Noel News 27 Jul 2021

“It’s okay to celebrate your wins, but remember, wins are milestones, not finish lines.”
DAVID MELTZER


Welcome to another newsletter
and to the start of another financial year.

As I write this, the Australian stock-market is at a record highs, and American stock markets are in a similar position. The top 20 performing Australian super funds returned over 18% to their members over the year, a result that nobody would have predicted 12 months ago. I also noticed in my daily diary that exactly two years ago the Australian stock-market was at a six year high.

The question that seems to be in everybody’s minds is “when will the big crash come?”. It’s a reasonable question when you think of the amazing 12 months we have enjoyed with our investments, but you need to keep in mind that nobody has the power to accurately forecast what markets will do. This is why you should go back to fundamentals and hang in there for the long term, as long as you your next 3 to 4 years planned expenditure is covered either by cash in the bank or by reliable income streams.

We human beings are the victims of our own nature. If markets are flat we are loath to invest in case they fall further, and if they are high we are reluctant to invest in case they crash. Just keep diversified, and hold your nerve.
There are many things to be optimistic about. It’s a reasonable expectation, that within three months the majority of those people who are prepared to be vaccinated, will have been vaccinated. Also, testing for Covid should be much quicker and simpler as testing products continue be improved.

If this is true the lockdowns which are hurting us so badly now should, hopefully, be a thing of the past. Furthermore, compulsory superannuation increased from 9.5% of salary to 10% recently which means even more money will continue to pour into our stock markets. Interest rates do appear to have stopped falling, but on most expectations any rises if and when they do occur will be fairly minor.

My good friend Don Gimbel is a fund manager from Chicago. He is now 80 years of age, and has been managing money since he was very young. This is his take on the next six months.

“The second half of 2021 will allow much of the World to return to work. In the U.S. we see a large part of the 7 million unemployed returning to their jobs or entering new ones. The leisure industry, which has been so hard hit will be a prime beneficiary of the economic recovery.

Part of the return to work will be the end of the temporary unemployment checks which have been paid over the last 18 months. The ‘new normal’ will be fascinating to watch.

A major question is will people use to working outside the office eagerly return to commuter trains and buses? If a percentage of workers stay at home, what does that say about the service industries in the business district?

Likewise, will shoppers accustomed to buying everything from food to clothing on the internet return to in-store shopping? That leads to the question of real estate values. So much to think about for investors in the next six months.

Lastly, weather patterns are obviously changing. I am not going to argue about the cause but I do know the ability to adapt to the changes will be part of our analysis going forward.

The old adage that markets climb a wall of worry is playing out now. There is a fine line between optimism and ignoring reality. Our optimism allows us to think positively about the future but also allows us to be realistic about the future. Our World seems to be on the edge of the abyss most of the time.

Our advice is, keep cool, look at fundamentals, and be patient. The first half has given us better returns than we had expected. We are realistically optimistic about the next six months. “


Intergenerational Report

Last month Treasury released the 2021 Intergenerational Report which purports to project an outlook for the economy and the Australian government budget over the next 40 years. The good news is that our population will continue to grow, albeit at a slower rate, which is positive news for both the property market and the share market.

The bad news is that there will be just 2.7 people aged between 15 and 64 for every person aged 65 and over. Within 40 years, the life expectancy of the average male will be 86.8 and for a female 89.3 years. The population will be almost 40 million and include more than 50,000 people aged over 100. In short there will be less taxpayers providing revenue to support an increasing number of retirees. This imbalance will get worse as the ratio of dependants to workers grows over time.

Our compulsory superannuation system continues to provide major support for the economy. At 31 March 2021 superannuation assets were running at around 157 per cent of GDP – this is projected to grow to around 244 per cent of GDP by 30 June 2061. The forecast is that almost 75% of those of funds will be held in the accumulation phase as the baby boomers die, and the large amounts currently held in pension phase are withdrawn and unable to be replaced due to the tightening of contributions.

The benefits of our unique superannuation system will really show value in the next 40 years. Even though people are living longer, and there are less people to pay the taxes to support the elderly, the total number of Australians of pensionable age is expected to double to over 8 million while the proportion of people of pensionable age is expected to decline in the same period. The other side of the coin is that expenditure on age care will be skyrocketing.

A budget surplus is many years in the future, which means there will not be the funds available to splash money around. A major problem is our taxation system. Currently, 61% of personal income tax is received from a mere 11% of Australians, leaving the bulk of taxpayers contributing very little. In addition, 87% of those aged 65 and over pay no tax whatsoever.

Think about a single-income couple with two children aged 14 and 16, where the primary breadwinner earns $80,000 a year. The income tax on this would be around $16,000, but the family’s contribution to the national coffers would be just $9000 after family payments of $8000 a year are taken into account. If we assume the cost of the full aged pension for a couple is $40,000 a year when healthcare concessions are factored in, it is obvious that it takes at least four such single-income families to support one pensioner couple.

A full review of our tax and welfare system is overdue with a total overhaul of the GST at the front of the agenda. But the adversarial nature of politics does not make for optimism. Right now, the federal government reminds me of a dysfunctional family. Dad and Mum (the two major parties) spend all their time abusing each other and promising the world to their constituents (us, the children) while well-meaning but inexperienced relations (the minor parties) add to the turmoil by telling the kids that their parents don’t know what they are talking about.

Until they all get their act together, and unite with a common goal to get our country’s finances in order, it will continue to be all talk but little action.


Bitcoin

Magellan’s billionaire co-founder Hamish Douglass had his share of headlines last week when he slammed cryptocurrency markets as one of the greatest mass delusions in modern history, as part of a bigger warning that asset prices artificially inflated by government and central bank stimulus may face a day of reckoning.

Douglas said it is inevitable crypto crashes to zero when other speculative bubbles eventually run their course and blow up. He wrote:

“Cryptocurrencies are one of the greatest irrationalities I’ve seen in a very, very, long period of time because of the cult-like following it has behind it and the scale that is behind it. There are millions and millions of people participating. Some of the people they’ve never invested before and the only bandwagon they’ve ever got on is the cryptocurrency bandwagon and it’s almost like a religion.”

Over the past year Bitcoin has jumped 235% while its main rival Ethereum has increased 164 times in five years to US $1 910 per coin. This means the two top crypto currency is have a combined market capitalisation of $1.5 trillion despite having no intrinsic value.

“I can’t tell you when that will happen by the way. It could happen shortly, it could happen quite some time into the future … I think when we look back in 20 years it will be the case study of the irrationality.”

Mr Douglass said he expected to be widely attacked for his views on crypto, but did not care.


Pension Changes

The latest six-monthly age pension adjustments have taken place – effective from 1 July. The main changes are a slight increase in the levels at which both the asset test and the income test starts to taper. The maximum pension for a single person remains at $952.70 a fortnight, and for a couple $718.10 a fortnight each.

Up-to-date pension calculators are on my website and detailed pension charts can be downloaded from there as well.

The lower asset limits are now $270,500 for a single pensioner and for a couple $405,000. 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 $320 a fortnight for a couple and $180 fortnight for a single.

The cut-off point for a homeowner couple has gone up to $884,000 and for a single pensioner $588,250.  For non-homeowners the numbers are $1,100,500 and $804,750 respectively. The income test cut-off points are now $83,002 per annum for a couple and $54,220 for a single.

If one partner is eligible, and the other is under pensionable age, the eligible partner receives half the couple’s pension. For example, a 67 year old with a 57 year old partner could qualify for 50% of the couple’s pension.

You are tested under both an assets and an income test, and Centrelink applies the test that gives you the least pension. Consider a homeowner couple with assessable income of $800 a fortnight and assessable assets of $740,000. Their pension under the income test would be $598.10 fortnight each – under the assets test $215.60. Therefore, they would qualify for an age pension of $ $215.60 a fortnight each.

The value of your assets does not include your family home, while your chattels such as furniture, car and boat are valued at second hand value, not replacement value. This puts a figure of $5,000 on most people’s furniture.

The income test is not relevant if you are asset tested. For example, a single person with assets of $540,000 and receiving a pension of $144.20 fortnight could earn have assessable income of $45,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

If you are at the higher end of the asset test scale seek advice about the new lifetime pension products that are becoming available due to government urging. For example, a 70-year-old couple may have $900,000 of assessable assets and accordingly be over the assets test cut-off point. If they invested $300,000 of their superannuation in a QSuper lifetime pension they may be able to receive a pension of just over $20,000 a year indexed for both of their lives, plus the age pension of just over $8000 a year. This would boost their income by $28,000 a year, and still leave them. with $600,000 of assessable assets.

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.


Health Matters

In a previous newsletter I mentioned some of the great e-books put out by Harvard Health Publications.

Their latest book is a full-colour 57 page publication Living Better Living Longer is full of great stuff and covers a wide range of material covering health, diet, exercise as well as the legal stuff.

It’s available at the usual price of $US18 but a loyal reader Murray emailed me to say that if you use the promo code SAVE25 you get 25% off. It worked a treat when I downloaded my copy. The price came down to $US13.50.

Find it here or view a list of their other Special Health Reports here.


And finally…

In a small American town, a band of squirrels had become quite a problem. The Presbyterian Church called a meeting to decide what to do about this squirrel infestation and after much prayer and consideration, concluded that squirrels were predestined to be there, they shouldn’t interfere with God’s divine will.

At the Baptist Church, the squirrels had taken an interest in the Baptistery. The deacons met and decided to put a waterslide on the Baptistery let the squirrels drown themselves. The squirrels liked the ride and unfortunately knew instinctively how to swim, so twice as many squirrels showed up the following week.

The Lutheran Church decided they were not in a position to harm any of God’s creatures, so they trapped their squirrels and set them free near the Baptist Church. Two weeks later they were back after the Baptist took down the waterslide.

The Episcopalians tried a much more unique strategy by setting out bowls of whiskey around the church in an effort to kill the squirrels with alcohol poisoning. They sadly learned how much damage abandoned squirrels can do when drunk.

But the Catholic Church came up with a more creative strategy. They baptised all the squirrels and made them members of the church. Now they only see them at Christmas and Easter.

Not much was heard from the Jewish synagogue. They took the first squirrel and circumcised him. Haven’t had a squirrel since!


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

“You are in the right place at the perfect time.
Keep enjoying the pursuit of your potential.”

DAVID MELTZER


Welcome to another newsletter

As usual we have much to cover.

We are getting close to 30 June, so if you are making superannuation contributions keep in mind they must be received by the fund before midnight on 30 June.

Furthermore, if you intend to make tax-deductible contributions to reduce a capital gain, or are considering selling loss-making assets for the same purpose, the transaction must be done before 30 June. For capital gains tax purposes the relevant date is the date of the contract was signed not the date of settlement.


Telstra

Now for the next chapter in my Telstra saga. As I explained in my last newsletter, I reported Telstra to the Telecommunications Ombudsman, which very quickly resulted in an apology from Telstra and a promise to refund my money and cancel their direct debit.

To my horror, despite Telstra’s promises, the money was not refunded, and the direct debit kept on debiting my account. I complained once again to the ombudsman. Next day, a lovely woman from Telstra in Melbourne rang me to tell me she was on the case and the money would be refunded, and the direct debit stopped, once she got “approval from the Philippines.”

I was gobsmacked that a huge Australian company can’t refund $150 without approval from another country. She rang me back four days later to say her superiors in the Philippines had instructed the money be paid by cheque and not by direct deposit. This is the 21st century! Anyway, all has ended well – the cheque arrived yesterday.  Now have to go to the bank and bank the first check I’ve banked in about a year.


Minimum Pension Drawdown Rates

The government recently announced, without prior warning, that the reduction by 50% of minimum withdrawal requirements that was instituted last year due to Covid would be extended for one more year. This knee-jerk action by the government has caused a huge amount of work for both superannuation funds and financial planners.

The super funds will now need to contact all their pension fund clients informing them of the unexpected change in the requirements, and financial planners I speak to are most unhappy because over the last three months they been busily working with their clients on appropriate strategies to use next financial year when pension payments from account based pensions were supposed to be doubled. This is now all back to the drawing board.

It just seems the government can’t stop tinkering with the superannuation rules. I think we can safely say that from 1 July 2022 the normal minimum drawdown  rates should apply, and unless you have more than $1.7 million in super you may also be able to contribute any surplus drawdown money up to age 75 as a non-concessional contribution without passing the work test. This assumes the legislation announced in the May budget will be passed which is highly likely.


Interesting New Product

The government’s recent Retirement Income Review pointed out that many retirees live on just the income from their superannuation, rather than drawing down on the balance as they progress through retirement. This seems to be partly due to the major misunderstanding that this is how the system is supposed to work, and partly because they don’t know how long they will live, and are so afraid of running out of money that they draw only the minimum pension required. As a result, many retirees die with a major chunk of their financial assets unspent, sacrificing their own standard of living, and leaving more to their beneficiaries.

In December 2016, Treasury called on income stream providers to develop products that would solve this problem, but to date, the industry has been slow to take up the challenge. After a lot of talk and not much action, we finally have one fund that has come up with an interesting solution.

QSuper, one of Australia’s largest superannuation funds, has launched a new product, the Lifetime Pension (view their information page here), which pays a fortnightly income for life. It is designed to ensure you or your estate get back at least your initial investment, irrespective of how long you live. Ideally you would receive your return by income, but for a premature death it may be by death benefit. For example, if you invest $100,000 and die after receiving $60,000 in income, your beneficiaries will receive the final $40,000.

You can open a Lifetime Pension with your super any time between your 60th and 80th birthdays. Annual rates of income per $100,000 invested range from $6,164 to $10,834 for singles – a bit less if you take the option to cover your spouse’s life too.

These pension rates are quite a bit higher than a lifetime annuity or an account-based pension drawn at the minimum. The reason is simple: the money is pooled and invested in a balanced growth option. Apart from the fund’s low management fees and the cost of insuring the money-back death benefit, all of the money is spent on income. However, that also points to the products three drawbacks. First, this isn’t a product where you can withdraw lump sums or exit after a six-month cooling off period – you are permanently purchasing an income stream. Second, after you’ve received your purchase price as income, no death benefit is payable. And third, unlike a traditional annuity which pays fixed income for life, this product pays variable income for life.

Every 1st of July, the previous year’s income is adjusted based on how the pool performed against a benchmark net return of 5%. Simplistically, if the return is over 5%, expect a proportional pay-rise next year, but when returns are less than 5% expect a pay-cut. For example, let’s assume you were receiving $1,000 a fortnight. If net returns were 7% (2% over the benchmark), you’d expect your income to increase approximately 2% the following year to $1,020 a fortnight, but if net returns were 3% you could expect a cut to $980. In this way, the pool never runs out of money – incomes are expected generally to rise over time, helping with inflation.

A major benefit of this Lifetime Pension product is that only 60% of the sum invested is assessed for the assets test (and after you pass your official life expectancy it drops to 30%). This therefore gives assets-tested pensioners an immediate rise in their age pension, in addition to the income from the product. Also, it may allow people who are currently unable to get the age pension because they are over the assets test by a small margin to qualify for at least a part pension.

CASE STUDY

A 70-year-old couple have $600,000 in an account-based pension and $100,000 in personal assets. They draw the minimum pension, and currently receive $30,000 a year from their account-based pension and $13,960 from the age pension, as a combined income. If they invested $300,000 in a Lifetime Pension that would pay them an income of $20,053 a year, paid fortnightly, and their age pension would rise to $23,228 a year. That’s a great return on a $300,000 investment! Combined with their account-based pension income of $15,000, their total income has risen to $58,281 – an increase of $14,321 or 33%!

The Lifetime Pension product may not be suitable for income-tested pensioners because 60% of the income is assessed for the income test – this is a much higher proportion than people who are subject to deeming.

Personally, I wouldn’t recommend anyone put all their money into a product like this, as it provides no flexibility to withdraw lump sums when needed. However, it is well worth considering in conjunction with an account-based pension, as the combination would offer a very good income for life and the concessional assets test on one hand, and flexibility on the other. It’s really a matter of discussing the product with your adviser and deciding whether it’s appropriate for your own situation.


A Tax Free Portfolio

A reader wrote as follows:

“I read somewhere that a couple fully invested in Australian shares with a portfolio of around $3.5 million could potentially earn $220,000 a year and pay no tax thanks to franking credits. Is this correct or have I misunderstood it.”

Let’s do some simplistic assumptions. To keep it simple we’ll say the portfolio yields 4% per annum income and 4% capital growth. The income would be $140,000 a year and, if it’s  mainly franked, would include $50,000 of franking credits. This would produce an income of $190,000 a year taxable which would be split 50-50 as they investors are a couple.

This means $95,000 a year would added to each taxable income, but they would each receive $25,000 of franking credits. If you go to the tax calculator on my website you  can see that the tax on a total income of $95,000 a year would be around $22,000. The franking credits of $25,000 would eliminate all the tax and give the investor $3000 franking credit refund.

Keep in mind that as well as the income the portfolio has produced capital growth of $140,000 a year as well ,on which no capital gains tax is payable until the shares are realised. Summing up, a $3.5 million portfolio of dividend paying Australian shares should return a total tax free return of around $280,000 a year. That sure beats leaving your money in the bank.


Our First Ever Sale

I’m not really into sales because I keep the prices of my books as low as possible so everybody can benefit from the knowledge in them irrespective of their financial position. However, I have two books which will not be reprinted, and the deal of a lifetime for those who want them.

The first is my book 25 Years of Whitt & Wisdom which was designed to be my legacy book. It is a hard cover 450 page very attractive book in high-quality paper. The book is really a summary of my columns from 1987 to 2015. Given the book does not have columns past 2015, it is reaching a stage where it needs to be updated or put out to pasture. Given the extremely high costs of producing this work – it’s more like a coffee table book – it won’t be repeated. It’s not just a wonderful history of the 25 years when the Australian financial services industry was coming-of-age, it also contains a wealth of timeless value. It is still one of my favourite books and a great book to browse through.

There are only 600 copies left in stock, so I’m dropping the price to $24.95 just to clear the decks. Highly recommended.

The other is the international bestselling book written by my son James Whittaker that accompanied the film Think and Grow Rich: The Legacy, which we launched in Los Angeles in 2018. This book is a timeless classic. Not only does it introduce the original Think and Grow Rich principles in a modern context, it also includes firsthand accounts of how some of the most successful leaders on the planet today used those principles to achieve massive success. If you want a blueprint to growth, and the inspiration to make it happen, I can’t recommend it highly enough. The book has now been translated into six languages and continues to receive rave reviews.

This is the hardcover version, which has a retail price of $47.99 but Amazon have it marked down to $36.96 right now. James had a series of speeches scheduled in Australia but, due to covid, James has not been back to Australia for 18+ months, and is unlikely to return in the near future. We have a limited supply of 250 copies left, which we’re reducing to $24.95.

These are both hardcover high-quality books and postage is expensive. However, if you buy both books for $49.99 you will get free postage. This deal is first come first served.


Health Matters

Our health is a greatest asset and I’m always looking for ways to improve my knowledge in this field.

Harvard Health Publications produces some great material and you can subscribe to their weekly newsletter HealthBeat at no cost. Be warned, they are always trying to sell you an e-book, but if you see one of their publications that takes your fancy you can download the e-book for just $18.

Even if you don’t download the e-book there is still plenty of good stuff in their newsletter. Over the last year I have downloaded Controlling Blood Pressure, Strength and power training for all ages, 35 Stretching exercises to improve flexibility,  and Gentle core exercises. Well worth the $18 each.

It’s a highly reputable organisation and the material was great to follow.

Click here for their newsletter archive.

 


From The Mailbox

I just want to give you a big thank you for your latest book Retirement Made Simple. Reading your book had taught me a lot and help me to clarify many things. I also love all your calculators. Thank you so much for providing such a comprehensive and important overview  in one book. I will treasure it and refer to regularly.
Martha


And finally…

This was sent to me by one of my readers – I thought it was worth sharing.

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on this plan”. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A… (Substituting grades for dollars – something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

These are possibly the five best sentences you’ll ever read and all applicable to this experiment:

  1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
  2. What one person receives without working for, another person must work for without receiving.
  3. The government cannot give to anybody anything that the government does not first take from somebody else.
  4. You cannot multiply wealth by dividing it!
  5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

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 26 May

“If you don’t invest in yourself, what are you going to invest in?”
DAVID MELTZER


Welcome to another newsletter

I received feedback from some readers that my last newsletter was a bit long and complex, so this one will be shorter and hopefully less complex. Also, future newsletters will be shorter and more frequent.

Just remember that a major finding of the Retirement Income Review was that our systems are overly complex, especially in the interaction between tax, superannuation, age pension and aged care.

So, even though we can do our best to keep things simple they can quickly become complex. This is why good advice is so important.

In this edition I’ll talk about the recent federal Budget, and the battle I had with Telstra which went over eight weeks. As you will discover I did win it.


The Budget

There was no doubt the budget was framed with an election in mind. It was full of goodies for everybody, and really left little to complain about, at least in the short term.

Certainly, many people think there will be a day of reckoning when all the spending stops, but that appears to be a long way down the track. Right now, the world appears to be on a spending spree financed by borrowing.

But, interest rates appear to be on the move – in six months the Australian 10 year bond rate has doubled  from .8% to 1.6%. And , remember when Covid first struck everybody was scared about massive unemployment . The big problem now is nobody can get staff –  this is a signal that inflation may be starting, which means prices and interest rates will start rising.

The front page of last weekend’s Financial Review featured the problems caused by material shortages throughout the world and the way costs were rocketing. The Weekend Australian of the same weekend ran a story headed “Terrible rental crisis stalls regional jobs” which talked about the pressure on rents in regional areas. This was making it impossible for workers to come to the country because there was no accommodation. To cap all that off, the Commonwealth Bank has just called the end of the bottom of the right cycle and has started moving their fixed rates upwards.

SOURCE

What I found surprising the budget is that most of the changes to  superannuation don’t start till July 2022. Maybe the purpose was to give time for them to be legislated, though I don’t see any reasonable political party would object to them. But it does mean that extra care needs to be taken for people who may fall between the cracks if their birthdays are such that they lose the right to take part in the new rules when they come into force in 14 months. This is especially relevant if you are considering the bring forward contribution rules.

Before I start talking about superannuation I’ll give you a brief summary of the rules as they stand.

  • There is no limit on the amount your super can grow to,  but there are limits on contributions.
  • Contributions can be non-concessional which means they come from after tax dollars, or concessional which means someone, often the employer, gets a tax deduction. The former are limited to $100,000 a year and the latter to $25,000 a year. After June 30 those numbers become $110,000 and $27,500.
  • There is a term called the transfer balance cap which restricts the amount you can transfer to pension mode from accumulation mode.This is currently $1.6 million but this number will rise to $1.7 million after 30 June. Just note that once you have used up your transfer balance cap no more money can be transferred to pension mode. But, once the money has been transferred to pension mode, there is no limit on what it could grow to. For example, if you transferred $1.6 million to pension mode and the fund had a 20% year you could find yourself with $1,920,000 in pension mode.
  • Once your superannuation balance reaches $1.6 million, no more non-concessional contributions are allowed. However you can still make concessional contributions as long as you comply with the age limits.

Downsizing

There were numerous headlines about the announcement in the budget that the age limit for downsizing had been reduced from 65 to 60 to enable people over age 60 to downsize and contribute up to $300,000 each into superannuation from the sale of the house.

I just didn’t get the hype.  The average retiring couple would be pushed to have $800,000 in super between them, so they could already both contribute $330,000 using the normal contribution rules. They don’t need to access the downsizing contribution. The only winners from the new rules will be the wealthy, who have more than $1.7 million in super now.

Think about it. The work test is being abolished for non-concessional contributions from 1 July 2022 which means nearly everybody will be able to contribute to super in some shape or form up to age 75, whether they are working or not. The only limitation is that once you have $1.7 million in super you cannot make more non-concessional contributions apart from the downsizer special contribution.

What was not publicised is that the work test was abolished for non-concessional contributions, but not for concessional contributions – they can only be made by salary sacrifice after age 67. By definition a salary sacrificed contribution is paid by your employer through your wages, which means you must be working. If you are working, you have passed the work test. My spies in Canberra tell me that the reasoning behind this was to prevent retirees aged between 67 and 75 making concessional contributions to avoid paying capital gains tax.

As always care needs to be taken. Nobody can make a non-concessional contribution,  apart from a once only downsizing contribution, if their superannuation balance exceeds $1.6million at 30 June in the previous year. So, if you were 63 with a large superannuation balance, the only way you can get a chunk of money in superannuation is by using the downsizing contribution.


Government Contributes To Cycle Of Rising House Prices

A bigger issue facing Australia is the thinking by both major political parties that ‘something must be done’ to make housing more affordable. Yes, right now we are in the middle of an extraordinary residential real estate boom, but this has been caused by our Reserve Bank cutting rates to historic lows.

Low rates increase the number of people who can qualify for a housing loan, and at the same time turbo charges their loan potential. The rush started as soon as mortgage repayments became cheaper than rent, and of course, once a rush starts, everybody wants to jump on the bandwagon for fear of missing out.

And so it goes on and on.

Every government initiative to help first home buyers simply increases the number of buyers in the market fighting over a rapidly declining amount of residential housing stock. This feeds the vicious cycle of prices going up.

Any asset is only worth what somebody is prepared to pay for it, and how much they are prepared to pay is governed by how much they can borrow.

This budget has also further increased the number of people who are eligible for a housing loan by enabling them to take part in the First Home Loan Deposit Scheme, which is really a lottery allowing them to buy a home on a minimal deposit. This was a disaster in the UK and may well become a disaster here. The interest rate cycle around the world is turning upwards and at some stage homebuyers will face an increase in their mortgage repayments. This will put many under financial pressure, which may well cause a downturn in the housing market.

The Government also announced that more money can be saved in the superannuation system for a deposit on a first home (the First Home Super Saver Scheme, or FHSSS). The maximum releasable amount of voluntary concessional and non-concessional contributions will rise from $30,000 to $50,000. Basically, first home buyers can make additional personal contributions of up to $15,000 a year as a tax deduction, and then withdraw the money when needed to buy their first home. The sting is that the contribution loses 15% going in and is taxed at marginal rates less a 30% rebate on the way out.

The rate of return on the investor contribution is interesting. It will be a “deemed” rate of 3% per annum plus the 90 day bank bill rate. This is what your fund will be required to pay you – no more and no less. Therefore, if your fund achieves better than this, the fund will get the increased return for the period your special home Saver contribution is in the fund, and if the fund earns less than 3% per annum the other money you have in the fund will be used to subsidise the home Saver contribution. I would certainly hope that a good superannuation fund will do better than 3% per annum which means that the home Saver contribution may give a tiny boost to the other money in your fund.

For example, someone earning $85,000 putting $15,000 of gross salary into super for a home deposit would save $5,175 in income tax and Medicare levy up front while losing 15% or $2,250 in contributions tax. However, the maximum in the FHSSS has been left at $15,000 a year per person, and it does not start until 1 July 2022, so the change is of no benefit to anyone who wants to buy anytime soon. It’s a relatively small amount to most first home buyers, especially given the huge amount of paperwork involved.


Another Event

It was great to see so many subscribers to this newsletter at our event at Riverbend Books in Oxford Street Bulimba Brisbane last Wednesday night. The good news is there is another event next week.

This is being put on by Alondra Residences a premium inner-city retirement living community in Nundah, Queensland who are hosting a free retirement living seminar.

Over morning tea I’ll be sharing my thoughts about the financial challenges and opportunities facing older people. Will be plenty of time for questions as well.

Admission is free, and you may well get one of my books as a gift, but you must register to ensure there is a place available for you.

WHEN: 10-11.30am, Wednesday 2 June 2021

WHERE: Chermside Bowls Club (468 Rode Rd, Chermside QLD 4032)

RSVP essential: Register online here


Battling with Telstra

Everybody wants to pick a share price winner, and there is no shortage of information. There is a plethora of investment newsletters, stockbrokers always have recommendations and the papers feature share buys and sells continually.

I don’t fancy myself as a stock picker which is why over 95% of my portfolio is in managed funds. However, the successes I have had were based on observation. I got into Magellan at $1 a share way back in 2010 when I noticed that every time they ran a session for advisers, there would be double the numbers of advisers present versus the previous time. The six-monthly dividends now from that purchase are more than the original investment.

Then there was Iress, which I bought for $4 a share about 15 years ago. I knew that the ‘Holy Grail’ of the financial planning industry was software and also knew that every piece of software I had been shown was a dud. Then suddenly Xplan appeared and it was a winner. Iress was behind Xplan.

A friend told me recently how he made a nice chunk of money as a result of taking his granddaughter to a morning tea. She told him they had to go to Smiggle to buy some merchandise that was in hot demand by young people. He had never heard of Smiggle but when they arrived, he was astounded to see the long queues of people outside their store. He bought a parcel of shares in Premier Investments which have appreciated rapidly in just seven months.

But there is also the opposite. You can dump a share because your dealings with the company are so bad you wonder why they are still are in existence. And this is how I came to sell my Telstra shares an hour before I wrote this.

We have persevered with Telstra for many years despite the difficulty of communicating with them. Earlier this year, when the NBN became available in our area, Telstra rang us continually to convince us to remain with them by switching our Telstra cable internet service to Telstra NBN. We declined and moved the home service to Aussie Broadband.

The Telstra service was discontinued and the associated landline number ported over to a new provider. The problem was that Telstra kept sending us bills telling us that the direct debit to our account would continue.
I rang Telstra where a recorded message told me to use the MyTelstra app on my phone. That was a disaster. Naturally they start the conversation by asking for my full name, date of birth and account number which I duly provided. The next message advised me I was on a contract and there were termination fees. When I asked for a copy of said contract and what the termination fees were for, there was no reply.

What followed was a nightmare. Every time I re-joined the message conversation the cycle re-started with the usual request for name, date of birth etc. and what was I calling about. After having provided the details more than six times, I finally gave up and made my first ever complaint to the Telecommunications Industry Ombudsman. It took three minutes online.

In less than 24 hours after I lodged the official complaint, Telstra had emailed me an apology and promised to refund all the disputed charges. I then tweeted what had happened and within five minutes, Telstra tweeted another apology.

The lesson is obvious – don’t spend weeks fighting with your telecommunications provider. Use Twitter or go straight to the ombudsman. Through either action you’ll get your fast results.

PS As I was writing this I noticed Telstra had just debited my account. Instead of cancelling the debit and refunding my money they have done the opposite of what they had promised. This time I didn’t muck around – it took just three minutes to lodge a new complaint with the ombudsman.

Watch this space.


A Must Watch

This video is less than four minutes long but I think it’s a fantastic watch – it would be great to share with the family. It provides a wonderful summary of the world from 1900 to the present day. Puts what we are living through right now in context.

An interesting view from a different time :


Vale Belle

Some of you will understand the sadness of losing a family pet. Last week our beautiful Rhodesian Ridgeback died after sharing 12 years of her quirky, loving, energetic life with us. All family members had bonded with her. She was patient with grandkids climbing over her, and was adept at stealing sandwiches, prawns, cake and watermelon. She is sadly missed by all of us.

This is one of their favourite photographs – Belle with our son James on his last trip to Australia 18 months ago. It perfectly captures their beautiful natures.


And finally…

Who was the fastest runner in the bible?
Adam because he was the first in the human race.

What did Adam say on the 24th of December?
It’s Christmas, Eve!

What kind of car did the disciples drive?
A Honda, because the Bible says they were all in one Accord.

Who was the greatest financier in the Bible?
Noah – he was floating his stock while the rest of the world was in liquidation.

Who was known as a mathematician in the bible?
Moses – he wrote the book of numbers.

Who does the Bible say should make the tea?
He brews.

Why didn’t they play cards on the ark?
Noah was standing on the deck.

Who was the greatest comedian in the Bible?
Samson – he brought the house down.

How long did Cain hate his brother?
As long as he was Able.

What was Boaz like before he got married?
He was Ruth-less.

Why was everyone so poor in biblical times?
Because there was only one Job.


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 5 May

Clarification

Because of the size of today’s newsletter, and the urgency of getting it out, we discovered a typo in the paragraph about the minimum drawdowns  from super. Also, in the section on the bring forward rules, I neglected to mention that some rules are not yet legislated despite government promises. I hope this is short newsletter clarifies things for you.

Pension drawdowns

If you are in pension mode now, keep in mind that the minimum drawdown requirements that were halved due to Covid have been restored to take effect from 1 July 2021.

Therefore, when working out your budget for the next financial year make sure your super pension fund has enough funds available to make the pension payments for you.

Bring forward rules

The newsletter talked about the bring forward rules. I omitted to mention that the Government proposal to extend the age limit from under age 65 to under age 67 at the beginning of the financial year to be eligible to access the bring-forward NCC cap from 1 July 2020  is still not legislated.

Under current rules, you are required to be under age 65 on 1 July 2020 to be able to access the bring-forward NCC cap in this financial year. I did stress the bring forward rules are complex – take advice if you intend to use them.


I put two children through Harvard by trading options.  Unfortunately, they were my broker’s children.
JASON ZWEIG AMERICAN JOURNALIST


Welcome to our May newsletter – the fact that May has arrived tells us that we are less than two months from the end of the financial year, and also heralds the pending arrival of this year’s Federal Budget which will be handed down on Tuesday 11 May.

We’ll talk about that more after we know what’s in it. Just keep in mind there will be leaks aplenty before budget day and some will be correct and some will not. The Catch-22 is that the devil is in the detail and it’s only when we get the huge amount of information emailed to us by fund managers on budget night that we find out what sneaky stuff never made it to the press.

In this newsletter we focus on preparing for June 30 because there are often many things people can do to improve their financial situation – BUT  most of these strategies cannot be put into place once June 30 has passed. I appreciate that it contains some technical stuff but that’s the way the laws work. If it doesn’t apply to you just move on.


Bank dividends are back

All my life I’ve been urging investors to take a long-term view. Just think about this extract from my newsletter of April last year – that’s just 12 months ago:

Noel News April 2020:

“And, of course, the newspapers are now featuring headlines like “property may drop 30%” which is nonsense because every property is different – some will drop and some will stay static. But all this argy-bargy between governments, landlords, and tenants highlights the difficulty of owning residential property when the going gets tough.”

1 March 2020:

And this:

Noel News April 2020:

“Retirees suffered another blow recently with strong hints in the media that the big four banks may suspend all dividend payments for the next six months. As a result, I have received a flood of emails asking if that’s a real possibility…these are uncertain times, but I believe the worst that could happen is that dividends here may be suspended for six months, but then restored after that. And if that happens, the renewed dividend may well be bigger than expected.”

6 March 2021:

 

I am not telling you this to boast about being some kind of prophet. Having been in the investment business for more than 60 years I know that papers thrive on bad news, and that good times always follow bad. The big question now of course is how long is the current boom going to continue. Anyway, bank dividends are back with a vengeance.

 


Preparing for June 30

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 possibly 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 67 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.

The key message in regard to contributions is to make sure they are paid on time. This is especially important if you use a clearinghouse by your employer because the fund could take up to 2 weeks to receive the payment. If the payment is received after June 30 it will count for next year. This could have serious impact on your financial affairs.


Lodging a valid notice of intent

Make sure you take advice before you make tax-deductible contribution. It’s a minefield of paperwork, and getting it wrong could mean loss of all or part of the tax deduction. You have to submit a “valid notice of intent to claim a deduction for personal superannuation contributions in the approved form, to the superannuation fund trustee within the required timeframes”. You then need to receive an acknowledgement from the trustee that a valid notice of intent has been received, before you can claim a tax deduction. The timing of these actions in relation to your contribution and what you do next is important.

Case Study

Allen makes a personal contribution to his fund in April 2021, intending to claim it as a deduction when he does his tax. He does not submit a notice of intent at the time. In September, he rolls his three existing super funds into a new fund that offers investment options more suited to his goals.

In early October, Allen is ready to do his tax, and he lodges a notice of intent to claim a deduction for personal super contributions with the fund that now holds the rollovers from his three previous funds.

But that notice is invalid as he has not made any personal contributions to the new fund. The notice would also be invalid if he sent it to the old fund (where he made the contribution) for two reasons: first, when he gives the notice in early October, he is no longer a member of the fund and second, the fund no longer holds his contributions.

Allen has lost his entire tax deduction for the contribution.

Case Study

Harry’s superannuation balance is $175,000. He makes a $25,000 contribution in March 2021, taking the balance to $200,000. Before lodging a notice of intent, he started a pension using $150,000 of his fund. Because his fund has started to pay a superannuation income stream based in part on the contribution recently made, any notice he gives to the fund will be invalid. Therefore, he will be unable to claim a tax deduction for the $25,000 contribution. However, if he had submitted the notice of intent before starting the pension, he would have been eligible to claim a $25,000 tax deduction.
I appreciate that this is complex – but as you have just read, the cost of getting it wrong can be the loss of all or part of your tax deduction.

Tread carefully.


Age restrictions and the work test

Voluntary super contributions such as salary sacrificed contributions or personal contributions other than downsizer contributions can only be accepted on or before 28 days after the end of the month in which the contributor turns 75 , subject to meeting the work test or work test exemption if above age 67.

Since the start of the current financial year, a person aged 65 or 66 is no longer required to meet the work test to make a voluntary super contribution. However, one they are 67 or over at the time of making a voluntary super contribution, they still need to meet the work test or work test exemption to be able to make a voluntary contribution (except for a downsizer contribution).

The work test requires you to be gainfully employed for at least 40 hours in 30 consecutive days in the financial year. Where required, the work test must be satisfied before the voluntary contribution is made.


Maximising personal non-concessional contributions (NCCs)

These may be useful for people who wish to:build up their retirement savings in a tax-effective environment

  • minimise the tax payable on their super death benefit by a non-tax dependant such as an adult child by implementing the “withdrawal and re-contribution” strategy
  • equalise the super balances between spouses by taking lump sums or pension payments from the spouse with a higher super balance and contributing to the spouse’s super with a lower super balance
  • maximise their Centrelink age pension payments by withdrawing from their super and sheltering the amount in their younger spouse’s super if the spouse is under their qualifying age pension age

The cap for NCCs is $100,000 a year in some cases the bring forward rule may be used to enable three years contributions to be made in one lump sum. Keep in mind that the cap rises $110,000 after 30 June so in some cases you may be better off to wait and contribute $330,000 after 30 June instead of $300,000 before it. The amount that can be contributed depends on your total superannuation balance and current rules prevent any non-concessional contributions if your balance is in excess of $1.6 million. It’s vital you take advice if you are thinking of using the bring forward rules because they are complex. All

If you are in pension mode now, keep in mind that the minimum drawdown requirements that were hard due to Covid in restored to take effect from 1 July 2021. Therefore, when working out your budget for the next financial year make sure your phone has enough cash to make the pension payments for you.


The Government Co-Contribution

If your income (i.e. assessable income, reportable fringe benefits and reportable employer super contributions) is less than $54,837 and at least 10% of this income is derived from employment activities (including self-employment), you may be entitled to the government super co-contribution of up to $500 if you make a personal non-concessional contribution to super. The maximum co-contribution of $500 will apply where income is $39,837 or less and you make a personal after tax contribution of at least $1,000.

To be eligible you need to be under 71 at the end of the contributing financial year and if over 67, must meet the work test (or work test exemption) to be able to contribute.

The income used to calculate the amount of the co-contribution is the sum of the assessable income, reportable fringe benefits and reportable employer super contributions, less any amounts that the individual is entitled to claim as a tax deduction for carrying on a business.


Super Returns

The remarkable recovery in super fund’s performance continues with another strong month of returns despite a slower vaccine rollout than many had hoped for and some regulatory uncertainty around the use of some vaccines.

According to SuperRatings data, the median balanced option rose an estimated 2.0% in March, while the median growth option rose an estimated 2.4% and the median capital stable option rose an estimated 0.9%. Over the 2020-21 financial year to date, the median balanced option returned 12.2%, reflecting the strength and speed of the post-pandemic recovery, which extended through to the end of the March quarter.

As Australia confronts the short-term effects of the pandemic, members should expect markets to remain volatile, but the theme of 2021 is certainly one of ongoing recovery as the jobs market improves and economic activity picks up once again.

Pension returns were also positive in March. The median balanced pension option returned an estimated 2.1% over the month and 13.2% over the financial year to date. The median pension growth option returned an estimated 2.5% and the median capital stable option gained an estimated 1.0% through the month.

With the critical JobKeeper support now at an end and banks requiring mortgages to be serviced after a brief hiatus for those in need, it remains to be seen what the immediate economic fallout will be, but so far households appear to be holding up well. The reason pension funds performed better than the accumulation funds is because accumulation funds pay 15% income tax, whereas pension funds pays zero tax.

And as I have stressed repeatedly, the amount of money you will have in your portfolio when you retire, and how long that money will last depends mainly on the rate of return you can achieve. This may be a good time to make sure your superannuation is in an appropriate asset mix for your goals and your risk profile.

This is covered in great detail in my new book Retirement Made Simple.


A Must Watch

Charlie Munger has been Warren Buffett’s business partner for many years. He is now 97 and still going strong. This 10 minute video appears to have been shot recently, and gives us a wonderful insight into his views on how to be a successful investor. Highly recommended.


A Great New Book

Rising life expectancies are proving a special challenge for baby boomers. Many of them are caught between a rock and a hard place: their kids won’t leave home and their parents won’t die. And to make matters worse, parents are often not limited to just two people –there may be four, or even more if blended families are involved.

The outcome for many baby boomers is that their parents become dependent, or at least reliant, on them — and not necessarily at the same times. This creates particular challenges for retirees in responding to their own needs and dealing with the complexity of the needs of various parents.

The challenges are wide-ranging, including both physical and mental health of the parents, and serious relationship breakdowns if a couple cannot agree on the best course of action for caring for the ageing parents of one or both of them.

Elder lawyer Brian Herd, who I quote regularly in my question-and-answer columns, is an expert in this field, and has just released a brilliant book, The Ageing Parent Trap, which explores the myriad issues that can arise as parents get older.

Herd points out that most Australians have an aversion to confronting the future, let alone getting advice about it. At most, they will probably get financial advice on big events such as investing their superannuation when they retire, but few give much thought to funding their own aged care, much less planning and funding their parents’ aged care.

What I particularly like about The Ageing Parent Trap is that it is chock full of real-life examples of problems caused by omission and commission – some of which were solved easily and some of which caused ongoing problems.

A major problem is that life can change in a moment. Herd describes a typical situation – a man is going busily about his day when the phone rings and he hears those fateful words: “Mum’s had a fall and she won’t be coming home.” Suddenly, major issues leap to the fore: Where will she live? Who will take care of her? Where will the money come from?

And other issues may quickly spring to light. Children may be spread around the country – or the world. Some are keen to be involved; others are not. And they may have very different ideas about what the best solution looks like. It can quickly develop into a bunfight as siblings argue about what should happen next. These scenarios can lead to failed families, imploding relationships, and sometimes leave the parents hung out to dry while the children are fighting it out. Family mediation may be required.

It’s a grim scenario, but taking reasonable steps to prepare for it usually leads to significantly better outcomes for all involved.

Herd recommends the best place to start is with open dialogue among parents and their children about what should happen if the parents need help. This would include the parents preparing wills, enduring powers of attorney and advance health directives – and keeping them up-to-date. It may not be easy – many parents will be in denial about the need to discuss such issues. But conversations now can prevent all sorts of issues later; when the inevitable happens at least family members have a basis for agreeing on the best course of action.

Aged care is not free, nor is it simple. And it can be complicated, not just by the system, but by the parents’ circumstances. For example, they could be separated by circumstance if one needs to go to aged care and the other remains at home – as a result, their cost of living would almost double. Then, if there’s a family home, children face the classic conflict between preserving their inheritance on the one hand, and funding their parents’ aged care on the other.

Residential aged care is not an attractive option, and home care packages are rationed like hens’ teeth. The result is an increase in family care – families caring for parents, often with parents moving in with family members, or vice versa. This is a complicated legal financial and social dynamic with lots of tributaries, and is fraught with family cleavages.

I appreciate this is a difficult topic but it’s better to face it now than later. The reality is that many adult children will be forced, often urgently, into their ageing parents’ lives and often into their financial lives. It gives “family-planning” a whole new meaning. Herd’s book is a great resource to help you plan now to mitigate huge problems later.

The Ageing Parent Trap is available at most bookstores or online.


And finally…

These are from the 70’s Hollywood Squares, when game show responses were spontaneous and not scripted like they are now.

Q:  If you’re going to make a parachute jump, you should be at least how high?
A:  Charley Weaver:  Three days of steady drinking should do it.

Q:  True or false…a pea can last as long as 5,000 years.
A:  George Gobel:  Boy, it sure seems that way sometimes.

Q:  You’ve been having trouble going to sleep.  Are you probably a man or a woman?
A: Don Knotts:  That’s what’s been keeping me awake.

Q:  According to Cosmo, if you meet a stranger at a party and you think he’s really attractive, is it okay to come out directly and ask him if he’s married?
A:  Rose Marie:  No, wait until morning.

Q:  Which of your five senses tends to diminish as you get older?
A:  Charley Weaver:  My sense of decency.

Q:  In Hawaiian, does it take more than three words to say “I love you”?
A:  Vincent Price:  No, you can say it with a pineapple and a twenty.

Q:  Paul, why do Hell’s Angels wear leather?
A:  Paul Lynde:  Because chiffon wrinkles too easily.

Q:  Charley, you’ve just decided to grow strawberries.  Are you going to get  any during your first year?
A:  Charley Weaver:  Of course not, Peter. I’m too busy growing
strawberries!

Q:  It is considered in bad taste to discuss two subjects at nudist camps.
One is politics.  What is the other?
A:  Paul Lynde:  Tape measures.

Q:  When you pat a dog on its head he will usually wag his tail.  What will a goose do?
A:  Paul Lynde:  Make him bark.

Q:  If you were pregnant for two years, what would you give birth to?
A:  Paul Lynde:  Whatever it is, it would never be afraid of the dark.

Q:  According to Ann Landers, is there anything wrong with getting into the habit of kissing a lot of people?
A:  Charley Weaver:  It got me out of the army!

Q:  Back in the old days, when Great Grandpa put horseradish on his head, what was he trying to do?
A:  George Gobel:  Get it in his mouth.

Q:  Who stays pregnant for a longer period of time, your wife or your elephant?
A:  Paul Lynde:  Who told you about my elephant?

Q:  Jackie Gleason recently revealed that he firmly believes in them and has actually seen them on at least two occasions.  What are they?
A:  Charley Weaver:  His feet.

Q:  Do female frogs croak?
A:  Paul Lynde:  If you hold their little heads under water long enough.

 


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 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