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Special edition: Listener questions answered · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm
• 0:12
  Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody. Well,
• 0:17
  Speaker 1: I've had, by public demand, you might say, we've had
• 0:20
  Speaker 1: lots of questions and I know they've been banking up
• 0:23
  Speaker 1: and I know a lot of you have had questions.
• 0:26
  Speaker 1: in the tank, if you like, for some time. Today,
• 0:28
  Speaker 1: we're going to do a special on readers' questions. And
• 0:32
  Speaker 1: I think you'll find it very interesting. We will go
• 0:34
  Speaker 1: off in all sorts of directions, so you won't have
• 0:36
  Speaker 1: a common theme, if you like. There won't be much
• 0:38
  Speaker 1: in the way of structure or order that we normally have.
• 0:41
  Speaker 1: But we will actually bounce off a lot of really
• 0:44
  Speaker 1: interesting subjects. They're all questions from listeners, all types, all
• 0:50
  Speaker 1: real and genuine, I'd like to add. And And who
• 0:54
  Speaker 1: will help me with these questions? Well, I mentioned to
• 0:57
  Speaker 1: you that I'm away for a week. So the next
• 0:59
  Speaker 1: two shows will be hosted by James Gerrard. And he
• 1:02
  Speaker 1: is here to help me today. How are you, James Gerrard?
• 1:05
  Speaker 2: I'm doing well. Good to be back again. Thanks, James.
• 1:08
  Speaker 1: You're welcome. James Gerrard of financialadvisor.com.au here with me.
• 1:13
  Speaker 2: So.
• 1:14
  Speaker 1: The other thing I'm going to do, James, is, as
• 1:17
  Speaker 1: you know, I'm trained as an editor. I'm a bit
• 1:20
  Speaker 1: severe on the editing, as you would probably know as
• 1:23
  Speaker 1: a contributor to the paper. But more than that, with
• 1:28
  Speaker 1: the correspondence we get, and I do want to take
• 1:31
  Speaker 1: the opportunity to say thank you to everyone who writes in.
• 1:35
  Speaker 1: And if you ever feel the urge to write a
• 1:37
  Speaker 1: review on your podcast app, I would really like that too.
• 1:41
  Speaker 1: But in editing, I keep the questions I demand, if
• 1:44
  Speaker 1: you like, that questions are short. And people have got
• 1:47
  Speaker 1: very good at that. That's just in the interest of fairness, really,
• 1:50
  Speaker 1: that we can get more done. But also, James, as
• 1:52
  Speaker 1: an editor, I snip off endearments or things like, you know,
• 1:58
  Speaker 1: I love the show or whatever. But I think today
• 2:00
  Speaker 1: we leave them in just to give people a flavor
• 2:02
  Speaker 1: here and there of some of the stuff that people
• 2:05
  Speaker 1: are saying. All right. So my first question, and we'll
• 2:09
  Speaker 1: read them alternately, James. And we'll take our usual segments,
• 2:14
  Speaker 1: but we'll try and do maybe three or four in
• 2:16
  Speaker 1: each segment. So the first question straight off, first cab
• 2:20
  Speaker 1: off the rank folks is Yolanda. Hi Yolanda. She says,
• 2:25
  Speaker 1: you mentioned a super black spot, a zone where you
• 2:30
  Speaker 1: have too much or too little in super. Are you
• 2:32
  Speaker 1: able to describe this in more detail and give a range?
• 2:38
  Speaker 1: surely a very common range would be 667 to 1.5 million.
• 2:45
  Speaker 1: What is the amount most people with a full working
• 2:47
  Speaker 1: life with super will have in super on retirement without
• 2:50
  Speaker 1: making extra contributions? And if you can't answer it, she says,
• 2:55
  Speaker 1: can you point me to someone who can? Hold on, Yolanda.
• 2:59
  Speaker 1: We will make a damn good job of answering this,
• 3:01
  Speaker 1: I hope. James calls, this is really funny, James as
• 3:04
  Speaker 1: an advisor and an optimist calls it the sweet spot.
• 3:10
  Speaker 1: He talks about the sweet spot in super where you
• 3:13
  Speaker 1: should be. I talk about the black spot in super
• 3:15
  Speaker 1: where you shouldn't be. That might tell you something about
• 3:18
  Speaker 1: our distinct personalities. But anyway, for what it's worth, here's
• 3:22
  Speaker 1: the thing. And always remember, of course, before we say
• 3:26
  Speaker 1: any answer here, it's probably better to have your own money.
• 3:29
  Speaker 1: Of course it is. Okay, you're going to be more independent.
• 3:32
  Speaker 1: If you've got a million in super and someone says,
• 3:34
  Speaker 1: I don't have a million in super, but guess what?
• 3:35
  Speaker 1: I might as well have for the amount I'm getting
• 3:37
  Speaker 1: in various ways through government payments. And technically, that can
• 3:44
  Speaker 1: actually be argued in some cases. It's not the same. However,
• 3:50
  Speaker 1: for all the effort we make, for all the savings,
• 3:55
  Speaker 1: you do wonder sometimes, is there a zone in super where, well,
• 3:59
  Speaker 1: it's arguable, on a year-to-year income basis, and I'm including
• 4:05
  Speaker 1: everything you can get from the government and Centrelink and
• 4:08
  Speaker 1: Commonwealth Seniors Health Cards and everything else, there is a
• 4:11
  Speaker 1: zone where it's arguable whether it's worth the effort. I think, James,
• 4:16
  Speaker 1: it's somewhere in the order of $ 400, 000 to $ 600, 000.
• 4:19
  Speaker 2: What do.
• 4:20
  Speaker 1: You work on? Yeah, that's about right. It depends on the....
• 4:31
  Speaker 2: The person if they're single, if they're a couple, if
• 4:34
  Speaker 2: they own a house or if they don't own a house.
• 4:36
  Speaker 2: Because what I call, as you've mentioned, the sweet spot.
• 4:41
  Speaker 2: So the ideal situation is where you can pick up
• 4:44
  Speaker 2: the age pension from the government in retirement, which is
• 4:47
  Speaker 2: available from age 67 onwards, but subject to an assets
• 4:51
  Speaker 2: and income test. But you're also what we call a
• 4:54
  Speaker 2: self-funded retiree or have hundreds of thousands of dollars in super.
• 4:58
  Speaker 2: as well. So the way that you sort of hit
• 5:00
  Speaker 2: that sweet spot to get the full age pension from
• 5:03
  Speaker 2: the government, which for a single person is almost $ 30, 000
• 5:07
  Speaker 2: a year. So it's not pocket money here.
• 5:09
  Speaker 1: Well, that's what I was saying about a million dollars.
• 5:11
  Speaker 1: I mean, very conservative estimate. If you had it in
• 5:14
  Speaker 1: a poorly paying cash account, a million dollars, the $ 30, 000
• 5:18
  Speaker 1: a year might be there, thereabouts, what you're going to get, right?
• 5:21
  Speaker 2: Yeah, that's right. So you cast your mind back a
• 5:23
  Speaker 2: couple of years ago when the cash rates or term
• 5:25
  Speaker 2: deposit rates were giving you half a percent, 1%. You're
• 5:28
  Speaker 2: getting peanuts even on a million dollars. So getting this
• 5:31
  Speaker 2: guaranteed payment of $ 30, 000 if you're single, $ 45, 000 if you're
• 5:36
  Speaker 2: a couple from the government is great. But, of course,
• 5:38
  Speaker 2: with the cash rate going up, the returns out of
• 5:40
  Speaker 2: super have been better. But still, the principle is the
• 5:44
  Speaker 2: same around this sweet spot. So the place that Yolanda
• 5:48
  Speaker 2: should have a look at is it's called A Guide
• 5:51
  Speaker 2: to Australian Government Payments, and it's on the services website. website.
• 5:55
  Speaker 2: And you go there, you have a look in the
• 5:56
  Speaker 2: back around the assets test section, and then you just
• 5:59
  Speaker 2: identify which one you are. And again, are you single?
• 6:02
  Speaker 2: Are you in a couple? Do you own a house?
• 6:03
  Speaker 2: Do you not own a house? And it will show
• 6:05
  Speaker 2: you how much assets, so how much super value of
• 6:08
  Speaker 2: your bank account, car contents, how much you can have
• 6:10
  Speaker 2: in assets to receive the full-age pension. And then if
• 6:13
  Speaker 2: you exceed the threshold for a full-age pension, you'll go
• 6:16
  Speaker 2: into the part pension range. And then if you exceed
• 6:19
  Speaker 2: that upper threshold, you get zip.
• 6:21
  Speaker 1: And they taper it, don't they? So it's like for
• 6:24
  Speaker 1: every dollar over X, it takes 50 cents off your pension.
• 6:31
  Speaker 1: And so keep that in mind. It's a long-term thing,
• 6:33
  Speaker 1: but I think it's just a huge issue. And by
• 6:38
  Speaker 1: the way, folks, all these retirement calculators, you know. uh, uh,
• 6:41
  Speaker 1: be very careful. I'd be damn skeptical about these people
• 6:44
  Speaker 1: saying you need a million in super, you need 1.6 million.
• 6:48
  Speaker 1: What do you need? Well, well, you know, there's a
• 6:50
  Speaker 1: government pension, first of all, and some people will live
• 6:53
  Speaker 1: on that. Part two, there are a lot of other issues, um,
• 6:57
  Speaker 1: items that you can pick up, um, as a, as
• 7:01
  Speaker 1: an older person, um, if you don't have super, but the, the, the,
• 7:06
  Speaker 1: the mega point I'd like to make to everyone, James is, um,
• 7:11
  Speaker 1: If you don't own your own home, you will pay
• 7:14
  Speaker 1: highly in this system because it's entirely biased towards the
• 7:18
  Speaker 1: homeowner because the home value is basically not counted. But
• 7:25
  Speaker 1: all super is. So if there's two people, one has
• 7:28
  Speaker 1: a $ 5 million house and a tiny bit of super,
• 7:31
  Speaker 1: and the other person has a million dollars in super
• 7:35
  Speaker 1: but no home, then... that person with just lots of
• 7:40
  Speaker 1: super and no house, they're going to do worse in
• 7:43
  Speaker 1: the system, aren't they? They are.
• 7:45
  Speaker 2: That's a really good point. The net assets of the
• 7:48
  Speaker 2: person with the house is much higher, but they get
• 7:53
  Speaker 2: the pension, whereas someone with a lower net asset, but
• 7:56
  Speaker 2: just because their money's in super, they don't get the pension.
• 7:59
  Speaker 2: So that's a very good point to note that the
• 8:03
  Speaker 2: family house is not included in the assets test.
• 8:07
  Speaker 1: So keep that in mind, Yolanda. And all the Yolandas
• 8:09
  Speaker 1: out there, no advice here, of course, information only. And also, folks,
• 8:14
  Speaker 1: that is why, if you were listening to the most
• 8:17
  Speaker 1: recent show, it's why I've come around to saying, yes,
• 8:20
  Speaker 1: you can use your super to buy a family home.
• 8:22
  Speaker 1: Not because it's a great idea, not because it's, in principle,
• 8:26
  Speaker 1: I think it's terrific, but because the tax system is
• 8:28
  Speaker 1: so loaded against you, if you don't have a home,
• 8:31
  Speaker 1: that you are better off with one. before you start forever,
• 8:35
  Speaker 1: not just in midlife, young life, but even more so
• 8:40
  Speaker 1: when you're retired. Okay. A question from Luke. Do you
• 8:43
  Speaker 1: want to read that one, James?
• 8:45
  Speaker 2: I will. When in a DRP acronym for dividend reinvestment
• 8:50
  Speaker 2: plan for an ETF acronym for exchange traded fund is
• 8:53
  Speaker 2: a dividend reinvestment made at the price post or pre distribution?
• 9:01
  Speaker 2: You want me to answer? Yes.
• 9:03
  Speaker 1: Oh, please do. You're the financial advisor. Yes.
• 9:06
  Speaker 2: Okay. Sorry, I wasn't sure if I asked you to answer,
• 9:09
  Speaker 2: but I'll ask you to answer this one.
• 9:11
  Speaker 1: If they're hard, you answer. That's basically the routine. All right.
• 9:15
  Speaker 1: Got it.
• 9:16
  Speaker 2: Sorry. I'll get with the program. Okay. So the answer
• 9:18
  Speaker 2: is that the dividend is paid and then it gets reinvested.
• 9:22
  Speaker 2: So the dividend reinvestment is made based on the share
• 9:26
  Speaker 2: price after the end.
• 9:29
  Speaker 1: So.
• 9:31
  Speaker 1: They figure out what the dividend is. So the dividend
• 9:34
  Speaker 1: is a dollar per share. And then once they know that,
• 9:39
  Speaker 1: I presume after 30, within a period of something, they
• 9:42
  Speaker 1: reinvest that dollar for you in the shares that you
• 9:45
  Speaker 1: have in the ETF, just like a share, just like
• 9:48
  Speaker 1: an ordinary share. They do it the same way. I
• 9:50
  Speaker 1: don't believe there's any difference at all. And I know
• 9:52
  Speaker 1: people are always asking that. Okay. Pavel, P-A-V-E-L. Hi. As
• 9:57
  Speaker 1: a regular listener to the podcast, I've it informative and enjoyable.
• 10:02
  Speaker 1: And especially given the quality of the guests that you
• 10:05
  Speaker 1: have on and their experience and willingness to share good insights.
• 10:08
  Speaker 1: That's you, James Gerard. I think it would be great
• 10:12
  Speaker 1: if not in the not too distant future. you could
• 10:16
  Speaker 1: have a financial advisor to summarize what the re-contribution strategy is. Okay,
• 10:22
  Speaker 1: our completely upside-down, totally twisted super system has a thing
• 10:27
  Speaker 1: which allows you to take money out and put it
• 10:30
  Speaker 1: back in and reduce your tax ability of your ultimate
• 10:37
  Speaker 1: inheritance you might pass on through your super. That's it conceptually.
• 10:41
  Speaker 2: Would you explain.
• 10:43
  Speaker 1: What a re-contribution strategy is, James, how it might work.
• 10:46
  Speaker 1: I presume you've.
• 10:47
  Speaker 2: Put people into it. Yeah, absolutely. Yep. So we have
• 10:51
  Speaker 2: this hangover from superannuation years of the past with components
• 10:56
  Speaker 2: of superannuation. There's a taxable component. There's a tax-free component.
• 11:00
  Speaker 2: There's even a less common untaxed component as well. And
• 11:03
  Speaker 2: this was back when I first started my career 20
• 11:06
  Speaker 2: years ago where we had things like reasonable benefits limits
• 11:09
  Speaker 2: and we had to do these complex calculations to work
• 11:11
  Speaker 2: out how much people could get out of super in
• 11:14
  Speaker 2: retirement tax-free. But going back maybe 15 years ago now,
• 11:17
  Speaker 2: they sort of simplified the system and got rid of
• 11:19
  Speaker 2: all these complex calculations and basically said that people over
• 11:22
  Speaker 2: the age of 60 who are retired will have everything
• 11:25
  Speaker 2: tax-free in super if they're in the pension phase. But
• 11:28
  Speaker 2: the last few years, they've changed the rules a bit
• 11:31
  Speaker 2: and they've brought in these $ 1. 9 million caps and there's
• 11:34
  Speaker 2: going to be a $ 3 million cap at 30%. But
• 11:38
  Speaker 2: that aside, for most people who are retired, in drawing
• 11:43
  Speaker 2: pension money out of super, it's tax-free. So the strategy
• 11:46
  Speaker 2: here around the re-contribution is that it doesn't really mean
• 11:49
  Speaker 2: anything to you while you're retired drawing your pension because
• 11:51
  Speaker 2: it's tax-free. It's more for your non-dependents. So typically adult
• 11:55
  Speaker 2: children who inherit your super money after you pass away,
• 11:58
  Speaker 2: your dependents, so spouses, they receive the money tax-free from
• 12:03
  Speaker 2: your super if you pass away. But non-dependents, so for
• 12:06
  Speaker 2: kids who are grown up, who have their own spouses
• 12:09
  Speaker 2: and families and who are not reliant on you, they
• 12:11
  Speaker 2: have to pay 17% tax only on the taxable component
• 12:16
  Speaker 2: of your super account. So a lot of people don't
• 12:19
  Speaker 2: actually know what their components of their super is. So
• 12:21
  Speaker 2: you probably need to look at a statement or ring
• 12:22
  Speaker 2: up the super fund and you might be surprised because
• 12:25
  Speaker 2: there might be a high taxable component, which again, you
• 12:28
  Speaker 2: shouldn't be worried about because it doesn't mean anything for
• 12:30
  Speaker 2: you in retirement, but there's a planning opportunity depending on
• 12:33
  Speaker 2: your age because you can do this re-contribution strategy where
• 12:37
  Speaker 2: you take money out of super And then you put
• 12:41
  Speaker 2: it back in again. And doing that, you're taking money out.
• 12:44
  Speaker 2: And when you take money out, your withdrawal is proportionately
• 12:47
  Speaker 2: split between the taxable and tax-free component. So in simple terms,
• 12:51
  Speaker 2: if you had $ 100, 000 in your super account and it
• 12:52
  Speaker 2: was 50% taxable, 50% tax-free, and if you took $ 10, 000
• 12:53
  Speaker 2: out as a lump sum withdrawal, that $ 10, 000 withdrawal payment
• 12:55
  Speaker 2: would be a mix of 50% taxable, 50% tax-free. And
• 12:56
  Speaker 2: so you've got this $ 10, 000 in your bank account now.
• 13:08
  Speaker 2: You can put it back as what we call a
• 13:10
  Speaker 2: non-concessional contribution. There's no tax payable when that goes back in.
• 13:14
  Speaker 2: And that payment adds to the tax-free component of your
• 13:18
  Speaker 2: super account.
• 13:19
  Speaker 1: It's a long, elaborate, mildly absurd way of legitimately minimizing
• 13:28
  Speaker 1: the tax of your account. beneficiaries, uh, in the long
• 13:35
  Speaker 1: period of time. And most people, by the time they
• 13:37
  Speaker 1: get inheritance now are adults anyway, aren't they? But, but, uh,
• 13:41
  Speaker 1: the other thing is to say for most, if you've
• 13:44
  Speaker 1: never met any voluntary contributions ever, would your, would it
• 13:49
  Speaker 1: be a hundred percent taxable then?
• 13:52
  Speaker 2: That's right.
• 13:53
  Speaker 1: Yeah. Which would be a lot of people. And increasingly, uh,
• 13:56
  Speaker 1: increasingly people, uh, now that the SGC is so high, um,
• 14:02
  Speaker 1: I imagine that group is getting bigger and bigger. Okay.
• 14:05
  Speaker 1: I imagine that all makes perfect sense to you all
• 14:07
  Speaker 1: so far. These are questions that I've basically distilled some
• 14:14
  Speaker 1: of the more common questions that we get. And we will,
• 14:18
  Speaker 1: as I say, be bouncing around. That was very quickly there.
• 14:22
  Speaker 1: That was two on super and one on dividend reinvestment plans, which,
• 14:26
  Speaker 1: of course, I'm sure you know what they are. Once
• 14:28
  Speaker 1: upon a time, all shares used to have them. Now
• 14:31
  Speaker 1: it's sort of entirely, they're so sort of ruthless in
• 14:34
  Speaker 1: their ways, corporates. They turn them on and off as
• 14:37
  Speaker 1: it suits them. But it's a good discipline if you
• 14:40
  Speaker 1: have shares to just sign up for a DORP, unless
• 14:43
  Speaker 1: you're very efficient and you know exactly what you're going
• 14:45
  Speaker 1: to do with your cash every time. And the other
• 14:47
  Speaker 1: theory academically is like if you think a company is
• 14:50
  Speaker 1: good enough, like if you think Commonwealth is good enough,
• 14:53
  Speaker 1: Commonwealth Bank is good enough, then it's probably good enough
• 14:56
  Speaker 1: to reinvest in. That is an interesting sort of test
• 15:00
  Speaker 1: if you ever want to sign up for a dividend
• 15:02
  Speaker 1: reinvestment plan for either an ETF or a share. Okay,
• 15:05
  Speaker 1: we'll take a short break and we'll be back in
• 15:06
  Speaker 1: a moment. Hello, welcome back to the Australian's Money Puzzle podcast.
• 15:12
  Speaker 1: James Kirby with James Gerrard. And we have a Reader's
• 15:15
  Speaker 1: Questions special show for you today. Nothing but Reader's Questions.
• 15:20
  Speaker 1: All sorts, shapes and sizes. And a really interesting one
• 15:25
  Speaker 1: from Scott. I'm going to read this. This is a
• 15:28
  Speaker 1: great question. What is the end game of someone who
• 15:31
  Speaker 1: invests in shares outside of super for the long term?
• 15:35
  Speaker 1: What's their desired end state? If you're investing in shares
• 15:38
  Speaker 1: for the long term, you'd surely do it in super.
• 15:40
  Speaker 1: If you're worried about quick access or liquidity, that's what
• 15:44
  Speaker 1: an emergency fund is for. I'm 40 and I've spent
• 15:47
  Speaker 1: the last 15 years investing in the share market for
• 15:50
  Speaker 1: the long term outside super through index.
• 15:53
  Speaker 2: Based ETFs.
• 15:54
  Speaker 1: It suddenly dawned on me that I'm unlikely to crystallize
• 15:57
  Speaker 1: these investments before retirement. I should have invested through super. Whoops. Well, yeah. Okay,
• 16:03
  Speaker 1: Scott and all the Scots out there. Interesting point. Originally,
• 16:08
  Speaker 1: when I saw this question, I thought it was what's
• 16:09
  Speaker 1: the end game of investing? It was the old joke
• 16:11
  Speaker 1: in the Danny DeVito movie about what they're fighting over.
• 16:17
  Speaker 1: It's all about money, this movie. It'll come to me
• 16:20
  Speaker 1: in a second. Well, it's called... And he explains to
• 16:24
  Speaker 1: someone else on Wall Street, the guy says, what's it
• 16:26
  Speaker 1: all about? Why are we doing this anyway? And Danny
• 16:29
  Speaker 1: DeVito says, the guy who dies with the most wins,
• 16:34
  Speaker 1: which is what people will say sometimes to me on
• 16:38
  Speaker 1: issues about superb. And I say to them, yes, yes, well,
• 16:42
  Speaker 1: settle down there. We all need money in this world
• 16:44
  Speaker 1: and we need to be able to defend ourselves. In
• 16:47
  Speaker 1: times of difficulty, that's the first thing not to mention
• 16:50
  Speaker 1: when we get when we are not able to make
• 16:52
  Speaker 1: the salaries we make in our prime. Now, Scott, the
• 17:00
  Speaker 1: only thing I would say to you in retrospect, because
• 17:02
  Speaker 1: it's too late, right? I imagine you could switch this
• 17:05
  Speaker 1: stuff into super in species transfer, but it's too late
• 17:08
  Speaker 1: in many ways. You can have– how much can you
• 17:12
  Speaker 1: have outside of super tax-free in income anyway, James? Any
• 17:16
  Speaker 1: single person, anyone in the country can have a certain amount.
• 17:19
  Speaker 2: Yeah, you can. It depends a little bit if you're
• 17:22
  Speaker 2: a couple or single. But let's say it starts at $ 18, 000,
• 17:25
  Speaker 2: but it can be around $ 25, 000 in circumstances.
• 17:29
  Speaker 1: Okay. So whoever you are, even if it's a rock-bottom minimum,
• 17:33
  Speaker 1: you can make an income of $ 18, 000 per annum.
• 17:39
  Speaker 2: And it's tax-free.
• 17:40
  Speaker 1: It doesn't matter whether that money is in super or not.
• 17:42
  Speaker 1: So perhaps someone like Scott could hold it right there
• 17:45
  Speaker 1: and have a look and say, well, how much am
• 17:46
  Speaker 1: I making? What would be the income out of this?
• 17:49
  Speaker 1: And you mightn't have to transfer it. If he wanted
• 17:51
  Speaker 1: to transfer it into super, if that seemed better, can
• 17:59
  Speaker 1: you do that? Can you say, listen, I've got... Did
• 18:02
  Speaker 1: he give a number on how much is there? No,
• 18:04
  Speaker 1: but let's say he has 25 grand in investments, their ETFs.
• 18:08
  Speaker 1: And he says, oh, I should have put that in
• 18:10
  Speaker 1: my super fund 10 years ago. But he's still got
• 18:12
  Speaker 1: 10 years to go or 20 years to go. Can
• 18:15
  Speaker 1: he switch that stuff into his super? And what would
• 18:17
  Speaker 1: be the upside or downside of that move?
• 18:20
  Speaker 2: Yeah, he can definitely do that. The upshot is that
• 18:24
  Speaker 2: it reduces tax downstream. When he's retired, there's 0% tax
• 18:27
  Speaker 2: on the capital gains if he eventually sells it. And
• 18:31
  Speaker 2: super funds, a lot of them will do what's called
• 18:33
  Speaker 2: in-specie transfer. So Scott won't have to sell the share
• 18:37
  Speaker 2: and then repurchase it through his super fund. He can
• 18:39
  Speaker 2: just pick it up and then transfer it and drop
• 18:41
  Speaker 2: it into his super fund, which is good. There will
• 18:43
  Speaker 2: be capital gains tax implications, though, because he's crystallizing again,
• 18:48
  Speaker 2: whether he does the in-specie transfer or sells it and
• 18:51
  Speaker 2: moves it to the super fund. So that needs to
• 18:53
  Speaker 2: be considered. One thing which I speak to. clients about
• 18:57
  Speaker 2: is deferring or minimizing capital gains tax. We're accumulating assets,
• 19:02
  Speaker 2: we're accumulating shares and properties throughout our working lives, partly
• 19:06
  Speaker 2: in super, partly personally. So the stuff that we hold
• 19:08
  Speaker 2: outside of super, the best time to transfer it into
• 19:12
  Speaker 2: super is generally just after you stop working. And the
• 19:15
  Speaker 2: reason is that you don't have your employment income, which
• 19:18
  Speaker 2: means that you're not being pulled into the higher tax brackets.
• 19:21
  Speaker 2: So as soon as you go into the lower tax bracket,
• 19:23
  Speaker 2: when you're retired, assuming that you're still under the 75
• 19:26
  Speaker 2: years of age for the contribution caps. That's when we
• 19:29
  Speaker 2: start to crystallize. So good.
• 19:31
  Speaker 1: This is exactly where advice comes into play. This is where,
• 19:34
  Speaker 1: I would say, folks, this is where using advice really
• 19:39
  Speaker 1: pays off. That's such an interesting way of using and
• 19:46
  Speaker 1: optimizing how the system works. And people wouldn't necessarily guess that. Yeah. Okay.
• 19:53
  Speaker 1: So just run that scenario of you with James about
• 19:56
  Speaker 1: the person who had the ETFs. And let's say they
• 19:58
  Speaker 1: had the 20 grand in ETF. And let's say they
• 20:00
  Speaker 1: had 10 years to go to retirement. What is, in
• 20:04
  Speaker 1: your view, an optimum pathway there?
• 20:11
  Speaker 2: Yeah, if they've held that ETF for a while and
• 20:14
  Speaker 2: there's a large capital gains tax bill, we would just
• 20:16
  Speaker 2: leave it and say, okay, let's just let it ride,
• 20:18
  Speaker 2: assuming that we like that ETF. And then when you retire,
• 20:21
  Speaker 2: the year after you retire, we'll sell it at lower
• 20:23
  Speaker 2: tax rates and then transfer that money into super. If
• 20:27
  Speaker 2: there's not that much in the way of capital gains
• 20:29
  Speaker 2: tax 10 years from retirement, we might do it earlier.
• 20:31
  Speaker 2: So it just depends on how much tax we're going
• 20:34
  Speaker 2: to save. Because they get the low tax rate anyway
• 20:37
  Speaker 2: because of their age.
• 20:38
  Speaker 1: Correct, yeah. That's kind of the key there. I see. Very,
• 20:41
  Speaker 1: very interesting.
• 20:42
  Speaker 2: Okay. Okay.
• 20:44
  Speaker 1: Very good.
• 20:45
  Speaker 2: All right.
• 20:45
  Speaker 1: Now you want to read the question from MacDaddy, which
• 20:48
  Speaker 1: I presume is not a real name. M-A-C-D-A-D-D-Y, MacDaddy.
• 20:53
  Speaker 2: It's not an Irish name, is it, James? You haven't
• 20:55
  Speaker 2: come across any?
• 20:55
  Speaker 1: No, unless it's a very, very obscure Scottish name, and
• 20:57
  Speaker 1: I don't think it is.
• 20:59
  Speaker 2: Oh, in that Danny DeVito movie, I think it was
• 21:01
  Speaker 2: Other People's Money, the one you referred to.
• 21:03
  Speaker 1: Other People's Money. Thank you. It's good too.
• 21:07
  Speaker 2: Yes.
• 21:07
  Speaker 1: We should do a session sometime on financial and business
• 21:10
  Speaker 1: and investment movies. That is one of the really good ones,
• 21:14
  Speaker 1: Danny DeVito, Other People's Money. Okay, Mac Daddy, what's the question?
• 21:18
  Speaker 2: Thanks for the insightful and entertaining commentary you provide each
• 21:21
  Speaker 2: week on Everything Finance. How does a stock split affect
• 21:24
  Speaker 2: the charts and graphs of the company's share price? For example,
• 21:26
  Speaker 2: if a company does a 1 to 4 split, would
• 21:29
  Speaker 2: the share price suddenly drop by 75%? I am guessing not.
• 21:33
  Speaker 2: So how are the share price and charts of a
• 21:34
  Speaker 2: single price adjusted for a stock split?
• 21:38
  Speaker 1: Great question, Mac Daddy. Oh gosh, every financial journalist's nightmare.
• 21:44
  Speaker 1: The time you do the story about the plunge in
• 21:46
  Speaker 1: the share price. And you get a call the next
• 21:49
  Speaker 1: day saying, you didn't know that there was a stock split,
• 21:52
  Speaker 1: did you? Oh, God. It did happen to me once.
• 21:57
  Speaker 1: It was a dot com. It was in the middle
• 21:59
  Speaker 1: of all the crazy, crazy, craziness of dot com, but
• 22:01
  Speaker 1: it did happen. And I was super alert to them
• 22:04
  Speaker 1: ever since. So stock split, first of all. Actually, there's
• 22:07
  Speaker 1: one going on at, is it NVIDIA going to do one?
• 22:11
  Speaker 2: Yeah, I haven't followed, but it would make sense given
• 22:14
  Speaker 2: how much the share price has gone up. I think so.
• 22:16
  Speaker 1: I think so. So companies do it often when the
• 22:22
  Speaker 1: share price just goes bananas and it's just so, so
• 22:25
  Speaker 1: high that they are of the opinion that retail investors
• 22:32
  Speaker 1: don't want to buy stocks that cost 10,000 each or whatever.
• 22:35
  Speaker 1: So they split them in 10. And for every stock
• 22:39
  Speaker 1: you have, suddenly you have 10 worth 1,000 rather than
• 22:41
  Speaker 1: one worth 10,000.
• 22:41
  Speaker 2: But....
• 22:47
  Speaker 1: It doesn't affect anything, really, does it, James? It's just
• 22:50
  Speaker 1: a technicality. On the charts, I suppose, there'd be some
• 22:53
  Speaker 1: sort of an inflection point or something, which would suggest
• 22:57
  Speaker 1: what happened.
• 22:57
  Speaker 2: Yeah, so I've seen this over the years. And what
• 23:01
  Speaker 2: happens is that the charts, the historical charts, and the volumes,
• 23:05
  Speaker 2: the share volumes, are adjusted to ensure continuity. so that
• 23:09
  Speaker 2: you're looking at it based on the current after split
• 23:12
  Speaker 2: share price. How it works is let's just say that
• 23:14
  Speaker 2: you have 100 shares at $ 100 each. After the split,
• 23:20
  Speaker 2: you'd have shares at $ 25 and you'd have more shares.
• 23:24
  Speaker 2: You'd have 400 shares, but you still own the same
• 23:26
  Speaker 2: amount and the stock chart just adjusts to show that
• 23:29
  Speaker 2: the new share price at $ 25 and they proportion the
• 23:33
  Speaker 2: previous price history so it all looks nice and clean.
• 23:37
  Speaker 1: So if it was a one for four split, as
• 23:40
  Speaker 1: MacDaddy asks, then would the share price drop by 75%?
• 23:44
  Speaker 1: Would it drop?
• 23:45
  Speaker 2: Yeah, it does show a drop of that 75% straight away.
• 23:50
  Speaker 2: But what I've seen is that they sort of smooth
• 23:53
  Speaker 2: it out. So they sort of apply the split, if
• 23:55
  Speaker 2: that makes sense, going backwards so that you don't see
• 23:58
  Speaker 2: that big drop if you come back six months later.
• 24:01
  Speaker 2: It just looks like everything had always been.
• 24:03
  Speaker 1: The after split price. Yeah, they smooth out the charts.
• 24:05
  Speaker 1: And it doesn't matter... Well, apart from the fact that
• 24:09
  Speaker 1: you have four shares for every one you had, MacDaddy,
• 24:13
  Speaker 1: the value of the shares you have have in no
• 24:17
  Speaker 1: way changed whatsoever. All things being equal. I mean, on
• 24:19
  Speaker 1: the day that it happened. But interesting, and it's interesting,
• 24:22
  Speaker 1: we haven't had a question on stock splits before. They're
• 24:24
  Speaker 1: not as common as they used to be. But every
• 24:29
  Speaker 1: now and again, they happen in companies. I think CSL
• 24:33
  Speaker 1: might have had one along the way. And NVIDIA, I
• 24:39
  Speaker 1: think I've read that they might be doing one too. Okay. Right.
• 24:45
  Speaker 1: That was Mac Daddy. Brad, thank you for your excellent
• 24:50
  Speaker 1: and concise financial property and market commentary. I won't bore
• 24:52
  Speaker 1: you with this stuff anymore, folks. I just thought today,
• 24:55
  Speaker 1: it being a reader's question show, we would actually read
• 24:58
  Speaker 1: out what they say. We normally edit all this stuff out.
• 25:01
  Speaker 1: I plan to hold some equities. That is, by the way,
• 25:03
  Speaker 1: they're called shares. Shares. and sell after the end of
• 25:07
  Speaker 1: June in order to realize capital gains at a lower
• 25:11
  Speaker 1: tax rate because the stage three tax cuts are coming through. Uh-huh.
• 25:16
  Speaker 1: Do you believe others will do the same? And will
• 25:19
  Speaker 1: there be any impact on financial and property markets in
• 25:22
  Speaker 1: the next financial year as a result of stage three
• 25:25
  Speaker 1: tax cuts? I love your question, Brad. Here's the thing.
• 25:28
  Speaker 1: I'll do a quick thing about property, and James might
• 25:30
  Speaker 1: pick up on the financial side.
• 25:33
  Speaker 2: Ah.
• 25:35
  Speaker 1: Do you know that following Stage 3 tax cuts, which
• 25:39
  Speaker 1: kick in on July 1, I don't have the tables
• 25:42
  Speaker 1: in front of me, but if you were on $ 100, 000
• 25:49
  Speaker 1: a year, when your tax cut comes in, your borrowing
• 25:52
  Speaker 1: capacity will go up by $ 25, 000 straight away on July 1.
• 25:54
  Speaker 1: If you're on $ 150, 000, your borrowing capacity, that is the
• 25:57
  Speaker 1: amount the amount extra you can bid on a house
• 26:05
  Speaker 1: for will increase by 37,000 automatically on July 1. These
• 26:10
  Speaker 1: are figures from Mortgage Choice, which I just got yesterday.
• 26:14
  Speaker 1: So there's a property market impact instantly that people will
• 26:18
  Speaker 1: be able to borrow and bid more. So that's, take
• 26:23
  Speaker 1: it any way you like, but that is not going
• 26:25
  Speaker 1: to put prices down. Let's put it that way. It
• 26:28
  Speaker 1: has the potential to put them up. What about more generally, James?
• 26:33
  Speaker 1: I presume there's all sorts of angles on this one,
• 26:35
  Speaker 1: isn't there, for an advisor?
• 26:37
  Speaker 2: Yeah, so firstly with the planning, with the tax changes
• 26:41
  Speaker 2: from 1 July, some clients are trying to bring forward
• 26:45
  Speaker 2: deductions into this financial year to claim a higher tax
• 26:48
  Speaker 2: deduction because there's higher tax bands compared to next financial year.
• 26:52
  Speaker 2: But really that's only for people who earn less than
• 26:54
  Speaker 2: $ 190, 000 per year because if you earn $ 190, 000 a year
• 26:55
  Speaker 2: next financial year, you're still going to be taxed at
• 26:56
  Speaker 2: a marginal rate of $ 47, 000. percent. So people below 190,
• 27:05
  Speaker 2: there can be a bit of a benefit by trying
• 27:07
  Speaker 2: to prepay interest and do other things like that this
• 27:10
  Speaker 2: financial year. With regards to the broader impacts on financial markets,
• 27:14
  Speaker 2: I don't think it's going to be that much. Tax
• 27:17
  Speaker 2: cuts will happen. People will be happy. But if I
• 27:19
  Speaker 2: ask you, can you remember the tax cuts that occurred
• 27:21
  Speaker 2: years ago, 10 years ago? How do you feel about that?
• 27:24
  Speaker 2: Does that still influence your financial decisions? The answer is
• 27:27
  Speaker 2: no for everybody. So it'll just flow through. People will
• 27:29
  Speaker 2: be a little bit richer, with more money in their pockets,
• 27:32
  Speaker 2: and then everyone will get on with life.
• 27:37
  Speaker 1: They might spend more, though, which could push up inflation.
• 27:41
  Speaker 2: Don't say that. I was looking forward to interest rates
• 27:44
  Speaker 2: coming down later this year. It looks like next year
• 27:47
  Speaker 2: now is the latest.
• 27:49
  Speaker 1: Now they're saying December 2025. This is the money markets. Oh, yeah.
• 27:54
  Speaker 1: Why don't you say 2026 while you're at it?
• 27:56
  Speaker 2: Oh, Lord, yes.
• 27:57
  Speaker 1: Don't be waiting. We did say a long time ago
• 28:00
  Speaker 1: on this show, don't be waiting for the interest rate cuts,
• 28:02
  Speaker 1: my friends. There is no sign of them at all.
• 28:06
  Speaker 1: But thank you for the question, Brad. Very, very interesting.
• 28:09
  Speaker 1: So tax cuts, yes. Some obvious things is that people
• 28:13
  Speaker 1: will have more to spend. Two surveys, NAB and Westpac,
• 28:18
  Speaker 1: both done in the last month, both said the same thing.
• 28:22
  Speaker 1: that the majority of people intend to save their tax cuts.
• 28:25
  Speaker 1: And the only thing I have to say about those
• 28:27
  Speaker 1: surveys is what people say on surveys and what they
• 28:29
  Speaker 1: do can be very, very different, as you know, from.
• 28:32
  Speaker 2: Election polls pre-election.
• 28:35
  Speaker 1: People will always say what they think they should say.
• 28:39
  Speaker 1: I'd say the chances that the people will save 80%
• 28:42
  Speaker 1: of their tax cuts are zilch. That's my personal view.
• 28:47
  Speaker 1: What do you think?
• 28:48
  Speaker 2: Yep, I agree. James? I agree. It's been tough times.
• 28:51
  Speaker 1: Inflation's been going up. You were kind of saying that anyway,
• 28:53
  Speaker 1: weren't you? Yeah. To the extent they even notice them.
• 28:59
  Speaker 1: I don't mean to be facetious there, but how many
• 29:01
  Speaker 1: people are so numerous and financially obsessive that they will
• 29:06
  Speaker 1: note the change in their pay? Not everybody, I have
• 29:12
  Speaker 1: to say. And I'm not just guessing about that. In
• 29:15
  Speaker 1: those same surveys... 20% of people didn't know anything about
• 29:19
  Speaker 1: the tax cuts. They didn't know they were coming. They
• 29:23
  Speaker 1: haven't been listening to podcasts or reading newspapers.
• 29:27
  Speaker 2: All right.
• 29:28
  Speaker 1: We will take a break. I'm back with some very
• 29:31
  Speaker 1: good questions from John and Dan and Rick. Hello. Welcome
• 29:37
  Speaker 1: back to the Australian's Money Puzzle podcast. It's a readers
• 29:42
  Speaker 1: and listeners, listeners question special. They have been building up.
• 29:47
  Speaker 1: I thought you might enjoy hearing the questions that are
• 29:51
  Speaker 1: coming in from all sorts of angles. Sometimes we, in
• 29:55
  Speaker 1: the show, we do them at the end. Perhaps we
• 29:58
  Speaker 1: do them too quickly. And I thought this was an opportunity,
• 30:02
  Speaker 1: a splendid opportunity to catch up, to speed on them
• 30:05
  Speaker 1: and actually just zone in on them as well. Okay,
• 30:08
  Speaker 1: question from John. Great podcast. We have three children aged
• 30:11
  Speaker 1: between 12 and 18. I would like them to be
• 30:14
  Speaker 1: involved in the family's financial decisions. I think this would
• 30:17
  Speaker 1: help them in the future. At what age would you
• 30:20
  Speaker 1: recommend involving them in financial decisions? What shares to buy?
• 30:26
  Speaker 1: What property to invest in? How to manage a family
• 30:29
  Speaker 1: trust should they be so lucky as having one? He
• 30:33
  Speaker 1: didn't say that. That was me at the end. James Gerard.
• 30:37
  Speaker 1: We both have this situation. My guys, I have to say,
• 30:45
  Speaker 1: they used to say that they understood everything anyway. And
• 30:48
  Speaker 1: then I would challenge them. I'd say, what do you
• 30:51
  Speaker 1: know about super? Oh, I know all about that. And
• 30:53
  Speaker 1: then I'd ask them one or two questions, precise questions.
• 30:56
  Speaker 2: They wouldn't know the answers.
• 30:57
  Speaker 1: So I have found that their interest is building rapidly
• 31:05
  Speaker 1: and it's almost entirely linked with, not with super, they're
• 31:08
  Speaker 1: aware of super, but it's almost entirely linked with the
• 31:11
  Speaker 1: property prices and how they will fare and how they
• 31:14
  Speaker 1: will ever get into the metropolitan markets of Australia, which
• 31:19
  Speaker 1: is probably where they're going to live, considering the sort
• 31:22
  Speaker 1: of jobs that they are probably going to get. But
• 31:27
  Speaker 1: so I tried with my guys when they were, but
• 31:30
  Speaker 1: I think they were 16, 17, 18, when I even
• 31:35
  Speaker 1: tried in any serious way to sit them down a bit.
• 31:37
  Speaker 1: What do you think? What do you think, A, and
• 31:40
  Speaker 1: what do you actually do, B? Okay.
• 31:42
  Speaker 2: All right, so similar to John, I've got three kids,
• 31:45
  Speaker 2: three girls. So Vivian's five, Aviva's seven, and Chloe's 14.
• 31:50
  Speaker 2: So I can speak up to 14 years of age
• 31:52
  Speaker 2: with experience. And also I insist that they listen to
• 31:55
  Speaker 2: the podcast around the dinner table. So hello, girls. I
• 31:58
  Speaker 2: love you. Hope you're listening to this. And what we
• 32:01
  Speaker 2: do is, of course, you want them to understand finance
• 32:04
  Speaker 2: at a young age, but I find that children just
• 32:07
  Speaker 2: aren't interested and you shouldn't force it on them. I
• 32:10
  Speaker 2: found that with Chloe, my eldest, starting to introduce her
• 32:13
  Speaker 2: to debit cards, and I think the good age is
• 32:15
  Speaker 2: anywhere from 12 to maybe up to 15 years of age,
• 32:18
  Speaker 2: so they start to understand the basics of spending money
• 32:21
  Speaker 2: and earning money through pocket money and doing jobs from
• 32:25
  Speaker 2: 15 onwards, and then starting to introduce them to investments,
• 32:28
  Speaker 2: maybe from 16 through to 20 as they show interest
• 32:32
  Speaker 2: in that, and then introducing them to more advanced things
• 32:35
  Speaker 2: such as if you have a family trust, financial how
• 32:38
  Speaker 2: that works, what that means for them in the future,
• 32:40
  Speaker 2: the property market, superannuation, saving for the future. I think
• 32:44
  Speaker 2: all that foundational stuff, anyway, from 20 to 25. It
• 32:47
  Speaker 2: sort of sounds a bit late, but really it's difficult
• 32:50
  Speaker 2: to sit an 18-year-old down and get them to think
• 32:53
  Speaker 2: about superannuation and salary sacrificing and the benefits they'll get
• 32:56
  Speaker 2: at age 60 when they're thinking about going to the
• 32:59
  Speaker 2: next Taylor Swift concert.
• 33:00
  Speaker 1: That's right. Well, that was, I suppose, you can kick
• 33:04
  Speaker 1: it around forever, but that was... the brilliance in some
• 33:08
  Speaker 1: ways of the Paul Keating move of the SGC. I mean,
• 33:11
  Speaker 1: here we are saying, you know, you can actually tap
• 33:13
  Speaker 1: it for your super on the same show, but there's
• 33:16
  Speaker 1: no two ways about it. I mean, it's in your
• 33:18
  Speaker 1: 20s that you really, really got to get started to
• 33:20
  Speaker 1: get the compounding and it's in your 20s that you really, really,
• 33:23
  Speaker 1: really don't care two jots for super because you think
• 33:27
  Speaker 1: you're going to live forever, etc. So one other thing
• 33:31
  Speaker 1: I just thought I might mention to John is that
• 33:34
  Speaker 1: in my... dealings with very, very wealthy families. And we've
• 33:38
  Speaker 1: had advisors on the show, you know, who, who don't
• 33:41
  Speaker 1: say this on the show, uh, but like they, they,
• 33:44
  Speaker 1: they won't deal with people that have, you know, they
• 33:45
  Speaker 1: did have deal with people with like 10 million. I've had,
• 33:48
  Speaker 1: there's one advisor, uh, there's two advisors on the show
• 33:52
  Speaker 1: that basically that's their range. They just have a small
• 33:55
  Speaker 1: squad of clients and these people are very, very wealthy.
• 33:58
  Speaker 1: That's all they do. and I, and I'm, What they
• 34:03
  Speaker 1: tell me is how these matriarchs and patriarchs at seriously
• 34:09
  Speaker 1: wealthy families, how they get their kids. It's more difficult
• 34:14
  Speaker 1: in some cases for them because you can't really convince
• 34:17
  Speaker 1: the kids that they're going to ever need money, that
• 34:20
  Speaker 1: they're going to have to pay their mortgage and blah, blah, blah,
• 34:22
  Speaker 1: because they know they're not going to, because they know
• 34:24
  Speaker 1: there's just so much there. And so the issue becomes imperative.
• 34:30
  Speaker 1: And their way in is philanthropy. So they say, well,
• 34:34
  Speaker 1: you know, you want to achieve something in climate change
• 34:38
  Speaker 1: or you want to make a difference in some way,
• 34:41
  Speaker 1: get involved in the family investment committee and have your
• 34:47
  Speaker 1: place at the table and then we'll see if we
• 34:49
  Speaker 1: can do what you wanted to do. That's actually a
• 34:54
  Speaker 1: way in. I imagine that it works for all families
• 34:58
  Speaker 1: at all ages and all types of families.
• 34:59
  Speaker 2: It's just that the figures.
• 35:02
  Speaker 1: are smaller, perhaps. All right, maybe we'll leave it at that. Terrific. Great,
• 35:06
  Speaker 1: great answers and really good on all those issues. And
• 35:10
  Speaker 1: thank you, everybody, for listening to the show. OK, emails
• 35:14
  Speaker 1: themoneypuzzle at theaustralian.com.au. OK, talk to you soon.