lucy to keep at least $850,000 in superannuation. If her super were earning 8% per annum, the difference between the two rates would give her an extra 4.5% on the loan balance of $134,000 – a nice $6,000-a-year bonus. That would be a great position to retire on.
Webinar – Equity Release
The government has made it abundantly clear that retirees are expected to utilise their capital as they move into their final years. But the big question is how to do that. One option is to downsize to a cheaper home, but, as I pointed out in Retirement Made Simple this strategy often has the major disadvantage of converting an exempt asset — the family home — to an assessable asset.
If you are receiving a part age pension now, increasing your assessable assets could severely reduce or even totally lose your pension. To make matters worse, the costs of moving from one home to another are high, which usually means a net loss of capital. Most importantly, retirees want to remain in their local communities, and it may be hard to find a good quality smaller home nearby.
One benefit of downsizing is that the government lets each homeowner put $300,000 of the proceeds of downsizing into their superannuation as a non-concessional contribution. Even that incentive has not convinced many older Australians to leave their family homes. So not downsizing leaves retirees asset rich, but remaining cash poor.
This leaves two other options. Borrow against the home, or sell a portion of it using one of the equity release options which are available.
Last month I was a participant in a masterclass via a webinar arranged by Starts at 60 – it lasted for just over an hour with more than 2000 people watching.
The participants were Dr Deborah Ralston – a leading figure in the financial services industry, and co-author of the recent Retirement Income review, Fiona Navarro – an executive of Household Capital one of the major providers of reverse mortgages in Australia, and myself. In this masterclass we discuss equity release in-depth and answer questions from the audience. I really do hope you find it useful.
The Electric Car
It appears that the electric car (EV) is the way of the future and will eventually replace the internal combustion engine (ICE). Many countries are taking steps now to ban future production of ICEs. The United Kingdom plans to ban the sales of new diesel and petrol cars from 2030 but will still allow the sales of hybrid cars until 2035., Norway wants all new light vans and passenger cars to be zero emission by 2025.
It’s an ambitious goal but from my experience it’s easier said than done. Just over two years ago I got myself a new Tesla on the grounds that a “self driving” car would be a better option for a senior citizen than driving the car yourself as years pass. That was an optimistic view. The term “self driving” is no longer used by Tesla – the term now is “auto steer” which is really a type of cruise control with a degree of lane control.
True, – there are reports that Tesla is working on fully self driving (FSD) cars with a software update due to be released this month. However, the alleged update has been put back, and the reports I am reading would indicate it’s got a long way to go.
The car is a pleasure to drive, and has required zero maintenance despite having travelled 42,000 km. Apart from Auto Park which backed me into a brick wall did $8000 of damage there have has been no other problems.
But EV’s have three major challenges. They are hellishly expensive, have a relatively small range, and refuelling makes long trips almost impossible. To appreciate the story, you must understand the way chargers work. The big ones could possibly charge my car in an hour, the smaller ones such as the ones that some motels have, charge at 100 km an hour maximum.
Last year I had a speech at Moura which is 187 km west of Gladstone. We left Brisbane and drove 170 km to Gympie where we stopped at a shopping centre to top up the car. Despite it being a high-speed charger, it took over an hour to replenish the battery. We opted to have lunch at the shopping centre.
The next stage was the 348 km trip to Gladstone where our options were to leave it for a long time at a shopping centre with a charger when we got there, or book one of the few motels in Gladstone with a Tesla charger. We chose the latter, and found ourselves in a pleasant but not outstanding motel with the charger outside our room. That took six hours to charge so we left it there overnight.
It’s impossible for the Tesla to get to Moura from Gladstone and back as there are no decent size chargers on that route back so we arranged a Hertz car to be picked up at Gladstone airport. Having made a speech at Moura we drove back to Gladstone airport and drove to home via Harvey Bay where we stayed the night. We chose a beautiful motel on the water but the only way to get the car charged was to drop the car at a motel which had a charger. The owner kindly allowed me to leave the car undercover attached to his one and only charger for the night, but that did incur taxi costs in both directions.
Much as I love my car, I do think that hybrids are more likely to be the way of the future. Recently I have been in two Toyota taxis – one a Camry and the other a RAV4. They are both less than $50,000 and have a range of almost 900 km. They are also much cheaper than EV’s.
According to a recent article by Toyota there are 290 million cars in America and 98% of them are ICEs. In the entire world there are just 2% of EVs. If this move to ban ICEs happens the world will need to be able to provide the infrastructure to power 300 million EV’s within 20 years. Elon Mgreausk recently said for the world to go electric we will need to double the amount of power recurrently generating, and thousands of electric charge stations will need to be built.
The big questions are how we can possibly double the amount of power we are generating now, how long it will take charging stations to become so commonplace that a charge will be just as quick as pulling up a tank of petrol. I really don’t think it’s nearly as easy as governments everywhere seem to think.
Boosting Your Remote!
Have you ever needed to use your remote to open the car or open a garage door or gate but due to circumstances are just out of range?
Here is the solution. All you need to do is touch the remote to your head and hold it there while you press the button. You will be amazed how much the range is extended. If you do a Google on it there are various explanations – the one I first heard it was the liquid in your head creates a circuit. Anyway, it works. Give it a go.
Need some help with parenting?
As many of you know, my son James is based in Los Angeles and runs a podcast where he interviews some extraordinary people. The episode that was just released today, ‘How to Raise Strong, Healthy and Resilient Children‘, is with the world’s leading holistic child psychologist. It’s chock full of practical parenting tips and I’m sure you will find it enormously valuable, as I did.
The truth about the financial world
It’s important to get accurate information without the noise that often permeates the news cycle. This is why I’m delighted to include a podcast from my friend Ashley Owen the Chief Investment Officer of Stanford Brown, one of Australia’s leading financial advisory firms.
He talks about where share markets my go in the short to medium term, prospects for government bonds, the effects of government stimulus, the outlook for inflation and interest rates and also gives a general overview of what’s happening in the financial world.
Ashley has been a friend of mine for over 30 years and has one of the best minds in the business. I suggest when you listen that you imagine Ashley is in your lounge room having a chat. You’ll end up being much better informed.
In my experience however, you better off to go to Spotify and subscribe to the SB Talks Podcast – that makes it much easier to stop and rewind and start again if you wish.
If you don’t use iTunes or Spotify, you can listen on SoundCloud here.
Do you like to read a good murder mystery? Not even Law and Order would attempt to capture this mess. This is an unbelievable twist of fate! At the 1994 annual awards dinner given for Forensic Science (AAFS), President, Dr. Don Harper Mills astounded his audience with the legal complications of a bizarre death.
Here is the story:
On March 23, 1994, the medical examiner viewed the body of Ronald Opus, and concluded that he died from a shotgun wound to the head.
Mr. Opus had jumped from the top of a ten-story building intending to commit suicide. He left a note to the effect indicating his despondency. As he fell past the ninth floor, his life was interrupted by a shotgun blast passing through a window, which killed him instantly.
Neither the shooter nor the deceased was aware that a safety net had been installed just below the eighth floor level to protect some building workers, and that Ronald Opus would not have been able to complete his suicide the way he had planned.
The room on the ninth floor, where the shotgun blast emanated, was occupied by an elderly man and his wife. They were arguing vigorously and he was threatening her with a shotgun! The man was so upset that when he pulled the trigger, he completely missed his wife, and the pellets went through the window, striking Mr. Opus.
When one intends to kill subject ‘A’ but kills subject ‘B’ in the attempt, one is guilty of the murder of subject ‘B.’
When confronted with the murder charge, the old man and his wife were both adamant, and both said that they thought the shotgun was not loaded. The old man said it was a long-standing habit to threaten his wife with the unloaded shotgun. He had no intention to murder her. Therefore the killing of Mr. Opus appeared to be an accident; that is, assuming the gun had been accidentally loaded.
The continuing investigation turned up a witness who saw the old couple’s son loading the shotgun about six weeks prior to the fatal accident. It transpired that the old lady had cut off her son’s financial support and the son, knowing the propensity of his father to use the shotgun threateningly, loaded the gun with the expectation that his father would shoot his mother.
Since the loader of the gun was aware of this, he was guilty of the murder even though he didn’t actually pull the trigger. The case now becomes one of murder on the part of the son for the death of Ronald Opus.
Now comes the exquisite twist…
Further investigation revealed that the son was, in fact, Ronald Opus. He had become increasingly despondent over the failure of his attempt to engineer his mother’s murder. This led him to jump off the ten-story building on March 23rd, only to be killed by a shotgun blast passing through the ninth story window. The son, Ronald Opus, had actually murdered himself. So the medical examiner closed the case as a suicide.
A story this good should be true. Alas, it’s not. According to Snopes there never was a suicidal Ronald Opus, a feuding, shotgun-wielding older couple, or an increasingly confused medical examiner trying to get to the bottom of things. But there is some truth to it, for there is a Don Harper Mills, and he did tell this very story at a meeting of the American Academy of Forensic Sciences. Mills explained that he made up the story to present to the meeting for entertainment and illustrate how changing a few small facts can greatly affect the legal consequences.
I hope you have enjoyed the latest edition of Noel News.
Thanks for all your kind comments. Please continue to send feedback through; it’s always appreciated and helps us to improve the newsletter.
And don’t forget you’ll get much more regular communications from me if you follow me on twitter – @NoelWhittaker.