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28/09/2019 苏州美甲学校

Why your health is the x-factor in retirement planning

Against all expectations I find myself living into my 70s. I was a girl of 19 when I bought my first lot of shares. I was savvy, but declining health and age has caught up with me. I missed out on super as I was self-employed, sold up all but the largest property I owned, and travelled the world for five years. I thought I had it all planned into the future to 2013. I’m still here. My needs are about $40,000 to $50,000 a year. Since 2005 I’ve suffered poor health, so far this year I’ve spent more than $15,000 in medical expenses and I’m in the top health cover. I receive aged care assistance, 13 hours a week run through ACAT, so the Government pays two-thirds towards this care. I am now on a part age pension of $77 a fortnight and with a share portfolio worth about $450,000. I have a $64,000 NAB shareholder’s investment loan on the shares taken out in 2002, with interest now 6.09 per cent. I want to rid myself of the mortgage as Centrelink does not classify it as a deduction, and hospitalisation threatens again. Are you able to claim medical expenses on tax returns? I own a number of small shareholdings, the bane of my life. Would I be better to sell them as I’m sure Centrelink do not deem them? P.A.

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Centrelink values your entire portfolio every March and September and subjects financial investments, such as shares, to deeming, the thresholds for which were indexed up from July 1 to $50,200 for singles ($83,400 for couples). The deeming rates remain 1.75 per cent up to the threshold and 3.25 per cent for further amounts.

I can see why you would want to pay off the mortgage and while I generally advocate eliminating debt in retirement, there are some situations where one needs to think things through. Much depends on the shares you bought.

For example, let’s assume you bought CBA in late January 2002 at $32.56, when adjusted for subsequent share issues. The total dividend in calendar 2002 was $1.51 or 4.6 per cent on your investment.

In 2016-17, the total dividend is $4.29, equivalent to a 13.2 per cent return on your original investment. It’s the reason that a “buy and hold” strategy is so profitable when you invest in a company that shows good earnings and dividend growth. Of course, if you feel forced to sell, then the current share price around $78 means you can pay off a large part of the loan, or you can sell less-successful shares.

If small shareholdings are the bane of your life, by all means sell them, you have enough to worry about. Put the money towards paying off some of the loan.

Expenses paid to an approved aged-care provider can be used to claim a net medical expenses tax offset to reduce your tax. For the 2016-17 year, a single person with an “adjusted taxable income” up to $90,000 can claim 20 per cent of medical expenses, less refunds, above $2299, with different figures for higher incomes. Check the calculator on the ATO website.

I’m a healthy, self-funded retiree aged 65 and have a super pension fund set up with 67 per cent in a balanced option and 33 per cent in cash. My pension is paid from my cash option. I have not rebalanced the fund as yet, and it is now out of kilter. I am considering diverting all dividends from balanced into cash to ensure I have sufficient funds in cash for seven to 10 years of pension payments. L.C.

I must admit, I’m not totally in favour of automatic rebalancing because it usually means taking money from a successful investment option and inserting it into a less-successful fund, although the reverse can happen during weak sharemarkets.

Of course, if your original growth investment has proved wildly successful and has quintupled over time, then there are grounds to consider taking some “money off the table”, as traders say, but that’s unlikely to happen in normal times in a balanced fund, which is designed to offer reduced volatility.

I’m also not convinced that keeping seven to 10 years worth of pension in cash really works to your benefit over a decade or so. It can mean investing up to half the fund in cash, thus guaranteeing a low return and increasing the chances you will run out of money.

As long as you understand that all markets are volatile, I prefer to put 80 to 90 per cent in a mix of balanced and diversified funds (as some are more successful over others any given period), all of which have a portion invested in cash and fixed interest, with the balance in a growth or equity fund.

If you cannot live with volatility, and I know some people cannot, then you should consider placing half the money into a guaranteed annuity, although annuity rates, along with interest rates, are currently low.

Having been born in February 1961, and thus recently reached my superannuation preservation age, I am thinking about reducing my hours of work. I have heard a transition to retirement pension scheme might allow me to salary sacrifice all or part of my wage into my super, then take advantage of the reduced taxation amount (15 per cent, I believe) when it is withdrawn. I have also heard that the government was looking to change the TTR setup and am wondering if these laws have been passed. Would the tax saving from my current 37 per cent rate, down to 15 per cent through the TTR scheme, offset the loss of earnings due to the reduction of hours worked? W.H.

It’s a bit more complex. Let me explain. Since July 1, a TTR pension fund is taxed 15 per cent on its income, that is the same rate as a superannuation fund in the “accumulation” phase. This became law last November.

The TTR pension you receive (up to 10 per cent of the fund) continues to be tax free in your hands once you are aged 60 or over. Between one’s preservation age, now 56, at which a working person can begin a TTR pension, and 59, the pension payments are taxed in your hands. It may only be partially taxed since only the taxable component of the pension payment is added to your assessable income. If you have been adding non-concessional contributions, then these form the tax-free component and are not taxable. Your tax is then reduced by an offset equal to 15 per cent of the taxable component.

If your strategy is to make the maximum $25,000 concessional contribution, and then replace this with a $25,000 pension then, if there is no tax-free component, there is no tax benefit while under age 60.

To illustrate, if you earn $120,000 and sacrifice $25,000, you have reduced your overall taxable income to $95,000 and remain in the 37 per cent tax bracket (plus 2 per cent Medicare Levy). Your $25,000 salary sacrifice is taxed at 15 per cent in the super fund and you save 22 per cent tax.

However, if you replace this with a $25,000 fully taxable TTR pension, the tax at 37 per cent is reduced by the 15 per cent tax offset to 22 per cent. In other words, the amount saved is balanced by the tax paid on pension payments, so there is no net savings. There will be a useful tax benefit if a large portion of the pension fund consists of the tax-free component, otherwise best to wait until age 60.

As I say, just a bit more complex.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.