ISF Logo   IS Forum
Forum Index Register Members List Events Mark Forums Read Help

Go Back   International Skeptics Forum » General Topics » Social Issues & Current Events
 


Welcome to the International Skeptics Forum, where we discuss skepticism, critical thinking, the paranormal and science in a friendly but lively way. You are currently viewing the forum as a guest, which means you are missing out on discussing matters that are of interest to you. Please consider registering so you can gain full use of the forum features and interact with other Members. Registration is simple, fast and free! Click here to register today.
Reply
Old 18th February 2020, 10:58 PM   #1
lionking
In the Peanut Gallery
 
lionking's Avatar
 
Join Date: Jan 2007
Location: Melbourne
Posts: 45,739
Want to retire comfortably? Spend your savings

Believe it or not, this is literally the situation in Australia for a great many baby boomers, including me. I wonder how many other countries have retirement systems which operate like this? Let me know.

Now there are two ways of retiring well. Having a superannuation balance of $1.2m and above, or having a balance of $400,000. In between you get screwed. Most baby boomers do not have $1.2m because the superannuation system started in the 1980s More later.

Going back many decades, everyone who reached 65 got the age pension, including millionaires, who did not need it, but invariably took it (Dame Patty Menzies took pride in it). This stupid waste of taxpayer money changed, and currently a couple over 65 with assets (excluding the home) of $400,000 or less get a full pension of about $37k.

The rub is that after that, every $100,000 of superannuation reduces the pension by $7800, so that the pension disappears at around $800,000. And every retirement planner Iíve read insist that long term growth of savings will be no more than 5%, and 7.8% is unthinkable. So the more you have up to the magical $1.2m will have you worse off.

People with $400,000 can comfortably draw down 5%, add it to $37k, and you have $57k tax free. People with $800,000 who draw down 5% get $40k.

As a result of this advisers are telling retirees with between $400,000 and $1m to spend. Particularly those on $800,000 to $1m, as if they can get below $800,000 they get a part pension and the wonderful pensioner concession card.

Crazy, but true. And Australian governments know the cost of changing even stupid pension rules (franking credits, anyone); they lose government.
__________________
A fanatic is one who can't change his mind and won't change the subject.

Sir Winston Churchill
lionking is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 18th February 2020, 11:13 PM   #2
Bob001
Penultimate Amazing
 
Join Date: Dec 2006
Location: US of A
Posts: 10,870
Originally Posted by lionking View Post
Believe it or not, this is literally the situation in Australia for a great many baby boomers, including me. I wonder how many other countries have retirement systems which operate like this? Let me know.
.....
In the U.S., Social Security payments are determined by someone's lifetime earnings and the age at which he begins collecting benefits. If he earns more (up to a certain point) he gets more, and he can begin collecting as early as age 62, but for each year (really each month) he delays collecting up to age 70, he gets more. But benefits aren't means-tested; they're not linked to investment income or assets. (If you collect early and keep working at a job, your benefit can be reduced).

What is superannuation, and how is it different from a pension? The big problem in the U.S. is that most people aren't saving enough to support a comfortable retirement, most private employers have dropped pensions, and Social Security is not and never was intended to provide full support to retirees.

It's hard for me to understand a system that rewards people for not saving. How can you be better off with $400K than $800K?
Bob001 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 18th February 2020, 11:30 PM   #3
lionking
In the Peanut Gallery
 
lionking's Avatar
 
Join Date: Jan 2007
Location: Melbourne
Posts: 45,739
Sorry, I should have explained superannuation. This is a compulsory payment by employers into employees retirement funds. Currently it is 9.5% and may or may not go to 12% (the government is reviewing this). It came in in the mid 1980, so I missed out on it for about 15 years. Most younger people will have enough to retire without relying on the pension. It’s those of my age who have to navigate the interface between superannuation and the age pension.

You can be better off at $400,000 because you get the full pension, which you don’t get with $800,000 (I’m talking about income and pension of couples throughout).
__________________
A fanatic is one who can't change his mind and won't change the subject.

Sir Winston Churchill
lionking is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 02:14 AM   #4
novaphile
Quester of Doglets
Moderator
 
novaphile's Avatar
 
Join Date: Dec 2009
Location: Sunny South Australia
Posts: 2,821
Minor quibble.

People can also add further contributions to their super accounts and gain tax advantages from doing so.
__________________
We would be better, and braver, to engage in enquiry, rather than indulge in the idle fancy, that we already know -- Plato.
novaphile is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 02:44 AM   #5
lionking
In the Peanut Gallery
 
lionking's Avatar
 
Join Date: Jan 2007
Location: Melbourne
Posts: 45,739
Originally Posted by novaphile View Post
Minor quibble.

People can also add further contributions to their super accounts and gain tax advantages from doing so.
Absolutely. I do. But itís not that easy to find sufficient funds to make it worthwhile. And there is no way Iím going to get anywhere near $1.2m.

We have been spending up in recent years, mainly on home improvements which will increase the value of our main asset, but also on helping children and taking overseas vacations. As things stand, it doesnít make sense to keep accumulating superannuation.
__________________
A fanatic is one who can't change his mind and won't change the subject.

Sir Winston Churchill
lionking is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 02:51 AM   #6
The Don
Penultimate Amazing
 
The Don's Avatar
 
Join Date: Nov 2002
Location: Sir Fynwy
Posts: 28,991
It's one of those difficult problems, how to best target funds for retirees in the most need whilst at the same time encouraging saving for retirement.

In the UK, as long as you have made sufficient National Insurance contributions, or more specifically have contributed for long enough* then you are entitled to a state pension regardless of whatever other pension(s) you are entitled to.

This results in people who don't *need* the state pension receiving it. Daddy and Mummy Don had reasonable (but by no means over-generous) occupational pensions from 30-40 years of teaching. Their expenditures were modest enough that they could afford several holidays to Spain each year and to live a modest but comfortable lifestyle whilst banking their pensions.

I'm sure that there are hundreds of thousands, if not millions of people in a similar position. If these people weren't in receipt of a pension, or a full pension then people without any savings or occupational pension could receive higher pensions. Introducing a scheme to reduce state benefits if you have private pension provision creates a disincentive to save which is not what the government really wants. Maybe a sliding scale where a person loses £1 of state pension for every £2, £3 or £4 of private income may be some kind of balance - but then that would likely skew things towards other schemes and introduce the spectre of the "means test" for the state pension.

Then again, not everyone receives "in work benefits" so there is some precedent.


* - You can get credit for paying National Insurance even if you don't actually pay. Many directors of small firms pay themselves a small enough salary not to attract NI but they still get credit towards their state pension
The Don is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 03:00 AM   #7
The Don
Penultimate Amazing
 
The Don's Avatar
 
Join Date: Nov 2002
Location: Sir Fynwy
Posts: 28,991
Mrs Don and I are a little paranoid about ensuring that we have enough put aside for our retirement (we're in our early-50s). Our pensions and long-term tax-free savings are currently around £1.5m and we're contributing around £50k a year from the business (which is tax effective for both us and our business). We hope to have around £2m by the time we retire which may or may not be enough - depending on what happens to inflation.

We also have an investment property which currently generates a net £15k a year (after expenses) and that's likely to keep pace with inflation.

We hope that we'll be OK when we retire but we're still 15 years away receiving a state pension and we've assumed that by then we will not be eligible due to our private income.
The Don is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 03:07 AM   #8
lionking
In the Peanut Gallery
 
lionking's Avatar
 
Join Date: Jan 2007
Location: Melbourne
Posts: 45,739
Originally Posted by The Don View Post
Mrs Don and I are a little paranoid about ensuring that we have enough put aside for our retirement (we're in our early-50s). Our pensions and long-term tax-free savings are currently around £1.5m and we're contributing around £50k a year from the business (which is tax effective for both us and our business). We hope to have around £2m by the time we retire which may or may not be enough - depending on what happens to inflation.

We also have an investment property which currently generates a net £15k a year (after expenses) and that's likely to keep pace with inflation.

We hope that we'll be OK when we retire but we're still 15 years away receiving a state pension and we've assumed that by then we will not be eligible due to our private income.
If I were in your position I would have no concerns at all. Of course, you may need a lot to maintain your estates (), and we need not a lot. Around $60k tax free should be sufficient to maintain our lifestyle, which allows frequent restaurant meals and travel.

One reason we have been spending up on our 1970s house is that we don’t want to face large maintenance bills in decades to come, which can be hard to budget for.
__________________
A fanatic is one who can't change his mind and won't change the subject.

Sir Winston Churchill

Last edited by lionking; 19th February 2020 at 03:08 AM.
lionking is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 03:33 AM   #9
The Don
Penultimate Amazing
 
The Don's Avatar
 
Join Date: Nov 2002
Location: Sir Fynwy
Posts: 28,991
Originally Posted by lionking View Post
If I were in your position I would have no concerns at all. Of course, you may need a lot to maintain your estates (), and we need not a lot. Around $60k tax free should be sufficient to maintain our lifestyle, which allows frequent restaurant meals and travel.

One reason we have been spending up on our 1970s house is that we donít want to face large maintenance bills in decades to come, which can be hard to budget for.
No need for estates, no kids, no dependants. The idea is to run out of money the day we die

One of the big imponderables is the cost of care. Daddy Don was lucky living Oop North where wages are low and people are nice. His care home cost £3500/mo. Here, for two, it would be close to £10k/mo which very quickly burns through savings/assets.

Here, to get an index-linked income of $60k after tax you'd need close to $2m of pension fund.
The Don is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 04:08 AM   #10
lionking
In the Peanut Gallery
 
lionking's Avatar
 
Join Date: Jan 2007
Location: Melbourne
Posts: 45,739
Our aged care will be funded at least in part by our home. Aged care facilities here usually hold the title to residents homes and return the balance to the estate when the inevitable comes. I think that if the value of the home is exhausted, you still get to stay there.
__________________
A fanatic is one who can't change his mind and won't change the subject.

Sir Winston Churchill
lionking is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 19th February 2020, 04:26 AM   #11
The Don
Penultimate Amazing
 
The Don's Avatar
 
Join Date: Nov 2002
Location: Sir Fynwy
Posts: 28,991
Originally Posted by lionking View Post
Our aged care will be funded at least in part by our home. Aged care facilities here usually hold the title to residents homes and return the balance to the estate when the inevitable comes. I think that if the value of the home is exhausted, you still get to stay there.
Ah, the process is currently different here - though the Aussie way sounds sensible so long as the home doesn't take the ****. Here it's up to the individual to come up with the money if they have more than £26k in assets so we would need to make arrangements to sell our house or do equity release or something. Our current house is worth around £600k-£700k with nothing owing on it but we'll likely relocate and downsize at some point which will probably release some equity to cover 2-3 years of care home fees.

Provision of care, and funding thereof, is likely to be a large and growing issue over the coming decades. We have a perfect storm of an ageing population who will likely require long-term residential care, decreasing access to good private pensions, a lack of lower cost labour and rising asset prices which all seem to lead inexorably to much higher fees and a shortage of places.
The Don is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 20th February 2020, 04:44 PM   #12
PhantomWolf
Penultimate Amazing
 
PhantomWolf's Avatar
 
Join Date: Mar 2007
Posts: 19,736
Originally Posted by lionking View Post
Our aged care will be funded at least in part by our home. Aged care facilities here usually hold the title to residents homes and return the balance to the estate when the inevitable comes. I think that if the value of the home is exhausted, you still get to stay there.
Here Aged Care Residential costs are subsidised by the Government when you hit $230,495 in total assets between you and your partner (or $126,224 in asserts other than the value of a car and house if one partner is not in long term care and total asserts of both are more than the $230,495), unless you are single and have no kids, and then you automatically qualify.
__________________

It must be fun to lead a life completely unburdened by reality. -- JayUtah
I am not able to rightly apprehend the kind of confusion of ideas that could provoke such a question. -- Charles Babbage (1791-1871)

PhantomWolf is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 21st February 2020, 12:07 AM   #13
The Don
Penultimate Amazing
 
The Don's Avatar
 
Join Date: Nov 2002
Location: Sir Fynwy
Posts: 28,991
Originally Posted by PhantomWolf View Post
Here Aged Care Residential costs are subsidised by the Government when you hit $230,495 in total assets between you and your partner (or $126,224 in asserts other than the value of a car and house if one partner is not in long term care and total asserts of both are more than the $230,495), unless you are single and have no kids, and then you automatically qualify.
That's very generous compared to the UK where the threshold for a single person is £26k including all assets such as a house and car.
The Don is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Reply

International Skeptics Forum » General Topics » Social Issues & Current Events

Bookmarks

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


All times are GMT -7. The time now is 01:43 AM.
Powered by vBulletin. Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.

This forum began as part of the James Randi Education Foundation (JREF). However, the forum now exists as
an independent entity with no affiliation with or endorsement by the JREF, including the section in reference to "JREF" topics.

Disclaimer: Messages posted in the Forum are solely the opinion of their authors.