Noel News 29 Mar

Everything already exists.
It’s our job to develop awareness to access it.
DAVID MELTZER


We’ve got a pretty comprehensive newsletter for you today, and I know you’re going to enjoy it. I am writing this from home in Brisbane and am so excited to see a bright sunny sky once again after days of some of the heaviest rain I have seen in my lifetime.

Last Wednesday, on the recommendation of some golfing friends, I visited  the Nundah Village Family Practice to get a Covid vaccination. I got the text from my friends at 6 AM that morning, and got a 9:25 AM appointment on the same day. I’ve never been to this practice before, but they have certainly got their act together.

At 9 AM, I arrived and went straight to the receptionist who checked me in within two minutes. Another two minutes later, I was in the room where two nurses were giving the vaccines, which took about three minutes. So five minutes after arrival, I had the vaccination, and was then sent to a waiting room to sit for 15 minutes to make sure there were no adverse reactions. The vaccination was painless – and I have had no adverse reactions so far. It just goes to show what can be achieved by a good operator. The second appointment is booked in June.

To shift gears, please beware of scammers. Recently my phone rang from a number I did not know. The caller’s name was Luke and he told me he that he was returning a call he had received from my number. He was not happy as the call was obviously a scam. I quickly assured him I had not rung him but it’s a great worry when conmen are able to use a person’s real mobile number when they are making scam phone calls.

The day after this happened Geraldine got a similar call from a different person – in neither case did our phone show that we had made a call to these people. The lesson here is to be extremely careful with text messages and phone calls.

Also, let me reiterate previous warnings about invoices. These days almost every account you receive contains the merchant’s bank details. Scammers now have the ability to intercept these account emails and change both the BSB number and the account number so the money goes into the scammers’ account.

This is why every time I pay an account online, I check that the account details on the invoice match what I have paid in the past with that person. If not, I ring them and verbally confirm the details over the phone. Once you lose money like this, it’s almost impossible to get it back.


Super as a house deposit

The prize for the most ill-conceived idea of the year must go to Liberal MP Tim Wilson for very publicly campaigning for first home buyers to be allowed to access part of their superannuation for a house deposit.

Not only would it drive up house prices, the plan has other major faults: it subverts the purpose of superannuation, it has tax problems, and it fails to account for the extraordinary effect of compounding over time.

Think about a person who started work at age 20 on $35,000 a year. Suppose the employer contribution remained at 9.5% per annum and the fund earns 8% per annum. By the time they were 30 and earning $50,000 a year, their fund should be worth $54,000.

Fast-forward 40 years, when the retiring age may well be 70. Their fund should be worth just over $3 million if the assumptions in the example are unchanged. However, if they withdrew $50,000 from that balance at age 30 for a house deposit, their superannuation would be worth just on $1.9 million. Withdrawing $50,000 at age 30 would cost them $1.1 million when they retire.

Now think about the tax implications. Under the current rules, money withdrawn from superannuation before your preservation age incurs a tax of 22% or your marginal rate, whichever is the lowest. If we assume anybody buying a house would be earning more than $45,000 a year, which is where the marginal tax rate of at least 32.5% rate cuts in, it’s obvious that 22% would be deducted from most sums withdrawn early.

Or imagine the rorts that would happen if early withdrawals were tax-free! If Jack and Jill earnt $100,000 year each, their employer contributions of $9,500 would enable them to contribute a further $15,500 as a tax deduction, losing only 15% contributions tax. No government in its right mind could tolerate a situation where they could withdraw that money in a few years with no exit tax.

Every strategy designed by governments to make entry to the housing market easier pushes up the price of houses. To get an idea of what would happen to the housing market if billions of dollars were released tax-free from superannuation, think about what the $10,000 withdrawn per person during Covid did to the second-hand car market. Most dealers ended up out of stock.

A major plank of the arguments put forward by Liberal MPs such as Tim Wilson is that it’s “their money”. Well, actually it’s not – it’s trust money contributed by the employer using generous tax concessions provided by the government with the sole purpose of reducing the cost of welfare at retirement.

There is also the argument that we need to prevent people entering retirement without a roof over their heads. That is unquestionably true, but there are so many reasons people end up not owning their own homes. Many who have bought, lose the house they had because of relationship breakdowns or bad financial choices. The proposed scheme would have no benefit to them.

Tim Wilson needs to remember that the genesis of the global financial crisis was President Clinton’s belief that every American was entitled to home ownership, irrespective of income or assets. This led to billions of dollars of bad debts, repossessions, and plunging real estate prices.  Australia can’t afford for that to happen here.


Housing in New Zealand

Just to keep in mind that the housing affordability problem is not just confined to Australia. In New Zealand low interest rates and rising demand have pushed house prices up 23% in the last year. New Zealand is now the least affordable housing market among developed nations, and investors have become the biggest property buyers in the country. To make it worse 40% of the sales in the final quarter of last year were made to owners of multiple properties.

The New Zealand government has just announced steps to try to make housing more affordable, but their track record is not good. They were elected in 2017 with the  promise that KiwiBuild would change the face of the housing market by building 100,000 affordable homes within 10 years. In 2019 a review found that the interim goal of building 1000 homes in the first year was scrapped when it was found that KiwiBuild had managed to build less than 100 homes. But that’s what happens when government gets into the act.

In the much-anticipated announcement, Prime Ministe Ardern doubled the so-called bright-line test – the time that investors need to hold onto a property to avoid paying tax on selling – to 10 years. Other measures will prevent investors from offsetting interest on loans as an expense against their rental income.

There is a wealth of material about the NZ housing crisis on that great show  The Money  by Richard Aedy and I urge you to go to the ABC listen app and play it for yourself.  The program was broadcast on Thu 25 Mar 2021. Topics include how a container ship wedged in the Suez Canal adds to global supply chain disruptions, what will happen when the JobKeeper wage subsidy comes to an end, and new measures to cool New Zealand’s housing market and build more homes. The running time is 30 minutes.

The key message for me was the claim that to restore housing affordability in New Zealand, the average home would have to drop in price by 25%. Just imagine the implications for the entire economy if that happened.


Superannuation Returns

In my new book Retirement Made Simple I point out that the biggest factor that determines how much you need when you retire, and how long your money will last, is the rate of return you can achieve on your portfolio. Unquestionably, superannuation is the best vehicle for saving in a tax effective manner – the only drawback is lack of access until you reach your preservation age – but many people either have no faith in superannuation, or they start a self-managed fund and think they can do better themselves. Sometimes they do, but often they don’t.

The latest returns for superannuation have just been released and they are shown below. As you can see, the returns for each period have been extremely good, but Growth is little bit in front of Balanced, and they are both way ahead of Capital Stable.

This is why anybody under 50 should have the bulk of their money in super in high growth, and even why retirees aged, say, 65 to 70 should keep a good proportion of their superannuation funds in growth or at least in balanced.

Thanks to rising life expectancies, a person now 70 will most likely get to age 90. That’s 20 years of investing ahead of them – a long view is essential.


Pension Updates

The latest six-monthly age pension adjustments have taken place and are effective from 20 March 2021. The main changes are a slight increase in the amount of the age pension, which also leads to an increase in the cut off points for both the assets test and the income test. The maximum pension for a single person is now $952.70 a fortnight, and for a couple $718.10 a fortnight each.

Everybody is allowed a certain base level of income and assets, but once you exceed the base level the pension reduces. For income test purposes the pension reduces by $0.50 for every additional dollar earned over the threshold, and by three dollars a fortnight for every $1000 of assets over the bottom limit.

The lower asset limits are $268,000 for a single pensioner and for a couple $401,500. Once these levels are exceeded the pension tapers until it reaches the upper cut off point where no pension is payable. The base income threshold is $316 a fortnight for a couple and $178 fortnight for a single.

The cut-off point for a homeowner couple has gone up to $880,500 and for a single pensioner $585,750.  For non-homeowners the numbers are $1,095,000 and $800,250 respectively. The income test cut-off points are now $82,898.40 per annum for a couple and $54,168.40 for a single.

Each year on 20 March and 20 September, Centrelink values your market-linked investments, such as shares and managed investments, based on the latest unit prices held by them. These investments are also revalued when you advise of a change to your investment portfolio or when you request a revaluation of your shares and managed investments. If the value of your investments has fallen, there may be an increase in your payment. If the value of your investments has increased, then your payment may go down.

The rules are in favour of pensioners. If the value of your portfolio arises because of market movements, you are not required to advise Centrelink of the change – it will happen automatically at the next six-monthly revaluation. However, if your portfolio falls you have the ability to notify Centrelink immediately.

You can reduce your assets by giving part of your money away but seek advice before you do it.  The Centrelink rules only allow gifts of $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules, a would-be pensioner could gift away $10,000 before June 30th and $10,000 just after it, and so reduce their assessable assets by $20,000.

The rules are prima facie simple, but there is devil in the detail. If a member of a couple has not reached pensionable age it’s prudent, if appropriate, to keep as much of the superannuation in the younger person’s name because then it is exempt from assessment by Centrelink. However, the moment that fund is moved to pension mode, it’s assessable irrespective of the age of the member.

Furthermore, a debt against an investment asset is not deducted from the asset value, unless the mortgage is held against the investment asset. It is not uncommon for people to have a large mortgage secured by their house, for an investment property – in that case Centrelink assess the gross value of the property and do not deduct the loan.

My website has some great resources for anyone planning retirement, especially the age pension.

There is a deeming calculator, an age pension calculator.

And in the Resources section is a downloadable PDF of the actual pension charts. They have been prepared by MyPension Manager and are brilliant. I keep a copy on my desk laminated, and refer to them all the time. It gives you a fantastic overview of pensions.

 


Help with your sleep

As many of you know, my son James – now based in Los Angeles, California – has a podcast called Win the Day™ with James Whittaker where he interviews some of the world’s leading experts in a whole variety of different fields. The episode he released last week was with the world’s #1 sleep doctor, Dr Michael Breus, and I highly recommend it.

We spend about one-third of our lives sleeping; therefore, we need to make quality sleep a priority, but unfortunately modern technology and the stress from covid has meant we’re sleeping worse than ever.

Dr Breus has appeared on Oprah, The Dr Oz Show (more than 40 times), and is a three-time bestselling author. What he shares in this episode is incredibly valuable to ensure you’re operating at your peak each day.

Topics include:
  • A five-point plan to improve your sleep right now
  • The latest hacks in sleep science to help you perform at your best
  • How people with PTSD and depression can sleep better
  • The celebrity transformations Dr Breus is most proud of
  • What sleep myths need to be busted
  • The best way to wake up energized
  • And many more.
You can access the full episode below:

I’m sure you’ll enjoy it. Geraldine and I learned so much from listening to it.


Event for those in Brisbane

I’ll be appearing at Riverbend Books (Bulimba, QLD) on 19th May at 6:30pm where I’ll be talking about my new book Retirement Made Simple and helping all those in attendance to navigate the complex route to retirement.

If you’d like to join us, register here. It would be great to see you.


And finally…

Paddy says “Mick, I’m thinking of buying a Labrador. “Bugger that,” says Mick, “have you seen how many of their owners go blind?”

The Grim Reaper came for me last night, and I beat him off with a vacuum cleaner. Talk about Dyson with death.

I went to the cemetery yesterday to lay some flowers on a grave. As I was standing there I noticed four grave diggers walking about with a coffin. Three hours later and they’re still walking about with it. I thought to myself, they’ve lost the plot!!

I was at an ATM yesterday when a little old lady asked if I could check her balance, so I pushed her over.

Statistically, 6 out of 7 dwarfs are not Happy.

My neighbour knocked on my door at 2:30am this morning, can you believe that, 2:30am?! Luckily for him I was still up playing my bagpipes.

Local Police hunting the ‘knitting needle nutter’, who has stabbed six people in the rear in the last 48 hours, believe the attacker could be following some kind of pattern.

Bought some ‘rocket salad’ yesterday but it went off before I could eat it!

My girlfriend thinks that I’m a stalker. Well, she’s not exactly my girlfriend yet.

Just got back from my mate’s funeral. He died after being hit on the head with a tennis ball. It was a lovely service.

 


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.

Noel Whittaker


Noel News – 4 Mar

We make a living by what we get,
but we make a life by what we give.
WINSTON CHURCHILL


I started this newsletter in November 1998. I mentioned then that I had received so many letters and emails from readers of my books and columns over the years that many of you feel like family, and having the ability to communicate with you in this way lets me give you information you would not get elsewhere. It’s always been about providing accurate information, because so much stuff in the media is incorrect or is partly true.

The newsletter has always been free because I feel that price should not prevent anybody who is keen to learn. Furthermore, I have never accepted sponsorship because I value my independence and want to feel free to make recommendations about products that I think are great, without any obligation to somebody who was paying for it.

My approach has always been holistic – just recently, when I was doing an interview for a piece in the newspaper, I was asked, “How come you devoted 50 pages in Retirement Made Simple to health and well-being?” I responded that when people are retired and are financially challenged there is seldom an easy way out. But our greatest asset is our health, and the good news is that it doesn’t take a fortune to stay in shape. Eating well, and getting regular exercise is not expensive – it just takes knowledge.

In this newsletter, apart from the usual topics, I’m including a podcast from Ashley Owen who spells out investing versus speculating, and gives us some great information on bitcoin – most of which I didn’t know. Don’t miss it.


Interest Rates

The Reserve Bank has just handed down the latest interest-rate decision and, as expected, rates are still on hold. But the big question is where our interest rates going from here. Even though the world is full of good news right now, investors are more confused than ever. The success of the COVID-19 vaccine worldwide gives us cause for optimism, and it also means a new threat: inflation. If business activity picks up again, all that stimulus pouring cash into world markets will start to be eased back. Already, many big investors are dumping sovereign bonds, with the US 10-year yield jumping to near 1.38% and the Australian 10-year yield now over 1.6%.

We currently have huge labour shortages – workers are not available either because they are too happy on Jobseeker or because they can’t get to Australia – and material shortages are rampant due to transport delays. The bottom line is that inflation is upon us, and this means interest rates will go up.

Now I know that Philip Lowe of the Reserve Bank has told us that there will be no rate rises till 2024, but markets are betting it will be one to two years earlier. My friends in the money market are even betting on the cycle turning before this Christmas, and history tells us that there may well be 10 interest rate rises in the next cycle. If we assume each rise will be 25 basis points, it would not be unrealistic to expect, over time, a 2.5% increase in the cash rate. That would take home mortgage rates to 5% per annum or more.

Of course, forecasts are notoriously unreliable, but it seems reasonable to think we are very close to the bottom of the interest rate cycle, even if it doesn’t turn upwards for a year or more.

This is a warning to anybody with any kind of variable rate loan. If you agree with my reasoning, you may wish to think about fixing part of your rate sooner rather than later. But make sure you first understand the comparison rate. Right now on television, for example, Westpac are flogging a fixed rate of 1.99% for four years; but by law they must also mention the comparison rate, which is the effective rate after fees and charges – that’s a much less attractive 3.29%. Make sure you look at the comparison rate, not just the advertised rate.

A great place to start would be one of the comparison websites, where the leading variable and fixed rate loans are listed, with the comparison rate shown clearly as well. Interest rates change all the time, but at date of writing, a three-year fixed loan from U-bank at 1.75% (comparison rate 2.22%) looked to be one of the most attractive. Remember, if you are thinking of switching, you also need to be aware of what other conditions might attach to the loan.

You should also stress test your position, if you have a home loan now. Go to my website and play around with the loan calculators. You can easily work out what the repayments would be if your interest rate went up to 5%. Once you have done that, you should start to increase your home repayments until you get them to a level where you could cope easily if rates did rise to that extent.

I know that the real estate market is rocketing along right now, but if rates start to rise it may well stop dead in its tracks. It’s never been more important, if you’re in the market, to try to get an undervalued property that will hold its value in a slack market. Remember, property values can fall as well as rise.


Hands Off Our Super

The amount of money held in superannuation has now topped $3 trillion, making Australia the fourth-largest holder of pension fund assets in the world. Sadly, when this amount of money is mentioned, all the vested interests come out of the woodwork to suggest ways to “improve the system.”

Last month the Association of Super Funds of Australia (ASFA), who represent some of Australia’s biggest funds, made several recommendations. One of them was that if a person had a balance of more than $5 million the surplus should be removed from the superannuation system. Another was that indexation should be abolished for both the non-concessional contribution cap and the transfer balance cap. Both are currently $1.6 million and which, due to indexation, will rise to $1.7 million on 1 July.

These recommendations are not unexpected, because ASFA is not a fan of self-managed superannuation funds. But they are unrealistic and unworkable. For starters, less than 1% of self-managed funds have balances of more than $10 million, and the assets of these funds are usually in big, illiquid assets.

Let’s work through a hypothetical example to see how it may work.

Jack and Jill are both aged 75, and have an SMSF with a balance of $16 million. Apart from some listed shares, the principal asset is a large industrial building from which they have been running their business for more than 30 years, and which is now worth $15 million. Thanks to improvements and renovations over time the cost base is $10 million. ASFA argues that this is not fair, as they are taking advantage of the 15% tax environment, but the bulk of the value is in unrealised capital gain which will contribute nothing to government coffers until the property is sold.

Admittedly, when they do dispose of the asset the capital gains will be taxed at 10% instead of the 22.5% that would apply if the asset was held in their own names. But the tax saved is only $625,000.

These continual attacks on the relative few with large balances miss a major point: within two decades, almost all these funds will be gone. Jack and Jill, like most trustees of large self-managed funds, are in their senior years – their life expectancy is likely to be about 15 years. When they die, the most they can leave to a dependent within superannuation would be $1.7 million. Any remaining funds have to be removed from the system. So the bottom line is that within 15–20 years almost all the big funds will be a thing of the past.

I also fail to see the reasoning in ASFA’s suggestion that indexation of the superannuation caps be abolished. The purpose of indexation is to preserve the status quo in real terms; in a perfect world, income tax rates, payroll tax and stamp duty thresholds would all be indexed. The reality is that governments are quick to index items that produce revenue, such as fines, but slow to use indexation in tax areas, because this would benefit taxpayers and not the government. The classic example in Queensland is the land tax thresholds, which have not been indexed for 13 years. This has hit landlords hard, as land tax bills have been increasing in line with their assessed site value.

Superannuation should be the cornerstone of Australia’s retirement system. For God’s sake, leave it alone, and let people accumulate money for a welfare-free future, free from continual tinkering. Continual changes to the system lead to distrust in it. Did I mention that we have the fourth-biggest system in the world? That’s a major achievement!


Indexation

Thankfully indexation is still with us and the new numbers that will take affect from 1 July have been announced.

The concessional cap – which is the amount that is tax deductible – will go from $25,000 a year to $27,500 a year. This could have implications for anyone who is trying to reduce capital gains tax by making tax-deductible contributions to superannuation. In some cases, the catch up contribution rules could enable a much bigger deductible contribution in the year the capital gain is made. This is an area where expert advice should be taken.

The limit for non-concessional contributions will increase from $100,000 to $110,000 and in addition the maximum amount a member who was under 65 at the start of the year can contribute under the bring forward rules will increase from $300,000 to $330,000 . Also note that the $1.6 million non-concessional threshold is also changing due to the indexation of the general transfer balance cap to $1.7 million. For example, from 1 July a person’s non-concessional cap will be nil if their total super balance on 30 June 2021 was $1.7 million or more.


Investing or Speculating or Bitcoin?

It’s great to read stuff, but sometimes you learn better by hearing a good conversation. In this newsletter I’m privileged to include a conversation between Vincent O’Neill – the CEO of Stanford Brown, a boutique Sydney financial advisory firm, and their chief investment officer Ashley Owen – who has been a close friend of mine for more than 20 years. His knowledge of financial markets is unique; he is my go to man whenever I have a serious question. The entire podcast was recorded verbatim – there were no prepared questions.

The topics discussed are listed below, but I think the two you really need to focus on our investing versus speculating, and bitcoin. This is a really educational podcast and I know you will benefit greatly from it.

The topics include:The Democrat clean sweep in Washington and what it means for global markets

  1. Inflation fears and how they impact share and bond markets
  2. When will the Fed and RBA hike rates?
  3. How to tell if you’re an investor or a gambler?
  4. The GameStop short squeeze – what really went on?
  5. Bitcoin – is it the new ‘safe haven’ currency?
  6. Outlook for company profits , dividends and share prices
  7. Why they are still relatively bullish on shares Listen to it here.

 


Aged Care

This week, after more than two years, 10,000 submissions and 600 witnesses, the Aged Care Royal Commission provided its final report titled “Respect, Care and Dignity”. I have asked my business partner Rachel Lane for her comments on what is proving to be a controversial report.

Rachel writes:

The report contains 148 recommendations that could revolutionise aged care, including:

  • A new Act that places the rights and needs of the individual to receive high quality aged care at the centre.
  • A single assessment and funding programme that incorporates all home care and residential aged care services, providing funding based on the individual’s needs and enabling flexibility and choice across providers.
  • Bolstering governance, safety standards, and prudential arrangements including minimum education and staffing levels and an Independent Pricing Authority to ensure consumer fees and government subsidies are in line with costs.
  • Changes to means testing arrangements so that people, whether they receive care at home or residential aged care, would not be required to make a contribution towards the cost of their care. Contributions would be made towards accommodation and everyday living expenses with a safety net for people of low means but no Lifetime Cap.
  • Phasing out of lump sum Refundable Accommodation Deposits (RAD’s), moving to a rental style model, due to the liquidity issues they create for providers and the belief that investment in the sector should come from capital markets not residents.\
  • The introduction of a tax levy to assist in funding the system.
  • Clearing the more than 100,000 people on the waiting list for a Home Care package that has seen some people waiting for 34 months and an estimated 30,000 die over the last 2 years.
  • Immediately provide an increase of $10 per day to the Basic Daily Fee in residential aged care to cover meals and nutritional needs with the cost being met by the government.

While the big picture vision for the system is clear, the Commissioners could not reach a united view on how best to achieve it.

Commissioner Pagone supports an Independent Commission Model for aged care with greater independence from the Government while Commissioner Briggs favours a Government Leadership model which provides independence on some aspects such as pricing and quality regulation.

The establishment of an independent pricing authority to remove the inherent conflict the government faces in trying to fund care and control spending saw a similar divergence in opinion with Commissioner Pagone believing the prices set should be binding on the government while Briggs thinks it should be an advisory role.

Similarly, when it comes to the levy Commissioner Pagone wants the levy funds to be dedicated to aged care spending and the amount determined by the Productivity Commission while Commissioner Briggs supports a less formal model with a levy of 1%.

There is also a divergence in views on when and how to phase out RAD’s.

While much has been made of the fact that the Commissioners could not reach a united view, let’s not believe for a minute that if the government was given a clear and direct single option they would have adopted it all. The fact that there are alternative ways of achieving the desired outcome may actually work in favour of reform. It’s like a choose your own adventure book. While the path may not be a straight one, when it comes to aged care reform I think most of us can agree this isn’t about the journey but the destination and we need to get there quickly.


Personal Growth

I have been hooked on personal growth since I read Think and Grow Rich when I was 34. That started a journey which included attending live events to see Norman Vincent Peale, Og Mandino, Wayne Dyer, Brian Tracy, Zig Ziglar, Denis Waitley, Jim Rohn, Anthony Robbins and Stephen Covey.

But let’s face it, most of these events cover the same basic principles presented in different formats. When James and I wrote The Beginner’s Guide to Wealth we condensed the basic success principles and put them in a form where young people could understand them easily. They include goalsetting, understanding that anything worthwhile takes time, the power of persistence, and understanding that failure is a part of success because, if you never fail, you have never stretched yourself.

Last week I discovered a book which is unique. It’s called The Art of Impossible by Steven Kotler. He calls it a peak performance primer, but what makes it so special is that he explains the neuroscience and the physiological implications of the actions that successful people normally do.

In Retirement Made Simple I stress the importance of having a purpose in life, because every book I have read on life expectancies makes this point. But Kotler takes this a step further – he says neurobiologically, purpose alters the brain. It decreases the reactivity of the amygdala, decreases the volume of the medial temporal cortex, and increases the volume of the right insular cortex. A less reactive amygdala translates to less stress and greater resilience. The medial temporal cortex is involved in in many aspects of perception, suggesting that having a purpose alters the way the brain filters incoming information. A larger right insular cortex has been shown to protect against depression and correlate with a significant number of well-being measures.

He writes that all these changes seem to have a profound effect on our long-term health. Having a purpose in life has been shown to lower incidences of stroke, dementia and cardiovascular disease. Additionally, from a performance standpoint, purpose boosts motivation, productivity, resilience, and focus.

I’m the kind of person who is more likely to follow a recommendation if I know the reason for it. Geraldine and I desire our meals around having a healthy gut – because we now know the impact the gut has on our health and immune system. Obviously, the same can be said for having a purpose.

Highly recommended.


And Finally

 

Moments of clarity

As I sat, strapped in my seat waiting during the countdown, one thought kept crossing my mind …  every part of this rocket was supplied by the lowest bidder. – John Glenn

When the white missionaries came to Africa, they had the Bible and we had the land. They said, ‘Let us pray.’ We closed our eyes. When we opened them, we had the Bible and they had the land.  – Desmond Tutu

America is the only country where a significant proportion of the population believes that professional wrestling is real but the moon landing was faked. – David Letterman

I’m not a paranoid, deranged millionaire. I’m a billionaire.  – Howard Hughes

After the game, the King and the Pawn go into the same box.  – Italian proverb

The only reason they say ‘Women and children first’ is to test the strength of the lifeboats.  – Jean Kerr

I’ve been married to a communist and a fascist, and neither would take out the garbage. – Zsa Zsa Gabor

When a man opens a car door for his wife, it’s either a new car or a new wife.  – Prince Philip

Wood burns faster when you have to cut and chop it yourself.  – Harrison Ford

The best cure for sea sickness is to sit under a tree.  – Spike Milligan

Lawyers believe a man is innocent until proven broke.  – Robin Hall

Kill one man and you’re a murderer. Kill a million and you’re a conqueror. – Jean Rostand.

Having more money doesn’t make you happier. I have 50 million dollars but I’m just as happy as when I had 48 million.  – Arnold Schwarzenegger.

We are here on earth to do good unto others. What the others are here for, I have no idea. – W. H. Auden

If life were fair Elvis would still be alive today and all the impersonators would be dead. – Johnny Carson

Hollywood must be the only place on earth where you can be fired by a man wearing a Hawaiian shirt and a baseball cap. – Steve Martin

Home cooking. Where many a man thinks his wife is. – Jimmy Durante

America is so advanced that even the chairs are electric. – Doug Hamwell

The first piece of luggage on the carousel never belongs to anyone. – George Roberts

If God had intended us to fly, he would have made it easier to get to the airport. – Jonathan Winter

I have kleptomania, but when it gets bad, I take something for it. – Robert Benchley

The weather person is the only person that I know, that can be wrong 99.9% of the time and still have a job the next day. – Johnny Carson

 


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.

Noel Whittaker


Noel News 28 Jan 2021

You can’t go back and change the beginning, but you can start where you are and change the ending.
CS LEWIS


Welcome to our first newsletter of 2021. As always, I am amazed how quickly time flies – next week will be February. But there is still time to think about the year ahead and what you can do to survive it in good shape. There is no doubt there will be surprises, not all pleasant ones. President Biden has just announced restrictions on incoming flights from many countries, which — although being the obvious thing to do – will hit the American economy hard.

It’s unlikely international travel will happen this year, which will make it two years since we will have seen son James, his wife Jenn, and their beautiful daughter Sophie. We do keep in touch closely through FaceTime but it’s not the same. And we are not alone – most of my friends seem to have at least one child living overseas.

According to Finder, the top New Year’s resolutions were to improve fitness and lose weight, save more, spend less, and eat better. When you think about it, they all tie in together. Once you start to improve your eating habits, your weight will drop, you will feel better, and you will be more inclined to go on a fitness program. And cutting out junk food will invariably save money.

 

Since I started to learn about the importance of microbiome and the gut, our diet has changed, I have lost weight, and have never felt better. A book I recommend is The Clever Guts Diet by Dr Michael Mosley. It’s an easy read, explains the whole concept of the gut, and contains many delicious recipes. An easy way to start is to abolish all soft drinks from your life, switch from white bread to multigrain bread, and minimise sugar. Just those three simple acts can make a huge difference.


As far as finances go a great way to get moving is to go to my website and download a free copy of the file ‘Noel’s Action Plan’. It’s on my website under ‘Resources’ – ‘Free downloads’.

While we all have the best of intentions, starting is often the hardest part, and my action plan makes it easy.

I won’t go into too much detail here – the form is self-explanatory and guides you through the process. If you were lost, the best map in the world would be useless if you didn’t know where you were, so the first steps in the action plan are designed to give you a snapshot of your financial position right now.

Once you have that information, you are prompted to write some goals, and then use the information in your financial snapshot to work out what you need to do to achieve those goals.

For example, if you’re 55 now, wish to retire at 65, and still have a mortgage over your home, a major goal should be to become mortgage free by age 65. The best way to achieve this is not to concentrate on getting the mortgage down quickly. It’s better to focus all your efforts on making concessional contributions to super because for most people these lose just 15%, whereas money taken in your pay packet may lose up to 47%. And given your superannuation fund should be achieving something around 7%, and your housing loan should be under 3%, it’s a no-brainer to use superannuation as the great wealth creation device it’s meant to be.

Maybe you’re younger and you want to get off the debt treadmill. Once you have listed all your debts, you can then make a plan, as described in detail in Making Money Made Simple, to attack those debts. This is usually best done by attacking the personal loans first. If you are spending more than you earn, a simple way out is to swap your credit card for a debit card. This will prevent you overspending because all a debit card does is allow you to access money you already have in your bank account.

If you’re over 50, I urge you to get a copy of my new book Retirement Made Simple. As I was explaining to a journalist last week, most people planning for retirement don’t know what they don’t know, and make unnecessary mistakes just due to lack of knowledge. The problem is that mistakes in this area can cost a huge amount of money. I was in a bookstore recently doing a book signing, and a man came up to tell me that my columns had been useful to him in the past. I said, “Well then you need to buy this book”. He replied, “There is no need. At my stage in life I know all I need to know.” I responded, “What about the death tax on super?” His reply was that he had never heard of it.

Think about it – if you have $500,000 in super, and it passes to a non-dependent because you are single, or your partner has died, the death tax could be $85,000. That’s just one of many examples but they all have they one common factor – lack of knowledge that can cost big dollars.

For those who want a comprehensive goal-setting tool, I highly recommend getting a copy of my son James’ Success Plan, which has been used by people all over the world. You can download a free copy here and it will complement the other resources mentioned earlier.


Banks and Lending

Mortgage brokers I speak to tell me that bank approval delays have slowed down considerably, due to accelerated processing times, and increased scrutiny by the lender on the potential borrower’s financial position. This can affect anybody buying property, selling property, or refinancing. Apparently, most of the big banks have outsourced their approval process to India, where it’s become a box-ticking exercise. I am told that delays of three months are normal.

If you are a seller you need to be aware of this, get a substantial deposit from the buyer, then give the buyer all the assistance they need to get their deal approved and settled. It may well take longer than you expect, which could cause you some challenges if you are relying on the proceeds of your home sale to finance the new one. Also make sure if you are changing properties that any contract you sign to buy a new property is conditional on the settlement of the existing one.

If you are a homebuyer, I suggest you do everything you can to get as much of the loan approval process done in advance. This could save costly delays afterwards. And I do think you should use a mortgage broker, as banks have such a wide range of criteria which vary from one to the other. In the new editions of Making Money Made Simple there is a long chapter covering all this, as well as ways to save money my negotiation. One of the young guys in the golf shop told me the chapter on negotiation had saved him $30,000 when he bought his new house.

But what I have written above does not apply only to property transactions. My accountants tell me they are flat out preparing urgent financials for people whose loans have come up for renewal – the bank won’t renew them without up-to-date financial statements. Furthermore, many interest-only loans may be forced to go to P&I (principal and interest) which means much higher monthly repayments. The message is clear – be proactive and get the process going sooner rather than later.

One last thing. Understand the comparison rate, which is the actual rate after all fees and charges are included. Often, but not always, there is a wide difference between the advertised rate and the comparison rate.


A Current Affair

Late last year, I sent out a special bulletin telling you that A Current Affair were keen to do something on my new book but they needed a member of the public to go on TV and talk about a financial challenge they had faced and how they coped with it. One of my subscribers, Gwynne, volunteered and did a wonderful job. We went to air on Friday, January 15. You can look at that interview by clicking here:

It’s one of the biggest television programs in the country with nearly 1 million viewers, and it was great to be part of it.

Since then, I’ve spoken to their producer about another cause celebre of mine which I have been writing about for years. That is the difficulty retirees face when trying to get a credit card. Usually, a couple will have a credit card in the name of the breadwinner, and a supplementary card in the name of the partner. The purpose is to save annual fees, and it works a treat while it’s an income earning family.

But then retirement comes along. If the principal cardholder dies, the supplementary card is automatically cancelled leaving the surviving partner without the ability to get a credit card. I mentioned before how difficult banks have become since the Royal Commission and it seems they take no account of the assets a person may have, or their credit record when assessing loan eligibility. A person may live in a million-dollar house, have $800,000 in super and be drawing a pension of possibly $70,000 a year from their super fund. But because the super pension is tax-free – they have no taxable income and their chance of getting a credit card is almost non-existent. Whenever I write about this, I always get a barrage of emails saying, “This has happened to me – I think it’s terrible”.

What I’m hoping from all of you reading this is that somebody will put their hand up and be prepared to go on A Current Affair and join me in telling the story. It’s discrimination against older people and we need to fight it. Please help me.


Health Matters

Our most precious asset is our health but it can be taken away quickly. One of my golfing mates has been forced to take the last 12 months off golf and have a major shoulder reconstruction because a year ago he decided to do weightlifting when lying on the floor unsupervised. He is paying heavily for that.

I rang another friend of mine, aged 66, last week to catch up for a coffee and he told me he wasn’t at the office very much these days because he was undergoing chemotherapy for bowel cancer. It was discovered after bleeding from the bowel. It is highly likely a colonoscopy a few years ago could have indicated a problem and could have then been simply solved.

Keeping healthy is like keeping your finances in good shape: an ounce of prevention is better than a pound of cure. Please, do as I do, and have the full medical check-up every year.


And Finally

John Travolta tested negative for coronavirus last night. Turns out it was just Saturday night fever.

The World Health Organization has announced that dogs cannot contract Covid-19.
Dogs previously held in quarantine can now be released. To be clear, WHO let the dogs out.

I saw an ad for burial plots, and thought to myself that’s the last thing I need.

Intelligence is like underwear. It is important that you have it, but not necessary that you show it off.

Relationships are a lot like algebra.
Have you ever looked at your X and wondered Y?

A courtroom artist was arrested today for an unknown reason…details are sketchy.

People are making end of the world jokes like there’s no tomorrow.

Whatever you do, always give 100% unless you’re donating blood.

What do you call a sleepwalking nun?
A Roamin’ Catholic.

What did Snow White say when she came out of the photo booth?
“Someday my prints will come! ”

I’ve always had an irrational fear of speed bumps but I’m slowly getting over it.

I’ve finally told my suitcases there will be no holiday this year. Now I’m dealing with the emotional baggage.

A girl said she recognized me from her vegetarian club but I’d never met herbivore.

If you’re not supposed to eat at night, why is there a light bulb in the refrigerator?

My dad died when we couldn’t remember his blood type. As he died, he kept insisting “be positive,” …. but it’s hard for me to be positive without him.

Don’t let your worries get the best of you; remember, Moses started out as a basket case.


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.

Noel Whittaker


Noel News 4 Dec

You can’t go back and change the beginning, but you can start where you are and change the ending.
CS LEWIS


Welcome to December – I must confess I write this with a great degree of frustration. My new book Retirement Made Simple is selling very well – but I’m getting reports from many readers that bookstores just don’t have stock. The distributors have sent me data showing that large amount of books are being delivered to bookstores, but phone calls to  bookstores elicit responses such as “no stock is available.” Now, as one reader pointed out, both Booktopia and their subsidiary Angus and Robertson are showing no stock available until after Christmas. This is despite the fact that there is ample stock, and a further 5000 copies are now on the printing presses.

The message is clear – if you want books before Christmas order straight from our website. We’ve caught up on the backlog, and books are normally shipped within 48 hours of you placing your order. They are all sent express post and are arriving usually within 72 hours of shipping. This may increase as Christmas gets closer.

There have also been questions about what to do if you want to buy a number of books which don’t quite fit the bundles that are on our website. That is simply solved – just email me at noel@noelwhittaker.com.au tell me what you’re looking for, and I will put together any combination  you require. I will then let you know the cost and the bank account to deposit the money to.  I will post the books the same day from my stock at home. The price will be in line with the reduced prices for bundles on the website.

From my experience the book trade is a giant bureaucracy. If you deal with us direct there are only two people involved – Neil who does the shipping, and myself who handles any issues which arise. I guarantee very fast action if needed.


The Retirement Income Review

Last month Treasury released the latest review of the Australian Retirement Income system.  What made this one unusual is that it made no recommendations – It just provided information. But don’t hold your breath, without doubt it will go the way of all the other inquiries.

Remember the Henry tax review, which was commissioned by the Rudd government in 2008, and published in 2010. The report contained 138 recommendations, most of which have been ignored.

In 2014 we had the 320 page Murray report which made 44 recommendations, most of which never saw the light of day. In 2015 CEDA published a comprehensive paper “The Super Challenge of Retirement Income Policy” which pointed out that “constant tinkering around retirement income policies makes it difficult for those planning for retirement to make informed decisions about how best to fund their retirement.”

Of course, if you’re in government you need to be seen to be doing something. In December 2016 Treasury released a discussion paper titled Development of the Framework for Comprehensive Income Products for Retirement  (CIPR’s) which required fund managers to develop products which would give retirees security in the later years of their life. The May 2018 budget took the process a step further when they announced a retirement income covenant that would require Trustees of superannuation funds to offer CIPRs. As of today, they are still a work in progress.

Just a week ago Reserve Bank Governor Phillip Lowe urged the Morrison government to move faster on reform, and pointed out that the Productivity Commission’s Shifting The Dial report has been languishing in the government is too hard basket for over three years.

A key finding of the latest Retirement Income enquiry was that the present retirement income system, which revolves around the three pillars of age pension, compulsory superannuation, and voluntary savings was serving retirees well. Consequently, there was no urgent need to increase compulsory employer superannuation.

Predictably, reaction by the many stakeholders in our retirement system were mixed as they all fought to defend their own positions.

The Association of Superannuation Funds of Australia (ASFA) strongly disagreed with the inference that raising the employer superannuation to 12% was not of great importance. CEO Martin Fahey claimed “for many Australians the increase to 12% is essential to offset the financial loss from super withdrawn under the Covid 19 early release scheme”

The big debate now is between more employer super, or more money in the pay packet. Valid arguments can be made for both positions, but in my view, most workers spend every dollar they earn, and would be far better off trading smaller pay rises today, for $800,000 or more in their superannuation when they retire. That would give every retiree the equivalent of a big Lotto win.

The main problem with the review is the assumption that our present pension system can continue at its present generous level. Let’s face it, we have a major structural demographic problem. Our fastest growing group is the over 65’s, who demand more and more in welfare as they age, yet  thanks to a wide range of offsets they pay little or no income tax.

Australia, like every other developed nation is in debt to the hilt thanks to Covid. The big question is where will the money to pay all this welfare come from. Raising the GST to 15% with no exceptions is the obvious answer – how to sell that to parliament is the big question.


Taxing Times

Treasury’s recent Retirement Income Review observed that retirees with large superannuation balances receive too much in tax concessions. It noted that 11,000 people currently have over $5 million in super, and claimed that people with incomes in the 99th percentile receive more tax concessions both during their working lives and in retirement than any other group.

The obvious inference is that superannuation concessions should be wound back for those with large balances. But rule changes already made mean that within two decades there will be very few big balances. Cast your mind back to 30 June 2017, when the Turnbull government introduced the Transfer Balance Cap. This restricted the amount that could be transferred to superannuation’s tax-free pension mode to $1.6 million. Earnings on the balance of a fund were to be taxed a flat 15%.

The ability to make contributions was also slashed. A fund member whose balance exceeds $1.6 million can no longer make a non-concessional contribution. For members with lower balances, the annual contributions cap was dropped by 33% — from $150,000 to $100,000 a year. Furthermore, the limit on concessional contributions was reduced from $35,000 a year to $25,000.

Undoubtedly some self-managed funds had the good fortune to invest in shares like Magellan, Fortescue and CSL, which would have given their balances a mighty boost. But keep in mind that these are usually long-term holdings, and the value increases are only paper gains until the shares are liquidated. Until then, CGT on these would contribute virtually nothing to Australia’s tax income, irrespective of what tax bracket the owner was in.

Most members of large super funds are aged at least 70, which means they are likely to die in the next 20 years. And a person with a large balance cannot pass the entire balance to their family within superannuation mode. If their partner is nominated as a reversionary beneficiary, the widow or widower may receive up to $1.6 million, and the rest of the deceased member’s account must be cashed out and paid to the beneficiary. It has left the superannuation system.

If the inheriting partner already has a balance of $1.6 million in pension mode, to receive $1.6 million from the deceased they would need to commute their existing pension balance back to accumulation mode, to make space for the money being transferred in.

Suppose in three more years the surviving partner dies – if leaving money to a non-dependant, the estate may well be liable to pay tax of 17% on the taxable component of the surviving partner’s account. Alternatively, if they had taken advice, their attorney would have withdrawn the money from the fund tax-free and deposited it in their bank account. In both situations the entire balance has left the superannuation system once both members are deceased.

I fail to see how the review can make the comment that tax concessions go disproportionally to the wealthy. If a person earning $400,000 a year was under the $1.6 million cap and wished to contribute $100,000 to super from after-tax dollars, they would have to use gross income of $189,000 to make an after-tax contribution of $100,000. If they wanted to boost their balance further with a $25,000 concessional contribution, they would pay $7500 in contributions tax, leaving just $17,500 as a net contribution.

The pre-tax cost to a high-income earner of contributing a net $117,500 into super would be $214,000. That’s hardly the stuff that tax rorts are made of.

When the Turnbull tax changes became law the industry gave a huge sigh of relief, in the expectation that finally superannuation rules were settled, and no more changes were in the pipeline. Now more than ever Australia needs a superannuation system that gives certainty. We don’t need any more changes.


Wi-Fi Glitches

It’s become a regular occurrence for the Wi-Fi on my iPhone not to work when I am in a busy area,. It is particularly frustrating when trying to use an app such as Uber. It eventually occurred to me to look at the Wi-Fi connection on the phone, and I discovered that each time there was a problem the Wi-Fi provider was shown as Telstra Air. Once I turned off Wi-Fi, the phone returned and able to access all my apps.

Now I’m not a Wi-Fi expert – but it seems to me that Telstra Air automatically attaches itself to your Wi-Fi when you are in range of one of their pink phone boxes. It’s waiting for you to log in but you can’t do that unless you know the password which I neither have nor want. Anyway, I thought I’d pass this on – it’s something I discovered for myself and seems to be happening more regularly. At least the fix is simple.


Books For The Young

Here’s an example of how powerful the right book can be, and just one of the many emails I receive each week:

Hi Noel,

Thanks for sharing all your wisdom through your books.

When I was 10, I read Making Money Made Simple, and couldn’t wait to be old enough to buy shares. I would analyse the share pages in the Courier Mail! Then Mum bought Beginners Guide to Wealth for me, and I have read it many times, and gave it to my husband to read as well, when he was feeling a bit lost career-wise.

I am now 30 years old, married with a baby daughter, and on maternity leave from my job. I have been able to take a full two years off to spend with our daughter, as we have been very fortunate financially. I’ve been buying shares since I was 18, also bought and paid off an investment unit when I was younger and single – we have just paid off our family home.

Having the financial pressure off has made the stress of Coronavirus not so much of an issue, and I believe has lead us to being more relaxed, happier parents. I hope your books continue to inspire for lots of years to come!

Thank you so much, Noel!

A key lesson here is that set for life starts early in life. If you want to give a young person the ability to help themselves, The Beginner’s Guide to Wealth is the perfect place to start.

Available now:


Downsizing Made Simple Ebook

My collaboration with Rachel Lane, Downsizing Made Simple has helped many people “right-size” their home and living arrangements and navigate the legal and financial maze of moving into retirement living. We explain how a move can affect your lifestyle, superannuation, pension and benefits, and we share some real-life stories from readers.

The book is now available in eBook format for those of who who like their library on a phone, table or computer. Click here to view all the Ebooks now available.


And Finally

“Lexophile” describes those that have a love for words, such as   “you can tune a piano, but you can’t tuna fish”, “To write with a broken pencil is pointless.”

An annual competition is held by the New York Times to see who can create the best original lexophile. This year’s winning submission is posted at the very end.
I changed my iPod’s name to Titanic.  It’s syncing now.

England has no kidney bank, but it does have a Liverpool .

Haunted French pancakes give me the crepes.

This girl today said she recognized me from the Vegetarians Club, but I’d swear I’ve never met herbivore.

I know a guy who’s addicted to drinking brake fluid, but he says he can stop any time.

A thief who stole a calendar got twelve months.

When the smog lifts in Los Angeles U.C.L.A.

Police were summoned to a daycare center where a three-year-old was resisting a rest.

Did you hear about the fellow whose entire left side was cut off?
He’s all right now.

A bicycle can’t stand alone; it’s just two tired.

The guy who fell onto an upholstery machine last week is now fully recovered.

He had a photographic memory but it was never fully developed.

When she saw her first strands of gray hair she thought she’d dye.

Acupuncture is a jab well done.  That’s the point of it.

I didn’t like my beard at first.  Then it grew on me.

Did you hear about the crossed-eyed teacher who lost her job because she couldn’t control her pupils?

When you get a bladder infection, urine trouble.

When chemists die, they barium.

I stayed up all night to see where the sun went, and then it dawned on me.

No matter how much you push the envelope, it’ll still be stationery.

I’m reading a book about anti-gravity.  I just can’t put it down.

Those who get too big for their pants will be totally exposed in the end.


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.

Noel Whittaker


Noel News 11 Nov

Knowledge is the ultimate currency which can never be destroyed.
It can be used over and over again without ever depleting its supply.

GEORGE GILDER


Good morning,

First let me thank you for the magnificent support you have given my new book Retirement Made Simple. Despite not even arriving in most bookstores yet, sales have already exceeded 7,000 copies.

The official launch date is Monday, 16th November, which means a couple of very busy weeks coming up for me doing various media interviews. The feedback has been fantastic and it’s on track to be an even more popular book than Making Money Made Simple.

We did have some software glitches that caused a few orders to be lost. They have been fixed – but if you placed your order before October 31, and have not received your books yet please email me urgently at  noel@noelwhittaker.com.au and we will chase it up.

Right now, the two most asked questions are:

  • What’s my reaction to the election of Joe Biden as the US President?
  • What is going to happen in a world where interest rates look like staying low for years to come?

There are no easy answers, but I have long believed that success requires you to follow some basic principles. A favourite of mine, as we face such uncertain times ahead, is that if you take care of the things you can control, you won’t need to worry too much about the things you can’t control. Let’s face it, there is nothing you or I can do to affect the outcome of the American election.

However, it’s an odds-on bet that there will be a couple of months of euphoria, before reality sets in as the new government faces the challenges of skyrocketing debt, and the difficulty of combating coronavirus once it gets out of control. The change in government in America won’t make much different to that – the gap between the haves and have-nots will continue to grow.


Interest Rates

Last week the Reserve Bank acted dropped interest rates even further. To make matters worse for retirees, there are hints that the next move is more likely to be down not up. Consequently I have been receiving a flood of emails from readers asking where they could find the best bank interest rates on their deposits.

There are two major issues here:

  • First, finding the best rates; and
  • Second, solving the problem of how to exist in a low interest rate environment.

To find the best rate I suggest you search online using websites such as Finder, Canstar and RateCity. At time of writing, the best I could find was 1.50% from Judo Bank for a three-year term, but keep in mind that rates change continually in the light of the banks cash position on the day. Furthermore, many so-called honeymoon rates may be good for six months, and then revert to the bank’s normal rate.

There may also be special conditions. Right now, my wife has an at call account with St George Bank which pays a face rate of 0.20% but which moves up to 0.70% provided she deposits at least $50 each month.

But the bigger picture here is the role of cash in your portfolio. If you are extremely nervous, and have total financial assets of say $200,000, a difference of 0.5% is only worth $1,000 a year to you. That’s not much in the scheme of things. And changing banks continually to grab an extra 0.5% is a mugs game – you will pay more than you save by incurring extra fees and possibly a loss of interest while funds are being cleared.

If the sum is bigger, it is not prudent to keep your whole portfolio in cash. Let’s face it – cash is the most expensive asset class you can own as it’s selling at 100 times earnings.

The obvious solution is to seek financial advice about a balanced portfolio, or simply do it yourself via an index fund such as Vanguard Australian Shares Index which currently has a yield of around 4.5%.  The cream on the cake is that the yield is mostly franked so if you are retired with a tax-free income, you will get all the franking credits back. This would take an effective yield to close to over 6%. Full details are given in Retirement Made Simple.

I appreciate that shares are volatile, but by definition an index cannot go broke, and the index fund should keep on paying the dividends irrespective of the normal ups and downs of the share price.

And the great thing about shares is that you don’t need to outlay a massive sum. Let’s say you were rather risk averse, and your financial assets were $300,000 all in cash. You could simply leave $250,000 in cash, and put your toe in the water by investing $50,000 in an index fund. That huge cash buffer would give you heaps of time to ride out any falls in stock market, and the investment in the index fund would give you great experience with shares.

Of course, if you’re on the pension and are asset tested, every $10,000 you spend returns the equivalent of 7.8% per annum via a reduction in assessable assets. So instead of chasing an extra 0.05% on your $200,000 cash portfolio, you could simply spend $15,000 on a trip, or home renovations, and get an immediate increase in your pension of $1,170 a year. That’s much more fun than chasing a few more basis points on your term deposit.


Noel at the Morningstar Conference

I’ve often thought about starting a podcast for all of you, but there always seems too much to fill the day without taking anything extra on. However, I did do a 40 minute session with Graham Hand at the Morningstar conference, and Morningstar have generously give me permission to include it in this newsletter. I do hope you enjoy it.


Retirement Made Simple Ebook now Available

Printed book sales of Retirement Made Simple have shown me just how much pent up demand there is for this clear and implementable guidance. Now the print book has been digitised, it’s available on our Ebook store for those of you who like all your knowledge in the palm of your hand.

Click here for the Ebook version of Retirement Made Simple

With the Beginner’s Guide to Wealth I wanted to help young people get started on their financial journey. With Making Money Made Simple, I’m here to help you build, grow and protect your wealth during your most productive years. So Retirement Made Simple is about this final and most significant chapter. The printed book is a weighty tome at 424 pages, so the eBook is a great way to have all your advice in a light, easy to read format that you can also search.


The Death Tax

One of the most memorable things about the Queensland state election campaign has been Clive Palmer’s full-sized advertisements warning “a death tax could be Labor’s plan.”

Apparently the advertisements did frighten a lot of people, so let’s look at whether a death tax is likely in the near future.

Let’s get real. Going to an election with a policy of bringing in death duties would be highly risky for any party. But there are situations already occurring in which a tax on death can occur.

If you cast your mind back to the 2019 Federal election, Labor went to the voters with a proposal to abolish the refund of franking credits for everybody except age pensioners. At the time I wrote that this had the potential to be a tax on widows, because of the difference between the pension assets test cut-off points for a couple and a single. If a couple had assets of $700,000 and were receiving a pension of $13,700 a year between them, the survivor would lose their pension on their partner’s death, because the cut-off point for a single pensioner is just $583,000.

Yes, under that proposal, the survivor would have lost the entire age pension, and their franking credits, as well their life partner. But the proposal sank like a stone at the polls.

There are two other areas where death can create a tax situation. The first is superannuation – remember that the taxable portion of your superannuation currently suffers a death tax of 17% if left to a non-dependent. This may not be relevant to a couple, because a partner is automatically classed as a dependent under superannuation rules, but it has huge implications for a single person. In the normal course of events, by the time people pass away their children have long ceased to be dependents, so any superannuation they inherit is subject to this tax.

Of course, it is easy to avoid, as long as you have at least one trustworthy person you are close to. The person with the superannuation just needs to execute an Enduring Power of Attorney with instructions for the attorney to withdraw their superannuation tax-free and deposit it in the member’s bank account if death becomes imminent.

The other existing tax often associated with death is capital gains tax. In most cases death does not trigger CGT, it transfers the liability to the beneficiaries of the estate, who will be liable for CGT when they dispose of the asset.

Let’s suppose your parents owned a bundle of CSL shares bought 10 years ago for just $10 each, and which are now worth over $300 each. If they died tomorrow and left those shares to you, you would be able to receive them free of CGT. But the moment you disposed of them, your CGT would be calculated from the original cost that the deceased paid for them, and you would be liable for CGT on any increase in value over that $10.

So there are definitely situations where death can trigger a taxable event. Notice though, that all the examples above relate to Commonwealth legislation, which has nothing to do with what any state government may decide to do.

But bringing in a death tax would not be easy. In the late 1970s Queensland Premier Sir Joh Bjelke-Petersen abolished death duties in Queensland, and this action was quickly followed by all the other states, as it would be impractical to have death duties in some states and not in others.

And there is one more issue – you can’t have death duties without imposing gift duty as well. Otherwise, people close to death would simply give their assets away to avoid a tax on the estate. Our tax system is continually under review, but I reckon that death duties will stay in the too hard basket for many years to come.


Health Matters

I have devoted the last 50 pages of Retirement Made Simple to ways we can live healthier, happier and longer. After all, good mental and physical health are our greatest assets, and research shows by nurturing these two aspects of our life we can improve it dramatically. In the book I mentioned Blue Zones which are areas in the world were people commonly live to 100 in good health. I recommended you subscribe to their free newsletter here.

Their latest newsletter talks about Marta Zaraska who has just released a book called Growing Young. I have already ordered a copy from Booktopia. She has been studying health for years and has produced some remarkable figures about the way optimism and happy relationships can be good for your health. According to Zaraska, building a strong network of family and friends can lower mortality risk by around 45%. This is much more than exercise which can lower that risk by about 30%, and eating six servings of fruit and vegetables a day which can cut the risk of early death by 26%.

She points out that many people think that living to 100 means spending the last 20 years of your life in a frail state. But that’s a common misunderstanding. Most super-centenarians escape disease until the very last three months of their life.

She also writes about a town in Pennsylvania called Roseto that attracted attention in the 1960 because the population had much lower rates of cardiovascular disease than the rest of America. It turned out that what made them different was their very tight community of people. It was relationships that made the difference.

She concludes by telling us that major drivers of longevity are kindness and volunteering. Volunteers have a 29% lower risk of high blood glucose, a 17% lower risk of high inflammation levels, and spend 38% fewer nights at hospital than people who shy away from involvements in philanthropic work.


And Finally

Why was the fraction apprehensive about marrying the decimal?
Because he would have to convert.

Why did the student get upset when his teacher called him average?
It was a mean thing to say!

Why was the math book depressed?
It had a lot of problems.

Why can you never trust a math teacher holding graphing paper?
They must be plotting something.

Why was the equal sign so humble?
Because she knew she wasn’t greater than or less than anyone else.

What do you call the number 7 and the number 3 when they go out on a date?
The odd couple though 7 is in her prime.

What do you call a number that can’t stay in one place?
A Roamin’ numeral.

Did you hear the one about the statistician?
Probably.

You’ll do algebra, you’ll do trigonometry, you’ll even do statistics. Will you do graph?
No, graphing is where I draw the line!

Why should you never talk to Pi?
Because she’ll go on and on and on forever.

Why are parallel lines so tragic if they have so much in common?
It’s a shame they’ll never meet.

Are monsters good at math?
Not unless you Count Dracula.

What’s the best way to flirt with a math teacher?
Use acute angles.

Did you hear about the mathematicians who are afraid of negative numbers?
They’d stop at nothing to avoid them.

How do you stay warm in any room?
Just huddle in the corner, where it’s always 90 degrees.

Why is six afraid of seven?
Because seven eight – “ate”  nine!

Why DID seven eat nine?
Because you’re supposed to eat 3 squared meals a day!

Why does nobody talk to circles?
Because there is no starting point.


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.

Noel Whittaker


Noel News 20 Oct – New Book Release!

 

You can’t go back and change the beginning, but you can start where you are and change the ending.
CS LEWIS

Today is a very special day – it marks the launch of my latest book, Retirement Made Simple.

I have written over 20 books, but this is one of the most significant ones: it completes a trio that will guide you throughout your life. And the CS Lewis quotation above really tells you what my books are about: moving from where you now are to a better place.

 

Back of the book:

My first book, Making Money Made Simple, was launched 33 years ago and went on to become one of the biggest selling books in Australia’s history. The whole thrust of that book was that anyone could have more than they thought possible if they made the best use of what they had now – starting today. The readers’ emails that continue to come in are testimony to the power of that book.

Then there was The Beginner’s Guide to Wealth (co-authored with my son James), which gives younger people a strong foundation to create a life of happiness and success, as well as the confidence to go after what they want.


 

So, The Beginner’s Guide to Wealth helps younger people…

 


 

Making Money Made Simple shows people in the prime of life how to become financially successful…

 


…and now Retirement Made Simple helps the huge number of people who are retired now or wish to retire in the next 15 years.

BUY NOW: Exclusive Early Copy


The new book is perfectly timed for where we are at the moment. The world is ravaged by COVID-19, and as yet the timing of a vaccine is unknown. Globally, we face a strange combination of rising stock markets and falling interest rates, and more division in politics (especially in the US) than ever before.

Never have retirees and potential retirees faced so much uncertainty. Governments the world over have taken on  trillions of dollars of debt, which must put pressure on welfare in the future. In Australia, the politicians are still tinkering with our superannuation system, and an enquiry into retirement incomes has been with Treasury for two months but has still not been released. A major issue for government right now is that so many retirees are depriving themselves of a good retirement by spending at a much lower rate than they need to.

It is now government policy to talk about three pillars of retirement:

  • the family home
  • superannuation, and
  • the age pension.

In the new book I have addressed ALL these issues, and I continue to be amazed at how many different topics are relevant to people in their retirement years: investment, psychology, risk, getting financial advice, scams, maximising Centrelink entitlements, superannuation, moving house, and estate planning – not to mention the uncertainty of how long you will live and the state of your health.

It’s not easy. Even with all my experience – investing in shares for 60 years; co-owner of a large financial advisory business for 30 years; now on the board of a listed company managing funds of over $600 million; member of ASIC’s liaison committee; chasing and reporting on scams and risky investments for 20 years; and writing finance columns for major newspapers for over 30 years – I still find it challenging. That’s right: between the economy constantly changing, laws being revised frequently, new products evolving, fraudsters continually thinking up new tricks, and surprises such as the GFC and COVID-19, even an old hand like myself finds it a challenge.

In Retirement Made Simple I share with you some of the many experiences I have had as a financial adviser and an investor, as well as the input I get from all the emails that arrive in response to my newspaper columns. Hopefully, this material will help you avoid many of the major hazards which lie in wait for the uninformed. We all need to help each other.

I have taken a holistic approach, covering retirement from the psychological angle as well as the financial one. The contents include ways to be healthy in your mind and body, as well as in your pocket. I’ve been fortunate to have so much time and energy to devote to learning about these things, and I’d like to share what I’ve found with you.

Here’s a sneak peek…

 

What to expect

It’s almost certain that low interest rates will be with us for at least the next five years. Just last week, the Reserve Bank governor was hinting that rates would be dropped even further at their board meeting next month. This makes it critically important for anyone who is accumulating funds for retirement, or who is retired, to make good investment choices, and why I decided to make investing the first section in the book.

Investing for your future contains eight chapters designed to help readers understand how the maths of money works, the role of cash in a portfolio, the bond market, hybrids, investing in local and international shares, real estate and alternative investments. Having read this section, you will have a much better idea of the options available, which will help you make better financial choices.

The second section, When people and money meet, consists of five chapters discussing the way investor psychology interacts with investment choices. First, we define some of the risks that lie in wait for investors, and point out there is no such thing as a risk-free investment. Then we look at risk assessment, explain some key cognitive biases, suggest strategies, and finish the section with examples of scams that have destroyed ordinary people’s hard-earned savings.

Next we move to Designing your own retirement. That section’s six chapters show you how to prepare a retirement budget, calculate how much money you need to retire, and figure out how long your money should last after you retire. Then we discuss how to find a good financial adviser, and what you could expect a financial adviser to do for you. Keep in mind that good advice does cost up-front – but it should pay for itself many times over in the longer term.

The fourth section, Taxation for Retirees, explains how to use the various offsets available so as to pay little or no income tax. We then explore the details of capital gains tax, how it can be minimised and how capital gains tax can affect your estate when you die. There are also examples of investments from which income may be tax free, as well tax-paid investments.


It is easier to keep up than catch up.

LEO D BARDSLEY

No book on retirement would be complete without a discussion of superannuation. Putting the super in superannuation includes six chapters to demystify this topic for you. We discuss the various types of contributions, the best way to build your super, when your funds can be accessed, and show you strategies to make your superannuation work harder not just before retirement but also after it. It’s essential information for those who want to be independent in retirement rather than relying on government handouts that may well be reduced  in the future.

A good retirement needs a reliable income and Funding Your Retirement’s four chapters explain retirement income in great depth. Australia has a somewhat unusual post-retirement system. In many other countries, retirees have an income for life. Investment decisions are taken from them, but they generally feel far more financially secure. In Australia, most of us retire with a lump sum and have to decide how to best use that lump sum.

There is currently no perfect retirement income tool: if you choose an annuity, you opt for certainty but lose flexibility; if you go for an account-based pension, you get flexibility, and the ability to withdraw funds as needed, but you are then at the mercy of the volatility of the stock market. Because of these drawbacks, over the last five years the government has been encouraging development of comprehensive income products for retirement (CIPRS). These are still a work in progress, but a big step forward occurred when the government announced favourable new age pension means test rules for “lifetime income streams” purchased on or after 1 July 2019.

Of course, the age pension will play a part in many people’s retirement income, and we discuss in detail strategies to maximise your pension. We finish this section with equity release products – often called reverse mortgages – which can work well in the right circumstances.

I called the next section You can’t take it with you, because it’s all about estate planning, which is often ignored, left to the last minute, or not kept up to date, even though costs of this neglect can be enormous. So this is a crash course in estate planning: outlining wills, enduring powers of attorney, advance care directives, binding financial agreements, and again featuring case studies where bad estate planning strategies lead to most unsatisfactory outcomes. This is becoming particularly important as people live longer – it is becoming increasingly common for people to lose a partner when they are in their mid-70s, and re-partner with a person in a similar situation. This is where estate planning really becomes crucial.

Hopefully, by the end of that section you are feeling far more confident and prepared financially, so in Living it up we move to the two most important items in your retirement – your health and your happiness. This contains invaluable information gleaned from my research over 30 years about ways to live longer, stay healthier, and enjoy life more. Surely that’s what retirement should be about!

 

I also must give a big thank you to ten friends who read the manuscript and offered helpful suggestions. They cover a wide range of occupations and experience: the CEO of a large superannuation company, a fund manager, some self-funded retirees, and a friend with $400,000 in financial assets who is currently working out the best way forward using a combination of superannuation and the age pension. They were unanimous in their praise for the book – Patricia said, “I wish we would have had this years ago when we retired,” and Barry asked for “two copies right now for my kids, who are 50 and 52.”  I was especially pleased that people with such a wealth of experience all told me they had learnt something new. Remember, we are all at risk from what we don’t know.

 

What’s a book worth?

It’s a fact of life that we can either learn from our own experiences, which can be costly and stressful, or from the experience of other people. And reading books is one of the best ways to do that, since you get people’s experience presented clearly and succinctly. As Charlie “Tremendous” Jones said, “Where you will be in five years depends on the people you meet and the books you read.

Think about this email I received last week:

I first bought your book ‘Making Money made Simple’ in the 1980s and I found it very, very helpful. It gave me ideas and it gave me focus. I am now 68 and retired, and still following your book’s principles.

I recently bought the latest edition, together with ‘Superannuation made Simple’. I thought they were so marvellous and informative that I have bought three sets as Christmas presents for my three sons, Tim, Brendan and Andrew. They are in their 30s and 40s now and are doing their best to build assets for the future. Thank you, Noel, for your excellent financial ideas, your level-headedness, and the wit of your writing. It has all helped the family a great deal.

My wish for you all is that Retirement Made Simple is not just a stepping stone to a wonderful retirement, but also a trusted companion for the rest of your life.

Order a copy of the brand-new book Retirement Made Simple and take the worry out of what should be the most fulfilling stage of your life.

The first 500 books will be signed, giving an extra benefit for the early-bird.

 

How do I buy the book?

The books are being printed now, but  then have to shipped to the warehouse of Simon and Schuster and from there distributed to the bookstores who have bought them. When you add in possible delays due to Covid ,there is a real possibility that the new book will not  be in the bookstores until the end of November.

The good news is that I will have a special allocation sent direct to me from the printers. Retirement Made Simple should be in the hands of our dispatch people by November 2 – orders received in the next few days should be in your hands by the end of the first week in November.

Because subscribers to this newsletter are part of the Noel Whittaker family I’m giving you all the opportunity to get prepublication copies at a discounted price. There is just one qualification: you need to get in early.

The retail price is $29.99 but the discounted price for early-bird buyers will be $27.99 plus postage.

Or take advantage of a two-for-less deal where you can buy any two of my books for just $47.99 with FREE postage.

The reduced prices will expire on November 8.

I think Retirement Made Simple will be an even bigger seller than Making Money Made Simple and I’m keen to get books in circulation as soon as possible to spread the word.

 

For more information about bulk ordering, pre-orders, or anything else, just email me at noel@noelwhittaker.com.au

 


Noel News 10 Sep 2020

The error of youth is to believe that intelligence is a substitute for experience,
while the error of age is to believe experience is a substitute for intelligence.

LYMAN BRYSON


Welcome to our September newsletter – it’s amazing how quickly time passes. It was in my February newsletter that Covid-19 got its first mention, and then in the March newsletter I wrote:

“What we are facing now is far worse than the GFC and I believe it will change many people’s behaviour for the rest of their lives. During the GFC, business kept on going – now it’s been stopped dead. A few months ago, we were talking about a balanced budget – now we face the perfect storm of businesses everywhere going broke, hundreds of thousands of people out of work, and the government pumping everything it can to try to save the economy. The decline in tax receipts will be massive – as will be the increase in expenditure. It could take our debt to over $1 trillion!”

That was certainly prophetic, though I can’t take much credit for stating the obvious. Last week it was officially announced that we are in recession, and now all the commentary is what we should do about it. One group is pushing the government to cut taxes on the grounds that extra spending will stimulate the economy – another group is saying that we are better off to keep Jobseeker at its present levels. I must confess I am more inclined to agree with the second view. After all, a tax cut is no good to people with no income, and many people in jobs who do receive a tax cut are probably going to save it for a rainy day in case things get much worse.

On the other hand, keeping Jobseeker at its present level makes it a virtual certainty that any stimulus money will go straight into the economy, since most of the people who receive it will have no option but to spend it.

Despite recent volatility, the strength of the share market has been extraordinary. The S&P/ASX 200 completed a fifth consecutive month of gains with a total return of 3% for August. The ASX 200 has gained 19% since March, the best five-month period since 2009, but another 18% gain is required to recover February’s all-time-highs.

The big question is how long the stock market rally can continue. Last week Rachel Lane, Adam Creighton (of The Australian), and myself did a webinar for the Starts at 60 group, sponsored by Ingenia. Adam produced the graph below which highlights how much of the recovery has been solely due to government spending. This begs the question as to what will happen as stimulus spending tapers off in line with what’s on the graph.

Of course, this means uncertain times ahead, especially when we factor in the US presidential election. If Joe Biden gets over the line, stock markets may plunge. Realistically, all we can do is to go back to basics – this means we accept the fact that it’s impossible to pick the ups and downs of markets, which means we stay our course as long as our portfolio is diversified and fits our risk profile.

Remember to keep at least 3-4 years expenditure in cash to give us time to ride out whatever volatility is certain to occur in the next few months. If you’ve got a large holding of Australian shares, you may even consider having a hedge by way of an investment in BBOZ which I discussed in my previous newsletter. It’s a reverse index tracker, meaning that if the index rises 5%, BBOZ will drop 10%. Conversely, if the index drops 15%, BBOZ will rise 30%.


Scams

Since the pandemic began, reports of scam victims have increased by 55%, and scammers have extracted more than $500 million from Australians in just the last four months.

Don’t think you are too smart to be caught. My friend Roger, who is a retired businessman, went to Harvey Norman recently to get himself a new photocopier. His requirements were that it could connect wirelessly and not cost an arm and a leg in supplies. After consultation, he settled on a Canon.

He was having a frustrating time connecting it to his Wi-Fi when a notice popped up on his computer screen purporting to be from Canon. It noted he was having technical issues, and suggested he ring a certain number so Canon technicians could sort out the issue as part of the after-sales service.

It seemed genuine, so he rang the number. It was answered by a non-Australian person who said he was part of the Canon technical team and would need access to the computer to connect the photocopier. Roger tells me that after an hour of searching in his computer the alleged technician said that there would be a $980 service fee. Roger was horrified and said he would have to think about it – the response was that it must be paid immediately.

Roger hung up and called Harvey Norman to complain about the audacity of Canon to charge an installation fee that was more than the cost of the photocopier. They were shocked – and gave him the genuine Canon phone number to ring to complain. You guessed it: Canon were horrified as well, but did mention that this was becoming a common occurrence.

And it didn’t end there. Roger’s computer had been hacked, which meant he spent the next two weeks cancelling credit cards, changing passwords, and advising everybody he dealt with about what was, effectively, a break-in.

I think by now most of us are smart enough not to click on links in emails we don’t trust, but this takes scamming to a new level. It seems you now need to be wary about any phone numbers that pop up on your computer, and above all be extremely wary about who gets remote access to your computer.

Another scam that has been doing the rounds for months is the robocall from “Nicole from the NBN” telling tell you that your NBN is to be terminated tomorrow and you need to press 1 to reactivate it. Having had a few of these calls, I have always wondered what the scammer can gain by asking you to press 1.

The ACCC tell me that pressing that button identifies you as a person who would be likely to accept other calls from scammers in the future.

So stay on your guard. And if you are paying money by bank transfer, be especially careful, because some scammers are now hacking into emails and changing the bank details of people you owe money to. When you receive a bill, you now need to confirm that the bank details on the invoice are the same as the details held by your bank for previous payments. If in doubt, ring the supplier before payment.

And of course if it’s a new payee, make sure you ring their office, using a phone number you know to be genuine (not necessarily the one on the invoice) and confirm the account numbers are genuine.


Announcement: Brand new book ‘Mental Dynamite’

As many of you know, Think and Grow Rich by Napoleon Hill was the book that completely changed my life. You could imagine my surprise when, in 2018, my son James – who at the time had been living in the US for six years – was asked to write a modern companion called Think and Grow Rich: The Legacy! His book quickly became an international bestseller and has since been translated into six languages.

Today, his brand new book Andrew Carnegie’s Mental Dynamite has just been released. Fortunately, I was able to get my hands on an advance copy and it is a riveting read, especially given the times we’re in. It has major international distribution and is released in partnership with the Napoleon Hill Foundation.

Andrew Carnegie’s Mental Dynamite serves as a blueprint for harnessing success in business and life. It’s motivational, inspirational, and highly actionable. If you want a step-by-step guide to happiness and prosperity during one of the toughest times we will ever face, this book is a must read.

Order your copy today:

Hardcover

Kindle


Bill Gates on Warren Buffet

I have long been a big fan of both Bill Gates and Warren Buffett, but many people don’t know they are best friends, and even play bridge online every day. I also subscribe to Bill Gates’s newsletter, and in the recent edition he penned this as a tribute to Warren Buffett on his 90th birthday. I think it’s just wonderful:

“I couldn’t possibly list all the interests Warren and I share. But one thing we discovered the first time we met is that we both love math and numbers. So in honour of Warren’s birthday, I thought I would share a few numbers related to turning 90—and to our friendship.

  • 30: Number of years Warren has spent sleeping in his lifetime (assuming he gets his 8 hours a night).
  • 10,649: Days since we met for the first time, on July 5, 1991.
  • 2: Phone numbers I have on speed dial at my office—Melinda’s and Warren’s.
  • Incalculable: The impact Warren has had on the world by committing to give virtually all of his wealth back to society.

One of Warren’s most admirable qualities is his unshakable sense of right and wrong. It’s a trait he may have gotten from his dad, Howard, a stockbroker and three-term U.S. Representative from Omaha. During Howard’s first term, Congress got a pay increase. Howard refused to take the extra money: After all, he had been elected at the lower salary. Warren has that same high ethical bar.

Warren has a phenomenal eye for talent. He buys great businesses run by brilliant people, and then gives them the autonomy to make their own decisions. Most of the managers at Berkshire businesses stay for decades, often past the retirement age. Even if they make a few mistakes, they know Warren will stick with them.

For years, he admired the business acumen of Rose Blumkin, who had opened Nebraska Furniture Mart in 1937 and built it into the biggest furniture retailer in the country. In 1983, he bought the company from “Mrs. B.,” as she was known. She soon opened a rival across the street—and eventually sold that one to Warren too. 

For as long as I’ve known Warren, his approach to life and work has stayed constant. It’s amazing, in fact, how little he has changed even as Berkshire Hathaway has become wildly successful. He has been taking questions at shareholder meetings for decades and still does today—even though the venues have had to expand a little bit. On the left is a shareholder meeting from 1989 (with his business partner, Charlie Munger), and on the right is the meeting in 2010.

Although Warren works incredibly hard, he always leaves time for extracurricular activities. Here he is throwing out the first pitch at an Omaha Royals minor-league baseball game, and guest-starring on an episode of All My Children opposite Susan Lucci and Jill Larson.

Of all the things I’ve learned from Warren, the most important thing might be what friendship is all about. As Warren himself put it a few years ago when we spoke with some college students, “You will move in the direction of the people that you associate with. So it’s important to associate with people that are better than yourself. The friends you have will form you as you go through life. Make some good friends, keep them for the rest of your life, but have them be people that you admire as well as like.”

A person that I admire as well as like—that’s the perfect description of how I feel about Warren. Happy birthday, my friend.


Paper Shredders

With all the scams and identity thefts going on, it makes sense to get yourself a paper shredder. I must confess I have been looking at one for ages, but found all the options online too confusing Then two months ago I happened to be in the post office and noticed a JVL shredder for sale for $70. I said to Geraldine “we can’t go wrong at that price” and bought one. It’s been an absolute delight.

It’s about the size of a rubbish bin, which means it sits next to my other rubbish bin, and automatically takes up to 10 sheets of paper including staples. Basically it’s a plastic rubbish bin, with a little motor that sits on top. I did a Google on it when I was writing this newsletter and they seem to be now $112, but hopefully if you shop around you may do better. Here’s an article with some other paper shredders that might be worth looking into.


And Finally

Once again “The Washington Post” has published the winning submissions to its yearly neologism contest in which readers are asked to supply alternative meanings for common words.

The winners are:

1. Coffee (n.), the person upon whom one coughs.

2. Flabbergasted (adj.), appalled over how much weight you have gained.

3. Abdicate (v.), to give up all hope of ever having a flat stomach.

4. Esplanade (v.), to attempt an explanation while drunk.

5. Willy-nilly (adj.), impotent.

6. Negligent (adj.), describes a condition in which you absentmindedly answer the door in your nightgown.

7. Lymph (v.), to walk with a lisp.

8. Gargoyle, olive-flavoured mouthwash.

9. Flatulence (n.), emergency vehicle that picks you up after you are run over by a steamroller.

10. Balderdash (n.), a rapidly receding hairline.

11. Testicle (n.), a humorous question in an exam.

12. Rectitude (n.), the formal, dignified bearing adopted by proctologists.

13. Pokemon, a Rastafarian proctologist.

14. Oyster (n.), a person who sprinkles his conversation with Yiddishisms.

15. Frisbeetarianism (n.), (back by popular demand): The belief that, when you die, your soul flies up onto the roof and gets stuck there.

16. Circumvent (n.), an opening in the front of boxer shorts worn by Jewish men.


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.

Noel Whittaker


Noel News 11 Aug

There’s only one thing that stands in the way
of allowing our goals to become our reality: ourselves.
DAVID MELTZER


Welcome to our August newsletter. The two most unexpected things of the last month have been, first, the worsening situation in Victoria and, second, the strength of local and international share markets. What has happened in Victoria is a stark reminder of how bad things can get if they are allowed to get out of control. Of course, as I have said repeatedly, the aftermath of covid will be felt by us all for years to come.

My wife Geraldine and I have spent most of the last three months at our Sunshine Beach home as I’m furiously working to finish my new book, Retirement Made Simple, which will be released in time for Christmas.

The challenging thing about a retirement book is the massive amount of information that needs to be covered, including topics on investing, superannuation, tax, estate planning, downsizing, investor psychology, risk, and how to avoid scams. I’m sure you’ll enjoy the final product because the right decision can save you enormous amounts of stress and hundreds of thousands of dollars in the process – it’s why I’m so committed to making the book as comprehensive and practical as possible. I’ll keep you posted when we get nearer to completion.

Anyone who owns property knows that maintenance is a major ongoing expense, and we recently had to replace our roof. As a result, our house has been covered in scaffolding for the last two weeks, but I enjoy chatting with the team who are doing the work and hearing their perspectives on the world – although I am amazed at how much many of them smoke. If I mention whether they had considered the financial cost of smoking, they always respond with, “I’m trying to give up.”

The renovation experience has also reinforced how difficult the building industry can be. One day it was too windy for them to be on the roof; on another day, they couldn’t work due to rain; and on a different occasion, the materials had not been delivered on time.

Speaking of wasting money, a lot of news outlets have reported the fluctuating fuel prices recently, yet most people I know can’t be bothered using the 7-Eleven Fuel app. Once you have it, you can ask it to search all available 7-Eleven petrol stations in your area and display the best price on offer.

If you like the price, you can simply lock it in for the fuel you require – that will be your fixed price for the next seven days. There is nothing to lose, because if the price at the pump on the day you fill up is cheaper than your locked-in price you can elect to use the pump price. After seven days, the locked-in price expires and you can start the process all over again.

This morning I needed fuel and noticed that petrol prices were very high. I punched in the “find best local price” and to my amazement I could lock in a price that was $0.40 a litre less than the pump prices. That saved me $15 on my fuel purchase. I asked the service station person if many people use the app and he said no.

In my books, I have said repeatedly that only 8% of people do it right. The older I get, the more I notice that so many people don’t seem to bother about making small savings because they fail to understand that its all those tiny savings that grow a fortune.

 


My New Calculators

There are chapters in my new retirement book about developing your own retirement strategy, but that requires calculations. I decided that the process needed to be simplified, so I’ve designed two new calculators that are incredibly simple to use, and they are live on my website now.

The first one is my ‘Future Value Calculator’ which is really a scaled-down version of my ‘Compound Interest Calculator’. It lets you enter an amount now, a rate of return, and a time period. The calculator then let you know the result in the set time.

This is how it is used in retirement calculations. After you do a budget today, you need to convert that to dollars in the year you retire. For example, you have calculated that you need $75,000 a year to live, inflation will be 2% per annum, and you are retiring in 10 years. Immediately, the calculator will tell you that, based on those figures, you will need $91,500 a year to live on in 10 years.

Now, let’s talk about the next calculator the ‘Retirement Lump Sum Needed Calculator’ – it has a lot of complex calculations behind it but is still simple to use. Let’s take that $91,500 a year, assume inflation is 2%, choose an earning rate of say 7%, and enter how many years you want your money to last. To keep it simple, let’s assume 30 years. The calculator will tell you that you will need $1.492 million in your portfolio to achieve those goals.

As I pointed out in the new book, that may seem a breathtaking figure, but you can use my ‘Superannuation Contributions Calculator’ to work out what your superannuation will be, and there may well be legacies down the track from family. That may make it even more complex because as your assets reduce you may become eligible for the age pension, which reduces the amount you will need, but if you keep drawing on assets the pension should increase. Under the present rates of pension, every decrease in assets of $100,000 increases your pension by $7,800 a year.

Once you start doing these calculations, you will see what needs to be done for a happy retirement.

Of course, don’t forget my Stock Market Calculator. It’s updated every month so as  at today the data is available from January 1980 to end July 2020. It’s the perfect tool for modelling the behaviour of the Australian stock-market.


Understand Projections

I frequently receive emails asking me what I think inflation will be in 10 years and what forecast numbers they should use when doing calculations like the ones above. There is no simple answer, because the purpose of these calculations is to allow you to develop a strategy – you must revisit your assumptions every 12 months (or more) and revise your strategy as necessary.

For example, it’s probably reasonable to assume that forecast returns from growth assets should be inflation plus around 5 to 6% depending on your risk profile. This means if inflation is 2%, you should be running your numbers at around 7%. But of course, if inflation goes to 4% you may wish to run your numbers at around 11%.

The next challenge is to think about what is happening in the economy. If inflation did go to 4%, home loan rates may go to 6% or more. Imagine what would happen to all those overstretched homeowners in this country if rates did go to 6%.

The bottom line is; I can’t stress enough that investing is an art, not a science, and you need to review your strategies on a regular basis in the light of prevailing conditions.

To say we are living in challenging times is an understatement.


Hedging against a market crash

Investing is not easy in these volatile times – the world is still in the grip of covid, and the outcome of the US presidential election is growing more uncertain by the day. Stock markets generally have been doing well, but it seems everybody I know fears that a big crash is just around the corner. Now, it’s a given that forecasting markets is a mug’s game, but there are now investment products available that can be used as a kind of a hedge.

On New Year’s Day 2020, an investor with $800,000 in blue-chip Australian shares has a premonition that there may be tough times ahead. He knows it’s important to keep at least three years planned expenditure readily accessible so he will never be forced to dump quality assets at a bad time. He does the numbers and decides an extra $100,000 would be useful to keep as a backstop. (For these examples, let’s assume his portfolio’s return matches the All Ordinaries Index.)

Option 1:
Withdraw $100,000 and bank it. The interest will be minuscule, but he has a satisfaction of knowing that there is no chance of capital loss, and the money is there when he needs it.

Option 2:
Buy some physical gold. In early January, gold was selling for USD $1,519 an ounce (AUD $2,267) so $100,000 would buy him 46 ounces. The AUD was then worth USD $0.67.

Option 3:
Try one of the relatively new hedging products, such as Beta Shares Australian Equities Strong Bear Hedge Fund (ASX code: BBOZ). It’s like an index fund except that it moves inversely to the All Ordinaries Index. And it has an extra twist – it’s designed to do double whatever the index does. So, if the index rises 5%, BBOZ should fall 10%. In early January the shares were trading at $9.69, so our investor bought 10,320 shares for his $100,000.

Let’s look at the next three months. The All Ords was sitting at 6,809 in early January, moved up to 7,230 on 21 February and then plunged to 4,564 on 23 March. The price of gold also fell – it went to USD $1,477, but our investor still did well. Because the Australian dollar had depreciated to USD $0.58, his gold was worth $117,100 Australian dollars. This is the benefit of owning assets in American dollars if our dollar falls.

Now let’s look at our new friend, BBOZ. Because its value is inversely proportional to the index, it hit a high of $20.15 when the market crashed, and then finished the day at $18.99. The original $100,000 had increased to $196,000. He now has some great choices available to him – he could choose to cash in all the BBOZ shares, bank $100,000 to restore his cash reserve, and spend the other $96,000 to restore his portfolio by buying into a market which has tanked.

As I have said repeatedly, every investment has an upside and a downside. If the market continued rising, BBOZ would have fallen at double the rate of the All Ords – but the investor would have achieved substantial capital gain, as well as an income stream, on the remaining $700,000 of the portfolio. BBOZ is a form of insurance, and, as we all know, insurance has a cost.

I’m told there are now other products available and more being developed. The other ones available now – both of which are listed on the ASX – have the codes BEAR and BBUS. The first one moves similarly to BBOZ, except its performance up or down matches the All Ords. BBUS tracks the entire American market, so it may be a reasonable punt for those who think the American market will go through turbulent times as the election in November gets nearer.

These are not products for everybody, but if you have a substantial portfolio now, it may be worthwhile talking to your stockbroker or financial adviser to see if they are right for your own situation.


Home Loans

I was staggered to read in last Saturdays paper, 40% of borrowers had never heard of the term “comparison rate” or had any idea of what an offset account was. These terms are so familiar to me that I must confess it never occurred to me that they weren’t general knowledge. So here’s a brief rundown.

A useful guide is the comparison rate sheet that all lenders are required by government legislation to provide, but keep in mind that it is only a starting point. Even though it includes the basic loan costs such as set-up fees, interest rates and ongoing charges it does not include bank fees that are only charged in certain circumstances. These include fixed loan early termination fees and redraw fees.

But there is more to a loan than the interest rate and the fees and charges. One of the most important things to consider is flexibility. You might believe that a no-frills loan with low fees is perfect for you right now because your affairs are simple and your present intentions are to stay in the one house for many years, but keep in mind that change is always with us, and your present loan may not be appropriate if things change.

What happens if you decide to move house, or borrow some money for renovations or investment, or need to reduce your repayments when the kids are at high school? If you have a no-frill loans it may not have a redraw facility and you may be required to take out a second mortgage for the extra money. Naturally, the bank will be looking for a higher interest rate on the second mortgage.

Offset accounts are also a highly desirable feature. If you deposit money in a normal interest-bearing account, you will probably earn less than 2% per annum and then lose at least a third of that in tax. However, when you deposit money in an offset account the notional interest credited should be the same as that charged on the housing loan.

And it gets even better: instead of the interest being credited to your account, leaving you liable for tax, the interest is taken off the principal on your non-deductible home loan. So funds in an offset account earn you the same as the loan rate (currently around 5%) after tax. That’s equivalent to getting more than seven per cent before tax on an interest-bearing deposit.

You can put offset accounts to good use if you intend to move home and keep the old one. This is because you can build up funds in the offset account instead of paying them off the housing loan. There is no difference in the interest costs, as the offset account is credited at the same rate charged on the housing loan, but there can be a huge difference when you decide to make the move.

Think about two neighbours who started with a housing loan of $400,000 some years ago. Genevieve used all her resources to reduce the loan as fast as possible, while Katya banked all her spare money into the offset account, leaving the original loan high. Today, Genevieve owes only $100,000; Katya has a debt of $400,000 with almost $300,000 in the offset account. They both decide to upgrade to another residence but want to keep the old one as a rental.

Katya is far better placed for tax purposes, as she can simply withdraw the $300,000 she has in the offset account for a deposit on the new home, leaving a debt of $400,000 on the existing house – this debt is now deductible as she is renting the house out. In contrast, Genevieve will be paying tax on a large portion of the rents from the original property as it has a very low debt, while suffering the burden of a huge non-deductible debt on her new home.

Don’t forget, home loans are covered in great detail in the new edition of Making Money Made Simple and there are some fantastic free loan calculators on my website. If you know anybody who has a home loan now or is thinking about one, a copy of Making Money Made Simple would be the perfect gift.


And Finally

Within hours of the news that Tesco’s ‘all beef hamburgers’ contained 30% horse meat, the following quips hit the Internet:

I’m so hungry, I could eat a horse. I guess Tesco just listened!
 
Anyone want a burger from Tesco? Yay or neigh?
 
Not entirely sure how Tesco is going to get over this hurdle.
 
A woman has been taken into hospital after eating horse meat burgers from Tesco. Her condition is listed as stable.
 
“I’ve just checked the Tesco burgers in my freezer … “AND THEY’RE OFF!”
 
Tesco is now forced to deny the presence of zebra in burgers, as shoppers confuse barcodes for serving suggestions.
 
“To beef or not to beef, that is equestrian…”
 
I hear the smaller version of those Tesco burgers make great horse d’oeuvres.
 
These Tesco burger jokes are going on a bit. Talk about flogging a dead horse.
 
Since they’re selling the meat wrapped in plastic, is that technically a “Trojan Horse?”
 
Instead of choosing “rare, medium or well done, it’s now Win, Place or Show”
 
At first, I thought, “Oh great, I’ve been saddled with another email to forward, but something spurred me on.”


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.

Noel Whittaker


Noel News 14 Jul

We gain the strength of the temptation we resist.
RALPH WALDO EMERSON


Welcome to our seventh newsletter of the year. It’s hard to believe that June 30th is already a memory, and we are now in July speeding towards December. I guess the big surprise since I last wrote to you is the situation in Victoria – all the indications are that it will get worse before it gets better. It is particularly scary when you consider that Victoria is responsible for 40% of Australia’s economic output. This will be a further blow to our budget.

You may recall that many of the stimulus measures were supposed to finish in September but now look like being extended. I’m particularly concerned about homeowners who have taken the six months loan holiday with the result that interest is being capitalised on their mortgage. Unless they have the resources to catch up quickly, this will add years to the term of their loan and force them to pay much more interest.

I do know that the government is aware of some of the anomalies with both Jobkeeper and Jobseeker. Expect some tweaking of these programs in the next few weeks.

If you are a senior citizen, keep in mind that the deeming rates were changed on 1 May, and the deeming rates thresholds changed on 1 July. Other changes to the age pension that took effect from 1 July mean that the upper cut off points have been increased slightly. Somebody who was not eligible for a pension at the beginning of the year may now be able to scrape in.

If you are on the borderline, you will probably be asset tested so keep in mind that things like cars, caravans, and furniture are valued at wholesale value. This would put a maximum of $5,000 on most people’s furniture. The deeming and age pension calculators on my website have been updated to reflect the new figures.


An ice cream or a bicycle!!

Once again, compulsory superannuation is back on the agenda. Recently I debated an economist about this topic and we had radically different views. He took the line that a lower paid worker was much better off having the 9.5% employer superannuation in their pocket to spend now, or possibly put towards buying a house. He made the point that one of the best ways to have security when you retire is to have a paid-off house. I have no argument with that – it’s stating the obvious.

Let’s run the numbers using a person aged 40, earning $45,000 a year, with $75,000 in superannuation all paid for by the employer. They would currently be receiving employer superannuation of $4,275, less 15% contributions tax, for a net amount of $3,263 paid to super each year. If that money was paid to them, instead of into super, they would receive an extra $2,961 a year, or $57 a week after tax.

So, the argument boils down to whether they are better off to have $57 a week in hand or annual contributions to super of $3,263. First, we need to take into account human nature – the reality is that the majority of Australians spend whatever they get paid, and invest nothing, unless they have compulsory commitments such as loan repayments. To make it worse, 50% of Australians live payday to payday, which was demonstrated by their behaviour when they were allowed to access up to $20,000 from superannuation due to the coronavirus crisis.

Our lowest paid workers have just received a pay rise of $13 a week, which you can bet will be spent in full, and there is little doubt that an additional increase in take-home pay of $57 a week would go the same way. If there was no employer superannuation, they would end up at retirement with nothing.

Now let’s run the numbers on superannuation using the Super Contributions Calculator on my website. We’ll use the same assumptions: age 40, superannuation balance $75,000, salary $45,000 a year indexed at 2%, and estimated rate of return on the superannuation fund of 7.5%. Thanks to the magic of compound interest, they would have $770,000 in their superannuation fund at age 65. So a low income couple could retire with $1.5 million. That’s winning the jackpot!

When teaching children about money, we often use the metaphor of the ice cream and the bicycle. Would you rather spend your money on an ice cream today, or save up for a bicycle in the future? It’s the same with compulsory superannuation. Would you rather have $57 a week now, or $770,000 when you retire? I think the figures speak for themselves.


Changing your behaviour?

The Hayne Royal Commission heaped buckets of criticism on our banks, and the ramifications are still rippling through the system. Last month, the full Federal Court dismissed ASIC’s appeal against Justice Nye Perram’s decision, which found in favour of Westpac in a responsible lending case.

That case was about the bank’s responsibility in assessing the ability of loan applicants to service a loan they apply for. A major focus was on Westpac’s reliance on the Household Expenditure Measure (HEM), which is the standard benchmark most lenders use to estimate a loan applicant’s annual expenses.

The decision turned mainly on whether a borrower who, prima facie, did not have the capacity to repay a loan, should be approved if the bank believed the applicant had the ability and the motivation to change their behaviour once the loan was approved.

The basis of ASIC’s case was that Westpac had fallen short of its obligations under the National Consumer Credit Protection Act.

The learned judge observed that a loan applicant might regularly dine on wagyu and shiraz, but still have the ability to cut back on their spending if a loan was approved and keeping up the mortgage payments meant the difference between having their house repossessed and getting the loan paid off.

It’s been many years since I worked at Westpac, but I doubt if the lending criteria have changed much. We were always taught to use the four Cs: character, capacity, collateral, and conditions. And, of course, there was a fifth – common sense.

Think about it. If applicants are of good character, you can assume they will do their best to meet their obligations, provided they have the capacity to pay. Offering sufficient collateral to the lender is a basic proof of the ability to meet a financial goal, and special conditions can be negotiated between the borrower and the lender if necessary. Special conditions could be an undertaking to cancel a credit card or pay off a personal loan.

Now I am sure you have all come across a young person who enjoyed their nights out, and didn’t blink at $15 for a cocktail, but who changed their ways when they bought a home, took out a mortgage, and had family responsibilities to think about

This is also a wake-up call to anybody who is thinking of taking out a mortgage in the near future. My mortgage broker friends tell me that bank criteria are becoming increasingly tighter, thanks to all the recent bad publicity, and getting a loan is harder than ever, even though interest rates are at record lows.

The application process will be much smoother if they take the time to do their homework, research how their proposed lender would view an application, and adjust their spending habits to fit, if needed.

With interest rates low, and likely no increase in sight for years, it’s the perfect time to buy a home, if you shop around and find a bargain. But to make that happen, you need the right loan: one that fits both your budget and your lifestyle. Just be aware of some of the tricks of the trade. For example, there may be a big difference between the rate quoted and the comparison rate, which is the effective rate. Also, if you are considering a fixed rate, carefully check what the rules will be if you wish to make extra payments, transfer the loan to another property, or pay it out before the term is up. Making sure of these aspects of the outset may save you much time and expense in the future.

UPDATE: On Monday 13 July, ANZ announced it will tighten its serviceability criteria for mortgage applications by lowering its debt-to-income threshold. From 3 August, mortgage applications with a total value greater than seven times the borrower’s annual gross verified income “may be deemed unacceptable for ANZ mortgage purposes” and would be subject to “stricter credit criteria”.  Expect others to follow.


Commonwealth Seniors Health Card (CSHC)

The federal government has introduced a wide range of stimulus measures in the aftermath of COVID-19, but one group that appears to be overlooked is self-funded retirees. However, if they know the way the system works, there is still one strategy that may be well worth pursuing. That is to apply for a Commonwealth Seniors Health Card (CSHC).

The criteria are simple. You must be of age pension age but not eligible to claim an age pension, and you must pass an income test. There is no asset test. The income test is $55,808 per annum for a single and $89,290 per annum combined for a couple. The income used is Adjusted Taxable Income (ATI) plus deemed income from financial assets. Thanks to the changes in the deeming rates, a couple with almost $4 million in financial assets could be eligible for the CSHC and all the benefits that go with it.

The easy way to check if you qualify, is to go to my website and use the Deeming Calculator. You will discover that assets of $2.5 million for a single person will provide a deemed income of $55,214 a year, which is just under the cut-off point, and for a couple it is just on $4 million. These are the amounts you can have across all your financial assets, such as superannuation, bank accounts, shares, and managed funds.

The obvious question is whether the CSHC is worth having. It varies somewhat from state to state, but one benefit to all holders is that medicines listed on the Pharmaceutical Benefits Scheme (PBS) are supplied at the concessional rate. Once you reach the PBS safety net, you will usually be supplied further PBS prescriptions without charge for the remainder of the calendar year. It may also be possible to save on your medical consultations, if your doctors are happy to bulk bill. And, depending where you live, there could be a regional travel card, and rebate on your energy costs.

National Seniors Chief Advocate Ian Henschke said: “The deeming rate is still too high but it’s so great to see it’s helping people. Some who couldn’t get a part pension might be eligible and others will now be able to get a CSHC and a bit of cash. I urge them to go online and apply, and also while online consider becoming a National Seniors member or a supporter. These are hard times, and people need to join together to get results.”

It’s been a tough year for retirees, with dividends slashed or suspended, stock markets around the world plunging, and rents vanishing if you are a landlord. This is why any assistance you can get is worth going for. Depending on your situation, the CSHC could be worth over $6,000 to you.


A Reader’s CSHC experience

Hi Noel – We are self funded retirees.

After hearing you talk about the CSHC  I  immediately lodged an online claim as a married couple. This meant that I had to enter information relating to both of us about income and accumulation amounts supported by the necessary financial documents and in addition I was asked to lodge high level ID for both of us. So everything was about both people, and I presumed the application was about applying as a couple.

During this process, I had a query about my MyGov Customer reference number so I called the Centrelink department to ask and while speaking to the staff, I checked that my wife didn’t need to lodge a separate application for the CSHC. The answer was – No, we will automatically receive cards for both.

My application was eventually approved, and a card arrived with my name only on it. My thoughts were, will another card arrive in a few days. After a couple of days, I decided to check.

The Centrelink man advised me, that the card applies to both of us, but I told him that only my name was printed on it. He looked into my file, and said my wife’s part was declined. When I asked him to explain, he said he would speak with someone and put me on hold. At this point, the call dropped out.

I called back again after waiting for 10-15 minutes, knowing that he had my mobile number on the record, but not surprisingly, no return call from him eventuated. I got a different person and had to start the story again, and this person said that we both should have got a card. When I repeated it didn’t happen, he said “Did you apply online or on paper?”
I said it was online. “Ah that’s the problem, if you apply on paper, both people are processed, if it is online, only one person is processed”.

I then logged in as my wife and went through the whole application again, and linked in the support documents again, and as of 13th July, the application is still waiting for approval.

This gives some insight into the problems with government. It is very frustrating. All the departments know everything about us, but we still have to provide many documents to prove everything, as they either want us to provide separately to catch out information conflicting with earlier information, or they don’t want to go to the trouble of linking details from financial institutions, ATO and Passports etc as it is easier to ask us to do it all again.

After I received my card, I went to the chemist to refill some medicine scripts and was staggered at the savings available, and it made me think about how much money I had lost by not knowing about my entitlements.


And Finally

Some anagrams

Dormitory: Dirty Room
Evangelist: Evil’s Agent
The Morse Code: Here Come Dots
Slot Machines: Cash Lost in ’em
Animosity: Is No Amity
Snooze Alarms: Alas! No More Z’s
Alec Guinness: Genuine Class
Semolina: Is No Meal
The Public Art Galleries: Large Picture Halls, I Bet
A Decimal Point: I’m a Dot in Place
Eleven plus two: Twelve plus one
Contradiction: Accord not in it
Year Two Thousand: A Year To Shut Down!


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.

Noel Whittaker


Noel News 9 June

Time is your friend,  impulse is your enemy.
Take advantage of compound interest and don’t be captivated by the siren song of the market.
WARREN BUFFETT


Here we are again. This is our sixth newsletter for the year, and I continue to be astounded at how quickly things are changing. Last time I wrote to you I was pessimistic about the short-term future, and those views have not changed. It is also fascinating  how the COVID-19 crisis, and all its associated damage, is further widening the gap between savvy money managers and those who live for the moment.

The opportunity to withdraw up to $20,000 from superannuation in this financial year and the next is a great example. A friend tells me his 55-year-old house cleaner withdrew $10,000 just to accessorise his motor vehicle, and a car dealer who specialises in cheap used cars tells me the under-$10,000 market is red hot. Think of the long-term implications of this: taking money that was quietly growing in a low-tax area just to get some cash for consumer spending.

But many self-funded retirees, who have spent their life working and saving, are now reaping the rewards. Prestige car dealers tell me they have never been busier, as wealthy retirees use the $50,000 or so no longer needed for an overseas cruise to change their present five-year-old vehicle to a brand-new one.


Rent or Buy

The good news is that wise money managers can still do well. Just this week I was analysing whether it is currently better to rent or buy. Previously, renting was always far cheaper than buying when mortgage repayments, annual maintenance and other outgoings were accounted for, but, for the first time, buying is looking to be no more expensive than renting.

Think about a house worth $500,000 and renting for $500 a week, or $26,000 a year. A person who borrowed the entire purchase price at 2.6% (the rate offered by one of the loans shown at Finder) would have payments of $2,000 a month, or $24,000 a year. It’s virtually line ball. Of course, there are other considerations, such as the amount of deposit needed, and mortgage insurance, but I have no problem with a couple withdrawing a total of $40,000 from their superannuation if that would boost their deposit to at least 20% of the purchase price. This could save $12,000 in mortgage insurance.

So if you are seeking property you do your homework and find a bargain. But remember the key to success in real estate is to buy cheap and add value: follow the principle of getting “the worst house in the best street”.The most important factor in your buying decision should be location – it’s worth paying more for a better location even if the house needs work. And remember, stay away from apartments – you can’t add serious value to them.


Saved by Jobkeeper

On Sunday I was having breakfast, finally, at one of our favourite restaurants in Brisbane. This gave me time to have a good chat to  the owner, and get his feelings on what was happening. Right now, his challenge is not getting customers, but handling those who are busting to come back to eat there. He tells me he was saved by Jobkeeper, and that his restaurant  could not have survived without it. Jobkeeper will cease in four months, unless the government extends it, but my friend tells me that he’s carefully managing his affairs so that he’ll be weaned off Jobkeeper by then.

He also told me about of the struggles, and the long conversations with his bank manager, that were needed to get him through this crisis. He said he was nearly at breaking point. He also told me that if another wave of infections strike, and the lockdowns are required again, he and most people he knows will be shut for good. Let’s do the right thing and responsibly open our communities again as quickly as possible.


Superannuation made Simple

Imagine living in a country, just as beautiful as Australia, but with a flat rate income tax of 15%, no Medicare levy, and capital gains tax of just 10% – you’d think about moving wouldn’t you?

But this fabled low tax promised land is actually in your postcode – it’s the Australian superannuation system.

Whenever I say “super” in a public forum, it has a kryptonite effect: eyes roll, I hear sighs and mumbles of “Too complex”, “Too many rules” and “Too many changes”. And I get it – super does seem daunting and difficult.

But unless you have a complicated financial structure more suited to the über wealthy; saving for, setting up and structuring your super is simple for the vast majority of Aussies.

What was missing was clear, easy to understand language and practical how-to’s for the 99% of us. I saw hard working, diligently saving, intelligent people cut themselves off from one of the most potent, low taxing investment and wealth creation options available because it just seemed to dense a subject to wade into.

It motivated me to write Superannuation Made Simple in the first place. When super is laid out in bite size pieces, you can see the lights go on. Readers tell me it inspired their “aha” moment – to recognise that the regulations around super are designed to work for them – many carrots (and the occasional stick) designed to turbocharge their saving and investment plans, give them a comfortable retirement and take the stress off the pension system.

So as we hurtle towards the end of financial year, I’ve been back in the home office, using the time in lockdown to revise and update Superannuation Made Simple for 2020-2021. If you’re uncertain about the directions of markets, the economy and all the change around us, it’s a really good time to take a deep breath and get to know super as a convenient, low taxing basket to place your savings and investments in.

The printed update is fresh off the presses and is now available on my website, but I know so many of you have jumped onto the Ebook trend and Superannuation Made Simple 2nd Edition for 2020-2021 is now available for all eReaders like Kindle and Apple iBooks as well as in PDF for any computer or device. Because it’s made of bytes, not atoms you can have the ebook in your hands thirty seconds from now and at a 30% discount on the printed item.

So click here to go to the eBook store and I’m sure Superannuation Made Simple will do exactly what it says on the tin – make super simple, give you a pathway to a comfortable retirement and allows you to confidently navigate Australia’s superannuation system to save tax while you’re working and enjoy a comfortable lifestyle when you’re not.


Preparing for June 30

June 30 is rapidly approaching, which means it is time to seek advice about ways to save tax. This has been a most unusual financial year, and your income may be way down. If that’s the case, it may be valuable to postpone personal concessional deductible contributions to superannuation, or repairs and maintenance on investment properties, until a year when your earnings put you in a higher tax bracket, when the deduction would give you a higher refund.

If you have some shares with a capital gain, and some with a capital loss, take advice about whether to sell both before 30 June to offset the gain against the loss. Also, if there is likely to be some CGT payable, if you are in a lower tax bracket this year, the CGT may be charged at a lesser rate.

Making superannuation contributions up to your maximum cap of $25,000 a year is a no-brainer. Once you have reached that cap, consider making a contribution for your spouse. If they earn less than $37,000 this financial year you may even get a tax offset as a bonus. Get advice on your particular circumstances, as this tax offset is unlikely to be a better option than making a deductible contribution for yourself. To qualify for the spouse contribution tax offset of $540 all you need to do is make a $3,000 non-concessional contribution, on their behalf. Your spouse may also like to consider making a non-deductible super contribution for themselves of $1,000, if they are eligible for a $500 government co-contribution.

A re-contribution strategy is worthwhile if you have access to superannuation, and are still eligible to make contributions. You could withdraw up to $300,000 tax-free, and re-contribute it as a non-concessional contribution, on which there would be no entry tax. By doing this you would convert a large chunk of the taxable component of your fund to non-taxable, and so alleviate substantial taxes for your inheritors if you died suddenly, and your superannuation went to a non-dependent.

Don’t forget the strategy of splitting your superannuation with your spouse. To be eligible, the receiving spouse must be under 65 and, if over preservation age, not retired. Where the receiving spouse turns 65 during the year of the split, you need to act before their birthday.  The transfer must be completed by 30 June.

As long as the contributing member has a sufficient account balance, the amount that can be split is the lesser of 85% of that year’s concessional contribution or $25,000. This means that, if the contributing spouse has made a $25,000 contribution, the maximum split would be 85% or $21,250.

Take advice if you are under 65 and nearing retirement, because apart from the downsizing contribution, it may be your last chance to boost your superannuation. You could still use the bring-forward rule, which will allow you to contribute $300,000 as a non-concessional contribution, and so move funds to an area where tax will be zero once you start to draw a pension from your fund.

If you are in pension mode now, keep in mind that the minimum drawdown requirements have been halved for this financial year and next. Therefore, provided your budget allows it, you may wish to reduce the minimum pension you have been drawing, and so keep more money in superannuation.


And Finally

I know how much you enjoy the jokes at the end of the newsletter – but what follows is so important I thought I must share it with you. This is the present state of the world airline industry – and it doesn’t include Singapore, Chinese, Air Asia. When you read this you can see why I fear that overseas travel is a long way away yet.

Virgin fired more than 3,000 people including 600 Pilots.

Virgin Australia filed for Bankruptcy.

Air Mauritius goes into Administration.

South African Airways Bankrupt.

Finnair returns 12 planes and lays off 2,400 people.

YOU grounds 22 planes and fires 4,100 people.

Ryanair grounds 113 planes and gets rid of 900 pilots for the moment, 450 more in the coming months.

Norwegian completely stops its long-haul activity!!!  The 787s are returned to the lessors.

SAS returns 14 planes and fires 520 pilots… The Scandinavian states are studying a plan to liquidate Norwegian and SAS to rebuild a new company from their ashes.

Etihad cancels 18 orders for A350, grounds 10 A380 and 10 Boeing 787. Lays off 720 staff.

Emirates grounds 38 A380s and cancels all orders for the Boeing 777x (150 aircraft, the largest order for this type). They “invite” all employees over 56 to retire

Wizard returns 32 A320s and lays off 1,200 people, including 200 pilots, another wave of 430 layoffs planned in the coming months.  Remaining employees will see their wages reduced by 30%.
IAG (British Airways parent company) abandons the takeover of Air Europa (and will pay Eur40 million compensation for that).

IAG (Iberia) grounds 56 planes.

IAG (British Airways) grounds 34 planes. Everyone over 58 to retire.

Luxair reduces its fleet by 50% (and associated redundancies)

CSA abolishes its long-haul sector and keeps only 5 medium-haul aircraft.

Euro wings goes into Bankruptcy

Brussels Airline reduces its fleet by 50% (and associated redundancies).

Lufthansa plans to ground 72 aircraft (in two instalments).

Hop is studying the possibility of reducing fleet and staff by 50%.

Additional info:

Currently, 60 new aircraft stored at Airbus with no buyers in sight (order cancellations) including 18 A350s.

They forecast a minimum of 8,000 grounded planes by September.  With an average of 5.8 crews per plane (medium and long haul combined), that would make more than 90,000 unemployed pilots worldwide.

Then there is the supply chain.

The Air Transport Industry is on Life Support !


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.

Noel Whittaker