Latest / Contributing to Your Life / Self-Managed Super Fund Strategies | Ep. 07

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Self-Managed Super Fund Strategies | Ep. 07 · Contributing to Your Life

0:00
SPEAKER_02: Residential properties have now largely been banned from Superfund.
0:03
SPEAKER_02: If you don't sign a contract to acquire an investment property using your super fund, it's gone.
0:09
SPEAKER_01: If you're planning to buy residential property through your Superfund, there's a deadline fast approaching.
0:15
SPEAKER_01: And once it passes, that door is closed for good.
0:18
SPEAKER_03: Super isn't the retirement savings account you think it is.
0:21
SPEAKER_03: It's a tax rate, and most people are leaving money on the table because no one's explained the difference to them.
0:26
SPEAKER_02: Superannuation in Australia has hit 4.5 trillion.
0:29
SPEAKER_02: It is massive.
0:30
SPEAKER_02: We have more retirement savings per person than most other countries.
0:34
SPEAKER_02: The government can't help but poke it, because if you've got four and a half trillion dollars in your pocket, billions come out of it.
0:54
SPEAKER_02: One of the greatest reasons why people set up a self-managed super fund is choice.
0:58
SPEAKER_02: This is where SMSFs come in because it gives you choice.
1:00
SPEAKER_03: James Primer is a wealth advisor at KHI Partners with two decades in the industry.
1:05
SPEAKER_03: In 2014, he took a leap of faith to start his own wealth advisory business, building it over 12 years before starting at KHI Partners.
1:13
SPEAKER_01: So today we're breaking down what super actually is.
1:16
SPEAKER_01: The SMSF property strategy, most people get wrong, and the rule that could quietly cost high-income earners tens of thousands at tax time.
1:24
SPEAKER_02: With advice, we're not giving big transformational advice.
1:27
SPEAKER_02: Sometimes it is, but a lot of the times it's just building good habits.
1:30
SPEAKER_02: And if you can do things automatically without noticing you're doing it, that's the ticket to success.
1:35
SPEAKER_00: Before we get into the episode, please be aware that the discussions in this podcast are for informational purposes only and should not be considered financial or legal advice.
1:44
SPEAKER_00: It does not take into consideration your personal circumstances.
1:47
SPEAKER_00: Consult a qualified professional first before making any investment decisions.
1:51
SPEAKER_03: All right.
1:52
SPEAKER_03: Welcome back to contributing to your life.
1:56
SPEAKER_03: Today we've brought the loudest guy in the office, James Primer.
1:59
SPEAKER_03: Here we go, yeah.
2:00
SPEAKER_03: Welcome.
2:00
SPEAKER_03: Welcome.
2:01
SPEAKER_03: Thanks for joining us.
2:02
SPEAKER_02: Like I said before, I'm always waiting for this day, right?
2:04
SPEAKER_02: You've interviewed everyone else and done everyone else.
2:08
SPEAKER_02: Bring me in.
2:09
SPEAKER_02: I'm looking forward to it.
2:10
SPEAKER_03: Yeah.
2:10
SPEAKER_03: So look, today, I guess what we want to really get into, because you're you're a financial planner and wealth advisor, right?
2:17
SPEAKER_03: So I'm just going to ask you because I think that's a very, very broad term that people probably don't know exactly what that means, right?
2:22
SPEAKER_03: So what is financial planning?
2:24
SPEAKER_02: That's it's a it's a good question, and it's you know it's something I've kind of built over time.
2:28
SPEAKER_02: But you know, let me throw the question to you guys.
2:31
SPEAKER_02: What what do you guys think financial planning is?
2:32
SPEAKER_02: When you say you talk to a financial planner, what is it that you believe financial advisors do?
2:37
SPEAKER_02: Sit down, have coffee.
2:41
SPEAKER_03: Sit down, have coffee, and uh, you know, you you talk all day, so just a lot of talking, apparently.
2:48
SPEAKER_03: Statement of advice.
2:49
SPEAKER_02: Yeah, well, statement of normally when people think normally when people think advice, they think straight to the solution we provide, right?
2:55
SPEAKER_02: They do investments or they do superannuation, you know, that they'll talk to you about budgeting, things like that.
3:01
SPEAKER_02: Financial advice, if I break it down its most simplest form, it's it's one of two things, right?
3:05
SPEAKER_02: One, the clients have goals, okay, they've got something that's really important to them, and then it's really up to us as a planner to say, hey, let's make an educated decision.
3:13
SPEAKER_02: Is this something we can do and let's help you get there?
3:16
SPEAKER_02: So if you if you dumb down financial planning to its most basic, that's what it is.
3:20
SPEAKER_02: Okay, clients have goals, and the hardest bit, would you believe, is getting a client to articulate their goal.
3:24
SPEAKER_02: That is the hardest thing because for most people, it's oh, I just need to build wealth.
3:28
SPEAKER_02: All right, and then it that's not unique.
3:29
SPEAKER_02: Everyone says that no matter where they are in their lifetime, let's build wealth.
3:33
SPEAKER_02: And we've all built our business on the on the back of helping people build wealth, okay.
3:37
SPEAKER_02: But you know, if if investing was financial advice, then you know, why do stockbrokers exist?
3:43
SPEAKER_02: Why do buys agents exist?
3:44
SPEAKER_02: So there's there's investing and there's many ways to invest, but we as planners help answer these other questions, right?
3:50
SPEAKER_02: Like how how much do you how much investment do we need?
3:53
SPEAKER_02: How much passive income do we need, you know, uh if we sell one and and get the other and all these things.
3:58
SPEAKER_02: So that's the fun bit.
4:00
SPEAKER_02: That's the fun bit.
4:00
SPEAKER_02: So we do a lot of uh modeling and and complex modeling to help clients really answer these questions and help them make um uh educated decisions more than ever.
4:11
SPEAKER_02: So sorry, I spoke heaps there, but financial planning goals, and then we help them get there.
4:15
SPEAKER_03: Yeah, so I think uh what the case might be is they hear the term financial planning or or wealth advisory, right?
4:20
SPEAKER_03: So when they come and see you, they've got this frame in their mind that, hey, we just got to talk about money, got to talk about money.
4:25
SPEAKER_03: But it's more so what you're saying is what's important to you, what is actually the goal, and the money is really just the vehicle to get you there.
4:31
SPEAKER_02: Yeah, correct.
4:32
SPEAKER_02: I I think sometimes there's this misconception that you only speak to a planner when you have money, all right.
4:37
SPEAKER_02: And so a lot of advisors out there deal with older clients because you know they've built up some sort of super balance or some sort of retirement balance, and then that's when advisors can assist because they've got money.
4:48
SPEAKER_02: You know, there are many different ways in giving advice.
4:50
SPEAKER_02: And so I've like to work with younger clients, and so they don't typically have as much money, but I'll help them find money and I help them once they've found this money, what do we do with that money?
4:58
SPEAKER_02: And that's when all this wealth creation and all these other cool things come into it.
5:02
SPEAKER_01: So, in terms of advice, I think that's a really loose term at the moment.
5:06
SPEAKER_01: We know you can give it, but there's probably parameters around what you can give.
5:10
SPEAKER_01: So, can you give to the audience like what advice can you actually give?
5:13
SPEAKER_02: Oh, it's interesting.
5:14
SPEAKER_02: See, I could kick up a whole stink over this, right?
5:16
SPEAKER_02: When it comes to being licensed to give advice in Australia, the ruling is really we've got these old rules that says when you give advice, we're giving advice on financial products.
5:27
SPEAKER_02: So that's why when you guys think financial planning, you think a financial product, whether that be shares or managed funds or super, because they're all by definition financial products.
5:35
SPEAKER_02: So when we look at the legislation, it says a financial advisor can give advice on financial products.
5:42
SPEAKER_02: All right.
5:42
SPEAKER_02: And so that's when you think about how the advice industry started back in the day, it was AP and all these other providers that knock on the door and be like, hey, you're gonna die tomorrow.
5:50
SPEAKER_02: Let's get some life insurance.
5:52
SPEAKER_02: Sounds silly, right?
5:53
SPEAKER_02: But that's how it was.
5:54
SPEAKER_02: And then and then um superannuation became a thing, and they jumped on board onto superannuation in investments.
5:59
SPEAKER_02: And so advice to some extent, when we write a statement of advice, it's because we're giving advice on financial products, right?
6:08
SPEAKER_02: But it's moved away from that, to be honest, because what we do is a lot of strategic advice.
6:12
SPEAKER_02: So I do many statements of advice where there is no recommendation to change a financial product.
6:17
SPEAKER_02: We're helping clients answer scenarios on what happens if we do this?
6:21
SPEAKER_02: What does it look like in the future?
6:23
SPEAKER_02: You know, all these types of modeling and projections we could do for clients, and there is not any financial products in there.
6:30
SPEAKER_02: All right, so yeah, advice is one of these weird things where a lot of people give advice.
6:34
SPEAKER_02: All right, your accountants will give advice, you guys give advice to clients, and you're all doing it in your area.
6:39
SPEAKER_02: Traditionally, when you speak with a financial planner, it's because we're giving financial product advice, and that's why we need to do this ugly thing called a statement of advice.
6:47
SPEAKER_01: So, can you a client comes to you?
6:49
SPEAKER_01: I imagine in your space you can't say, okay, we want you to put your funds into property, we want you to put your funds into shares.
6:55
SPEAKER_01: Are you saying you can't necessarily stay within those boundaries, or you've got to get a specific property?
7:01
SPEAKER_01: Okay, let's see how much trouble we can get you to do.
7:02
SPEAKER_01: Yeah, yeah, yeah.
7:03
SPEAKER_02: I'll answer that because I'll tell you what the book says.
7:05
SPEAKER_02: The book says that a financial advisor cannot recommend direct property to a client.
7:10
SPEAKER_02: All right.
7:10
SPEAKER_02: And why is that the case?
7:11
SPEAKER_02: Because direct property is not a financial product, as we mentioned, right?
7:15
SPEAKER_02: So most advisors go, we cannot make that recommendation.
7:17
SPEAKER_02: All right.
7:18
SPEAKER_02: And so because of that, a lot of advisors will traditionally say, well, no, don't get into property.
7:22
SPEAKER_02: Just get you into shares and manage funds because they're the things we can manage and can control for you.
7:27
SPEAKER_02: Again, let's go back to financial advice.
7:29
SPEAKER_02: Clients have a goal.
7:30
SPEAKER_02: If the client's goal is to buy a property, help them buy a property, that's the answer there.
7:34
SPEAKER_02: All right.
7:35
SPEAKER_02: And there's many pieces behind it because a client can have one, two, three properties, but there's a bigger goal behind this.
7:40
SPEAKER_02: Again, we spoke about it before about how much is too much, you know?
7:44
SPEAKER_02: What happens when we need to start living off this wealth we've built?
7:46
SPEAKER_02: All right.
7:47
SPEAKER_02: So now we need to begin selling, and so we can show the what-ifs if you sell one over the other.
7:51
SPEAKER_02: But yeah, going back to your question there in terms of, I guess, uh property and advice, that's something I'd like to say.
7:58
SPEAKER_02: I'm kind of some sort of property-centric financial advisor in the sense that I don't ignore property.
8:03
SPEAKER_02: It is a great asset class.
8:05
SPEAKER_02: I can just never say to a client specifically, hey, I recommend you buy this particular property.
8:09
SPEAKER_02: So that's where you flick it to the buyer's agents or the property professionals, and you allow them to kind of make that property selection.
8:16
SPEAKER_03: Right.
8:16
SPEAKER_03: You mentioned earlier that you know a lot of people might think that they need money to come and see a financial advisor.
8:22
SPEAKER_03: Right.
8:22
SPEAKER_03: But um you you mentioned that you do work with people uh that might not start be starting off with quite a lot.
8:28
SPEAKER_03: So um, do you want to just talk us through and even maybe even draw it?
8:31
SPEAKER_03: Like what are the different stages that someone might go through in their in their life?
8:35
SPEAKER_03: Um It's there's probably no drawing for this.
8:37
SPEAKER_02: We'll we'll draw at some point.
8:38
SPEAKER_02: But um I guess what what when I started my business how many years ago, it was all about let's work with people similar to me.
8:45
SPEAKER_02: I'm in this same journey with these people.
8:47
SPEAKER_02: So a lot of people were earning great income now.
8:50
SPEAKER_02: For the first time in life, they're earning great income.
8:52
SPEAKER_02: And what ends up happening there is, you know, with more income, you can have this thing called a lifestyle creep, which is the more you earn, the more you spend.
8:59
SPEAKER_02: And to some extent, that's okay.
9:01
SPEAKER_02: You deserve that.
9:01
SPEAKER_02: If you're working really hard, go on your holidays and enjoy your life.
9:04
SPEAKER_02: But eventually you'll get to a point where, you know, the more you earn, you can't just keep spending.
9:09
SPEAKER_02: And so what I used to do for younger clients, again, no financial product here, but it was advice was let's do a budget.
9:16
SPEAKER_02: And a budget sounds like a dirty word.
9:18
SPEAKER_02: And I say this to clients all the time: when you hear the word budget, don't think I'm telling you go without.
9:23
SPEAKER_02: Okay, because that's not what it's about.
9:24
SPEAKER_02: It's not saying, hey, you spend this much money on holidays and alcohol and going out, let's carve that out.
9:29
SPEAKER_02: No, it's all about look, you live a certain lifestyle, let's budget for that.
9:34
SPEAKER_02: Okay, and so this is your baseline, this is how you live.
9:36
SPEAKER_02: Now, every year, subsequently, your wage will climb, right?
9:39
SPEAKER_02: Especially when you're dealing with young professionals, they'll keep climbing every year.
9:43
SPEAKER_02: And so the logic there that is each year, as there's a pay increase, that should result in extra savings.
9:48
SPEAKER_02: All right.
9:49
SPEAKER_02: So I help clients build this strategy, all right, where we can kind of say, here's all my expenses, they're all taken care of, but eventually we will start having regular savings.
9:58
SPEAKER_02: And so it's it's that extra cash flow.
10:00
SPEAKER_02: That's the opportunity there.
10:01
SPEAKER_02: Because then what do we do with that extra cash flow?
10:03
SPEAKER_02: All right.
10:04
SPEAKER_02: Do we put money towards it?
10:05
SPEAKER_02: But that's a bit boring if you're young.
10:07
SPEAKER_02: Do we start some sort of regular investment plan?
10:09
SPEAKER_02: Or do you start having the chat about, hey, maybe it is affordable, maybe we could buy our first investment property or our first home?
10:15
SPEAKER_02: So, yeah, when you're dealing with younger clients, it's really basic stuff.
10:18
SPEAKER_02: It's budget and and and and and starting from there.
10:22
SPEAKER_01: So I guess for people that are listening exactly to Frank's point is that there's a misconception that you need to have funds to come see a financial planner.
10:30
SPEAKER_01: What would you say?
10:31
SPEAKER_01: Is there a specific age group or specific income?
10:35
SPEAKER_01: Or when should people come see a financial planner?
10:37
SPEAKER_02: That's a that's a great question.
10:38
SPEAKER_02: I feel like the answer is, you know, one of the cool reasons why I got into advice is because I feel like advice is for everyone.
10:44
SPEAKER_02: All right, everyone should be able to speak to an advisor.
10:46
SPEAKER_02: So there is no age group, would you believe?
10:48
SPEAKER_02: I've dealt with clients in their teens, all right, and I've had clients all the way, way past the retirement age, right?
10:54
SPEAKER_02: So there is no age per se, right?
10:56
SPEAKER_02: It really comes down to when that client has their goals.
10:59
SPEAKER_02: We'll keep going back to this word goals, when they start to understand that hang on, we need to start doing something.
11:04
SPEAKER_02: Okay, I need to I need to speak to someone.
11:05
SPEAKER_02: That's when they reach out to us.
11:07
SPEAKER_03: Client in their teens, he must have been uh Yeah, I gotta I don't know how I don't know why I can tell the story.
11:11
SPEAKER_02: But that guy was 19 years old, and he's this young kid I remember was referred to me by another client, and he has a job with Tesla, would you believe?
11:19
SPEAKER_02: And he was saying, Oh, I'm in charge of the sales here in Tesla selling those battery walls when they just launched.
11:25
SPEAKER_02: It's money for jam, that kid's on such great income now.
11:28
SPEAKER_02: And it was given so many Tesla shares and stuff.
11:30
SPEAKER_02: But yeah, that guy reached out to me and will give me advice around, you know, what to do with extra money now.
11:34
SPEAKER_02: He's getting so much bonuses and things like that.
11:36
SPEAKER_02: So he's done really well now.
11:38
SPEAKER_02: I think that guy's onto his second or third investment property now.
11:40
SPEAKER_01: And I think it's those stories that are really meaningful, you know.
11:43
SPEAKER_01: And in your time, like you said, you've been doing it for a long time.
11:46
SPEAKER_01: You've seen many stories, many budgets, many people trying to get wealthy.
11:51
SPEAKER_01: What is the trend that you see in terms of people that hit their goal, people that don't hit their goal, because you mentioned this word goals.
11:59
SPEAKER_01: Well, what's what's stopping people?
12:01
SPEAKER_01: Is it just as simple as the budget budgeting, or is it more to that?
12:04
SPEAKER_01: They're using vehicles, it's a it's a mindset thing.
12:06
SPEAKER_02: Yeah, no, I mean, your background's in health, right?
12:08
SPEAKER_02: You're used to working health.
12:10
SPEAKER_02: So let's use let's use this analogy then that um everyone can do push-ups and run around the block, all right, to stay fit.
12:17
SPEAKER_02: Okay, so there's enough information out there that you could do that, but do they?
12:21
SPEAKER_02: All right, and so this is kind of where we come in as professionals because there's enough information out there.
12:25
SPEAKER_02: Someone asked me, are you worried about you know AI taking over financial advice and stuff?
12:30
SPEAKER_02: There's always been information out there, all right.
12:33
SPEAKER_02: And to some extent, what we provide is is comfort and clarity and accountability.
12:38
SPEAKER_02: And that's the that's where I'm going to with this because some people will say, Yeah, here are my goals and things like that.
12:44
SPEAKER_02: And so we've set up a plan, we've given it to them, and I never say that client again.
12:47
SPEAKER_02: They've never engaged me on some sort of ongoing basis, and I don't know if they ever stuck to the plan.
12:52
SPEAKER_02: All right.
12:53
SPEAKER_02: So, in terms of when people fall short of their goals, it might be because there was no ongoing accountability.
12:59
SPEAKER_02: All right, they've just started a journey and just gone blindly.
13:02
SPEAKER_02: Um, so yeah, that's yeah, that that's kind of where I see people lose goals.
13:06
SPEAKER_02: And the other thing I should mention is that, you know, life is fluid.
13:09
SPEAKER_02: All right, so whatever goals you have now, it will change.
13:13
SPEAKER_02: All right.
13:13
SPEAKER_02: So when I'm talking to younger clients and particularly young couples and they're childless at the moment, you know, they're great income, so I could go hard, buy properties and do many things, and you have a child.
13:23
SPEAKER_02: And you'll recognize this, Aaron.
13:25
SPEAKER_02: Like your life changes the moment you have children.
13:27
SPEAKER_02: And many things change, and all of a sudden, your goals is not necessarily building wealth.
13:32
SPEAKER_02: Okay, and so I work with clients and what's the goal?
13:34
SPEAKER_02: Well, I want more free time.
13:35
SPEAKER_02: Okay, well, let's work towards this.
13:37
SPEAKER_02: So, your goals, not only do we have goals and do they achieve them or not achieve them, but I think we need to be aware that goals constantly mold and life changes, and so your goals need to move with it.
13:48
SPEAKER_01: Properties versus shares.
13:49
SPEAKER_01: Yeah, here we go.
13:50
SPEAKER_01: Yeah, yeah, yeah.
13:51
SPEAKER_01: You've you've seen a lot of uh clients, some maybe more favored to property, some shares.
13:56
SPEAKER_01: You've probably seen some clients do really well at shares, some do really well at property.
14:00
SPEAKER_01: What's the answer?
14:02
SPEAKER_02: The answer is both, and I say that because look, you speak to me in your financial planner, and we're all talking about shares and managed funds.
14:09
SPEAKER_02: But if you ask me about where the bulk of my wealth is tied up, it's in my home and it's in my investment property.
14:13
SPEAKER_02: So I've built a ton of wealth using property, all right.
14:17
SPEAKER_02: Um, and the other thing is we talk about this crystal ball, all right.
14:20
SPEAKER_02: We don't even know which asset is gonna perform better than the other, all right.
14:24
SPEAKER_02: So, because of that, you cannot remove one over the other.
14:28
SPEAKER_02: So when I talk to clients, particularly around self-managed super funds, and they're using their super to buy property, you know, you you cannot ignore the other classes, the other asset classes, because one is not better than the other.
14:38
SPEAKER_02: The answer is to have both, right?
14:40
SPEAKER_02: Because I don't know which one's gonna be better, but you know they're both gonna perform well.
14:44
SPEAKER_02: So in any kind of diversified portfolio, a client should have both.
14:49
SPEAKER_03: That was the most diplomatic and financial funding answer I've ever had.
14:54
SPEAKER_03: Different to other advisors, I think.
14:57
SPEAKER_03: Yeah, look while we're on that topic of um self-managed super funds, right?
15:01
SPEAKER_03: So going through some changes right now, uh, it's a bit of a rat race to that deadline for kind of residential properties.
15:08
SPEAKER_03: Um, so do you want to just outline what what's actually changing um and and what are people doing now?
15:13
SPEAKER_02: Okay, okay.
15:14
SPEAKER_02: Well, maybe they'll draw.
15:16
SPEAKER_02: This would be a great time to draw if that's alright.
15:18
SPEAKER_02: Okay.
15:18
SPEAKER_02: Let's go back to that question.
15:20
SPEAKER_02: Well, we're going to talk about self-managed super funds, and I'm excited.
15:22
SPEAKER_02: That's been my whole oh how can I say this?
15:26
SPEAKER_02: That's that's become my focus, right?
15:27
SPEAKER_02: Because I'm dealing with younger clients.
15:29
SPEAKER_02: We do a lot of self-managed super funds.
15:30
SPEAKER_02: But before we dive into self-managed super funds, what is super?
15:35
SPEAKER_02: All right.
15:36
SPEAKER_02: And it's a question I I think you guys have seen me when I've presented this before, but what is super?
15:41
SPEAKER_03: Retirement savings.
15:42
SPEAKER_02: Yeah, that's it's a vehicle.
15:43
SPEAKER_02: It's a vehicle.
15:44
SPEAKER_02: Okay, so the common answer I get most of the time when I ask clients what is super, the common answer I get is is it's money for retirement, or it's some sort of vehicle where we put money, we can't access it at retirement.
15:54
SPEAKER_02: So this this rule about money for retirement, that's actually just a rule.
15:58
SPEAKER_02: It's the number one rule of super.
16:00
SPEAKER_02: It doesn't define what super is.
16:02
SPEAKER_02: Okay.
16:03
SPEAKER_02: And so there is this book called the Income Tax Assessment Act.
16:06
SPEAKER_02: You can have a read of it.
16:07
SPEAKER_02: There's a whole section in there on super.
16:09
SPEAKER_02: So what super actually is, is a is a is a tax rate.
16:12
SPEAKER_02: And I say to clients all the time, super is a sexy tax rate.
16:15
SPEAKER_02: I mean, you go, hang on, the word sexy in tax should never be in the same sentence.
16:19
SPEAKER_02: So kind of let me draw, all right?
16:21
SPEAKER_02: Um, I this will be weird, but okay.
16:24
SPEAKER_02: When it comes to paying income tax in Oz, okay, as complex as our system is, would you believe there are only kind of three entities that pay income tax?
16:34
SPEAKER_02: All right.
16:35
SPEAKER_02: So they are, you've heard of them all, there's individuals.
16:38
SPEAKER_02: All right, so individuals have marginal rates of tax.
16:41
SPEAKER_02: Yeah.
16:42
SPEAKER_02: There's 0% on the first, I think it's 18,200.
16:46
SPEAKER_02: And we have brackets.
16:47
SPEAKER_02: And we know that top bracket, 47%, which includes Medicare levy, that applies to every dollar above 190,000.
16:55
SPEAKER_02: All right, and so we've got brackets in there, and that's not new to you.
16:57
SPEAKER_02: All right.
16:58
SPEAKER_02: The other entity that pays tax in Australia is companies.
17:02
SPEAKER_02: We have a corporate right, okay.
17:04
SPEAKER_02: If you're a larger firm, it's 30%, and most people think it's 30%.
17:07
SPEAKER_02: Smaller businesses, you know, they pay tax at 25%.
17:11
SPEAKER_02: Okay.
17:12
SPEAKER_02: Again, that's not new to you.
17:13
SPEAKER_02: So the only other entity that pays income tax in Australia Suba.
17:19
SPEAKER_02: All right.
17:20
SPEAKER_02: And so to confuse you more, super has two distinct income tax rates depending on where you are.
17:28
SPEAKER_02: So where we are now, we're in what's called the accumulation phase of super.
17:32
SPEAKER_02: You may you may see that term if you look at your super account.
17:36
SPEAKER_02: Your super statement will say accumulation.
17:38
SPEAKER_02: So accumulation makes sense, right?
17:39
SPEAKER_02: It's going up.
17:40
SPEAKER_02: You're accumulating a balance, okay?
17:42
SPEAKER_02: So either you're putting money in there or your employees putting money in there, it's it's going up.
17:48
SPEAKER_02: All right.
17:48
SPEAKER_02: So anyone know what the tax rate of super is in accumulation phase?
17:52
SPEAKER_02: I know you guys know.
17:52
SPEAKER_02: Oh, 15%.
17:53
SPEAKER_02: It is 15%, right?
17:55
SPEAKER_02: So and if we stop there, super was invented to kind of encourage people to put money away for their retirement, right?
18:03
SPEAKER_02: The government invented this so that people would stop reliance on age pension.
18:07
SPEAKER_02: And so a lot of people were trying to build wealth.
18:09
SPEAKER_02: A lot of people recognize we need to build wealth for our retirement, but if you're building it in your own name over here, you are stuck paying tax at marginal rates.
18:17
SPEAKER_02: So the government said, all right, we'll create this thing called superannuation.
18:20
SPEAKER_02: All right, you can slowly put money in there, we'll tax it cheap, 15%.
18:24
SPEAKER_02: Because if you're over here working full-time, most Aussies will pay tax at an average of about 30% if you're working full-time.
18:30
SPEAKER_02: So super was this really, really cheap place to put money for retirement.
18:35
SPEAKER_02: Concessionally taxed environment is the term they they throw around.
18:38
SPEAKER_02: So we knew the word concession.
18:39
SPEAKER_02: Remember when we were students, we had a concession card, a student concession card.
18:43
SPEAKER_02: Concessions, concessionally taxed.
18:45
SPEAKER_02: It was a really cheap area.
18:46
SPEAKER_02: But the whole point behind super is we build this balance and we go stuff it, I'm done.
18:51
SPEAKER_02: And now we should begin de-accumulating.
18:54
SPEAKER_02: So I've been building up all these assets over my life.
18:55
SPEAKER_02: Now it's time to begin withdrawing it.
18:57
SPEAKER_02: I want to de-accumulate.
18:58
SPEAKER_02: That's when you convert your super to what's called this pension phase.
19:02
SPEAKER_02: Okay.
19:02
SPEAKER_02: And that's when you begin withdrawing.
19:04
SPEAKER_02: What's the tax rate of super in pension phase?
19:06
SPEAKER_02: Zero.
19:07
SPEAKER_02: It is zero.
19:08
SPEAKER_02: All right.
19:08
SPEAKER_02: And so if I stop there, the logic behind it made sense.
19:11
SPEAKER_02: Okay, because let's ignore that super can be used to buy property and shares and manage funds.
19:16
SPEAKER_02: Let's assume super is a bank account.
19:18
SPEAKER_02: Okay.
19:18
SPEAKER_02: And over time you've been putting money into this bank account.
19:21
SPEAKER_02: Okay.
19:21
SPEAKER_02: And as it's earning interest, the government goes, All right, from that interest, we'll end it tax it at 15%.
19:26
SPEAKER_02: Not whatever your marginal rate is because it's over here.
19:29
SPEAKER_02: When you retire and you get to pension, you're going to start withdrawing from your bank account.
19:33
SPEAKER_02: What government goes, oh, you want to start withdrawing, but we're going to tax you.
19:37
SPEAKER_02: All that money you build up will start taxing.
19:38
SPEAKER_02: You can't withdraw me.
19:39
SPEAKER_02: You can't tax me when I decide to take my own money.
19:42
SPEAKER_02: So super, when it's in pension phase, is tax-free not just on withdrawals, okay, because that's your money.
19:49
SPEAKER_02: You've it's your bank account, you've built it up over your life.
19:52
SPEAKER_02: But the really cool thing about super, once it's in pension phase, it's also tax-free on earnings.
19:57
SPEAKER_02: Okay.
19:57
SPEAKER_02: And so let me give some context around.
20:00
SPEAKER_02: There is.
20:01
SPEAKER_02: I mean, the the thing is, the Australian super system has become almost like a darling of the world, right?
20:06
SPEAKER_02: So superannuation in Australia has hit 4.5 trillion.
20:10
SPEAKER_02: It is massive.
20:11
SPEAKER_02: All right.
20:12
SPEAKER_02: We're up there in terms of per capita, we have more retirement savings um per person than most other countries.
20:19
SPEAKER_02: Okay, so we've done really well.
20:21
SPEAKER_02: This system has done really well.
20:22
SPEAKER_02: So that while these are largely the rules, 15% and 0%, the government can't help but poke it.
20:29
SPEAKER_02: Okay, because if you've got four and a half trillion dollars in your pocket, billions come out of it.
20:33
unknown: Right?
20:34
SPEAKER_02: And so there are certain rules, and some people listening at home may recognize well, hang on, I don't pay 15% on super on the way in because I'm a high income earner.
20:43
SPEAKER_02: So there's this thing called a division 293.
20:45
SPEAKER_02: If your income is more than 240,000, you don't pay 15% tax on the way into super, you actually pay 30% tax.
20:51
SPEAKER_02: So yeah, there's all these different rules.
20:53
SPEAKER_02: And on the pension side, there's rules about well, how much can you convert from accumulation to pension?
20:59
SPEAKER_02: Okay.
20:59
SPEAKER_02: At the moment, that is 2.1 million per member, and that moves with inflation over time.
21:05
SPEAKER_02: All right.
21:06
SPEAKER_02: Again, ultimately, if you've got a husband and wife and they've got$2.1 million each in super, and that's larger to tax-free.
21:13
SPEAKER_02: So they've got 4.2 million in super, that's heaps.
21:15
SPEAKER_02: All right.
21:16
SPEAKER_02: And if there's anything above that 2.0 million, well, it stays there in the accumulation phase, and that's only paying tax at 15%.
21:23
SPEAKER_02: It's a bit complex there, what I'm saying there.
21:25
SPEAKER_02: All right.
21:25
SPEAKER_02: But let's get back to you know, super being this tax rate.
21:28
SPEAKER_02: So here's clients, all right?
21:29
SPEAKER_02: And here's a property, all right?
21:31
SPEAKER_02: Because you guys are property guys, and a client has bought a property and they buy something for 500,000.
21:36
SPEAKER_02: Okay.
21:37
SPEAKER_02: And they keep this property for a long time.
21:39
SPEAKER_02: So it's now doubled in value.
21:42
SPEAKER_02: All right.
21:43
SPEAKER_02: If in the future the client ever decides to sell, there's this thing called capital gains.
21:49
SPEAKER_02: And so the government has made some changes to capital gains tax on how that's calculated.
21:52
SPEAKER_02: But ultimately, if you've bought a property for 500 and you sell it when it's a million, there's going to be tax that's going to be paid.
21:58
SPEAKER_02: How much tax you pay?
22:00
SPEAKER_02: Or it depends where you sit on this marginal rate scale.
22:03
SPEAKER_02: All right.
22:04
SPEAKER_02: Let's say the client has done really well and they've, you know, paid the property off outright.
22:09
SPEAKER_02: So this is rental income, and that rental income is also positive rental income.
22:13
SPEAKER_02: Well, guess what?
22:14
SPEAKER_02: Rental income is still taxable because you've acquired this property in an individual name.
22:18
SPEAKER_02: All right.
22:18
SPEAKER_02: Now, for argument's sake, let's assume that client used super to buy that same property.
22:25
SPEAKER_02: All right.
22:26
SPEAKER_02: And they kept that property for a long time again.
22:29
SPEAKER_02: So it's doubled.
22:31
SPEAKER_02: All right.
22:32
SPEAKER_02: Now I'll draw a dotted line here to provide a clue.
22:34
SPEAKER_02: The client in the future is retired and they go to sell this property.
22:38
SPEAKER_02: How much tax you reckon they're paying the sale of this property?
22:41
SPEAKER_02: Zero.
22:41
SPEAKER_02: It's zero.
22:42
SPEAKER_02: Correct.
22:42
SPEAKER_02: So anyone losing home, it's zero.
22:44
SPEAKER_02: And it's it's not relevant the property was acquired here in this accumulation phase.
22:48
SPEAKER_02: All right.
22:49
SPEAKER_02: It matters more when the tax event happens.
22:51
SPEAKER_02: So if the tax event happens, which is the sale of the property happens in this pension phase, there's no tax on the sale of the property.
22:58
SPEAKER_02: It's really cool.
22:59
SPEAKER_02: If there's rental income on this property, because we've worked with the client to make sure this property is owned outright before they get to retirement, well, that rental income, how much tax on that also?
23:09
SPEAKER_02: Zero again.
23:10
SPEAKER_02: Also zero.
23:11
SPEAKER_02: All right.
23:11
SPEAKER_02: So we're talking about SMSFs and all these other things, but I thought we'd segue and talk about what is super first.
23:17
SPEAKER_02: Okay.
23:17
SPEAKER_02: And so super, what super is at the end of the day, it's just a sexy tax rate.
23:23
SPEAKER_02: Hopefully that resonates with you guys.
23:25
SPEAKER_02: So, in terms of explaining super, super is just a tax rate.
23:28
SPEAKER_02: And if we can use it, we'll definitely do it.
23:30
SPEAKER_02: Now, this diagram is showing you a property, all right.
23:34
SPEAKER_02: Residential properties have now largely been banned from uh super funds.
23:38
SPEAKER_02: So August 9 is the date.
23:39
SPEAKER_02: If you don't sign a contract uh to acquire an investment property using your super fund, it's gone.
23:46
SPEAKER_02: Okay.
23:46
SPEAKER_02: Residential.
23:47
SPEAKER_02: On residential, correct.
23:48
SPEAKER_02: So we are still allowed to buy commercial properties through super.
23:53
SPEAKER_02: All right.
23:54
SPEAKER_02: And it's a strategy that I mean I think works really well.
23:57
SPEAKER_02: I've I've personally bought a commercial property through my super fund.
24:01
SPEAKER_02: Um when you deal with a planner, okay, we can model, all right, and I can model cash flow because we can control cash flow.
24:08
SPEAKER_02: So I can do complex modeling and show you cash flow on a commercial property.
24:11
SPEAKER_02: The cash flows look amazing.
24:13
SPEAKER_02: Yields typically higher.
24:15
SPEAKER_02: There is no uh costs in relation to maintaining the property the way it is on residential property.
24:19
SPEAKER_02: So I like anyway, that's a bit of a segue, but I don't mind commercial properties through a super fund.
24:23
SPEAKER_02: But again, the idea of why I'm showing you this is more to say, look, clients are building wealth as much as they can, because that's a common goal for everyone.
24:31
SPEAKER_02: Build wealth.
24:31
SPEAKER_02: Sometimes it's worth considering building wealth, not just in your own personal name.
24:36
SPEAKER_02: Consider the use of superannuation to build that wealth.
24:39
SPEAKER_02: Why?
24:39
SPEAKER_02: If you're building assets and you know you're going to access it or you need access to it when you're retired, super is the best place to have that because of this sexy tax rate here, zero.
24:50
SPEAKER_02: Very, very powerful.
24:51
SPEAKER_01: And, you know, obviously with all these changes that are happening at the moment, you know, we've got different rulings that people may not be aware of to actually, you know, bring more contributions into the super fund to carry forward rule.
25:01
SPEAKER_01: Can you just explain to, you know, especially now, because with commercial, yes, it's a opportunity now with SMSF.
25:09
SPEAKER_04: Yep.
25:09
SPEAKER_01: But sometimes they also need a bigger balance as well to get to a significant uh commercial asset.
25:14
SPEAKER_01: So they might want to bring funds outside in.
25:16
SPEAKER_01: Can you can you tell some of the opportunities that a client could do?
25:19
SPEAKER_02: I might allow to rub this off.
25:21
SPEAKER_02: Let's let's rub this off.
25:22
SPEAKER_02: Okay.
25:22
SPEAKER_02: So you spoke about contributing to super well, you know, we're getting into bits of advice, right?
25:28
SPEAKER_02: When it comes to contributions to super, all right.
25:33
SPEAKER_02: There are two ways.
25:35
SPEAKER_02: Well, there's actually a third way.
25:36
SPEAKER_02: All right.
25:37
SPEAKER_02: The third way over here is a downsizer.
25:39
SPEAKER_02: All right, but we we won't talk about that.
25:41
SPEAKER_02: But downsizer is, you know, a client sold their home.
25:44
SPEAKER_02: There is an additional amount they could get in, up to 300,000 per member they can get into super.
25:48
SPEAKER_02: Right.
25:49
SPEAKER_02: But largely when when clients are talking about contributing to super, there are two ways we can contribute to super.
25:54
SPEAKER_02: All right.
25:55
SPEAKER_02: So I'll use the technical terms.
25:57
SPEAKER_02: We have what's called the concessional limit, and we have the other side, which is the non-concessional limit.
26:04
SPEAKER_02: All right.
26:04
SPEAKER_02: So remember when I said concession, concession was cheap.
26:07
SPEAKER_02: All right.
26:08
SPEAKER_02: So this is the pre-tax limit.
26:10
SPEAKER_02: All right.
26:11
SPEAKER_02: The concessional limit refers to the pre-tax limit, and therefore the non-concessional is is post-tax.
26:16
SPEAKER_02: All right.
26:17
SPEAKER_02: The post-tax limit.
26:18
SPEAKER_02: So let's talk about what the difference is here.
26:22
SPEAKER_02: Pre-tax refers to someone is claiming a tax deduction on this contribution into super.
26:26
SPEAKER_02: So if you're if your employee is paying super contributions your behalf, 12% or 12.5%, um, that employee is claiming a tax deduction.
26:34
SPEAKER_02: Okay, so what's pre-tax?
26:36
SPEAKER_02: This money is going in pre-tax into super.
26:38
SPEAKER_02: If you, as an individual, are making additional salary sacrifice contributions to super or you know, deductible contributions to super, they also form part of this pre-tax amount.
26:48
SPEAKER_02: This, as of one July this year, is now limited to$32,500 per member.
26:55
SPEAKER_02: And so, as I said, you have to remember that includes your superannuation guarantee.
26:58
SPEAKER_02: So if your employees are already putting in 18, 20 grand on your behalf, you've only got the remainder, that remaining 12,000 or 14,000 to put in on top of that.
27:07
SPEAKER_02: This is a hard limit.
27:08
SPEAKER_02: Okay, if you go over that concessional gap, penalty tax applies.
27:12
SPEAKER_02: Okay.
27:13
SPEAKER_02: And this is a limit for some people because there are some people who are on 400,000 a year.
27:17
SPEAKER_02: And the employer contract says we will always pay 12% of salary, no matter what your salary is.
27:21
SPEAKER_02: So that client's receiving 40,000, 45 grand a year in super contributions.
27:25
SPEAKER_02: They always exceed the cap and they'll always have to pay this penalty tax, right?
27:29
SPEAKER_03: So And what is that penalty tax?
27:31
SPEAKER_02: Um, they'll tax at a marginal rate.
27:33
SPEAKER_02: Generally, it's top marginal rate for those people who are there.
27:35
SPEAKER_02: So that's what ends up happening because you can't try to get money into super and try to claim a tax deduction on it and you've exceeded the limit.
27:41
SPEAKER_02: They go, well, hang on, no, we're gonna tax you at your rate, right?
27:44
SPEAKER_01: And so the money gets kicked out, and but that tax can also be paid via the super fund or as an individual.
27:51
SPEAKER_03: No, it's it's that that when it's a penalty tax, it's charged at the individual.
27:54
SPEAKER_02: Yeah.
27:54
SPEAKER_03: Okay, and you mentioned earlier um division two nine three, which I've heard it described as the high income owners version of Santa Claus, is not real.
28:02
SPEAKER_03: So do you want to just uh explain that how that works?
28:05
SPEAKER_03: At what point does that kick in?
28:06
SPEAKER_02: Okay, okay.
28:07
SPEAKER_03: Can I finish this first, right?
28:08
SPEAKER_02: So let's talk about this non-concessional and and and and concessional, right?
28:13
SPEAKER_02: So this post-tax amount, it's always times four of the concessional limit.
28:16
SPEAKER_02: All right.
28:17
SPEAKER_02: So at the moment, it's 130,000 a member can get in post-tax.
28:21
SPEAKER_02: And you know, that seems very generous.
28:23
SPEAKER_01: Per year, right?
28:24
SPEAKER_02: Per year, yes.
28:24
SPEAKER_02: And so there are rules around carrying forward and stuff.
28:26
SPEAKER_02: We'll talk about that.
28:27
SPEAKER_02: But this$130,000 limit, it's seems very generous.
28:31
SPEAKER_02: Remember, this is post-tax money.
28:33
SPEAKER_02: So the best way to think about this is this is money that's sitting in someone's bank account already.
28:37
SPEAKER_02: All right, they've paid tax on it.
28:39
SPEAKER_02: So typically the example is clients have sold an investment property.
28:42
SPEAKER_02: Okay, they've they've made their half a million dollars in capital gain, they've paid the tax on it.
28:46
SPEAKER_02: So now they're left with, I don't know,$400,000.
28:48
SPEAKER_02: And they come to me and go, what do we do with this$400,000?
28:51
SPEAKER_02: Now, depending on the age of the client, it may make sense to get that money into super.
28:55
SPEAKER_02: And so that's you, you know what I mean?
28:56
SPEAKER_02: That's post-tax money.
28:57
SPEAKER_02: The client's not trying to claim a tax deduction on the way in, they've already paid tax on it.
29:01
SPEAKER_02: It's now sitting in their bank account.
29:02
SPEAKER_02: That's when someone can use that uh non-concessional limit.
29:06
SPEAKER_02: Okay, now typically in my line of work, non-concessional limits are contributions.
29:11
SPEAKER_02: I normally suggest that to clients who are much older.
29:15
SPEAKER_02: And I mean that in such a way because if you're putting money in towards super, let's say I tell you guys, hey, let's get 130 grand into super now.
29:22
SPEAKER_02: That hurts, right?
29:23
SPEAKER_02: We're not gonna touch our super for 20, 25 years.
29:25
SPEAKER_02: Okay, so that's a long time to not have access to that money.
29:29
SPEAKER_02: So I do I generally don't entertain this, hey, let's get some non-concessional contributions into super for older clients or for younger clients.
29:36
SPEAKER_02: Because if the argument is I've got 130 grand, do I pay for my mortgage or put towards super?
29:41
SPEAKER_02: The answer is very simple there.
29:42
SPEAKER_02: Chuck it towards the mortgage.
29:44
SPEAKER_02: All right.
29:44
SPEAKER_02: Now, there are some quirks on these rules.
29:47
SPEAKER_02: Okay, so clients, if they're looking to really bolster their balance, they can bring forward, you can use the current year and the next two years.
29:55
SPEAKER_02: So you can get three years in one go.
29:56
SPEAKER_02: You know, this is it depends on client circumstances.
29:59
SPEAKER_02: But again, clients who are very close to super are trying to get as sorry, clients who are very close to retirement.
30:04
SPEAKER_02: We're trying to get as much as we can into super.
30:06
SPEAKER_02: There's a strategy where a client can get up to 390,000 in in one hit.
30:11
SPEAKER_02: Okay, and if you time it well, you could get, you could do one on this one side of the financial year and then bring forward.
30:17
SPEAKER_02: So there are all these strategies.
30:18
SPEAKER_02: It's kind of what we do.
30:19
SPEAKER_02: We give advice on to kind of advise clients on how they can bolster that super balance as much as they want.
30:24
SPEAKER_02: Okay.
30:24
SPEAKER_02: On this side, on the concessional side, because Aaron, I'm going back to your original question.
30:28
SPEAKER_02: All right, so there's also this rule about what we call unused concessional contributions.
30:36
SPEAKER_02: All right.
30:36
SPEAKER_02: And this is a pretty cool one, okay.
30:38
SPEAKER_02: In the sense that, look, let's say my employer every year has been doing 20,000, all right, and I've done no extra contributions beyond that.
30:46
SPEAKER_02: Well, then this year I've got an unused amount of 12,000.
30:50
SPEAKER_02: Okay.
30:50
SPEAKER_02: And in the previous year, my employer, all I received was super contributions.
30:55
SPEAKER_02: And so the previous year there was 10 grand of unused contributions, and the year before that, another 10 grand.
31:00
SPEAKER_02: There is a rule that says you can carry forward the last five years of unused cap and you can bring it forward to today and claim the whole amount as a tax deduction today.
31:11
SPEAKER_02: So there's a strategy where where I was saying, well, short 10 grand of you, you know, possibly around 50,000 can go into super in one hit.
31:19
SPEAKER_02: And the cool thing about that is because it's pre-tax, yeah, it's a tax deduction.
31:24
SPEAKER_02: So it's a strategy where if a client sold an investment property, they're going, well, what strategies do we have to kind of reduce my tax bill?
31:29
SPEAKER_02: You know, then I don't mind the idea of getting some extra money into super.
31:33
SPEAKER_03: So just a question on that.
31:34
SPEAKER_03: So you mentioned that that's now 32,000 five hundred.
31:38
SPEAKER_03: Now last year was 30,000.
31:39
SPEAKER_03: 30 grand, yes.
31:40
SPEAKER_03: Okay, so then does that if they've maxed out for the last few years, does that go back and they can add extra now for their yeah, does it go to the previous year's caps?
31:48
SPEAKER_01: Or does it go to what the current cap is?
31:50
SPEAKER_01: Yeah, it uses the whatever the cap was at that time.
31:52
SPEAKER_02: Oh, okay.
31:53
SPEAKER_02: So you can't be like, well, this year's 32 and a half, so no, you can take that back, but it has changed.
31:57
SPEAKER_02: It was 25 grand, it became 27, it became 30.
32:00
SPEAKER_02: It's now 32 and a half is is that limit.
32:02
SPEAKER_02: But yeah, the limit is based on that financial year.
32:05
SPEAKER_02: Okay.
32:05
SPEAKER_02: All right.
32:06
SPEAKER_02: So, yeah, sorry, Aaron, a lot of talking there, but going back to that thing there, it's more around, you know, how do clients bolster their super balance?
32:12
SPEAKER_02: Again, goal.
32:13
SPEAKER_02: Let's go back to goal.
32:14
SPEAKER_02: And when clients talk to you, they don't have one goal, they're going to mini goals.
32:18
SPEAKER_02: Okay.
32:18
SPEAKER_02: So we've got to balance out this idea of look, do we chuck as much towards super because my goal is to buy a property in there or a commercial property, possibly.
32:27
SPEAKER_02: But what is the impact if we do that against their other goals?
32:29
SPEAKER_02: Yeah.
32:30
SPEAKER_02: All right.
32:30
SPEAKER_02: So this is where there's a lot of there's a there's a balance and there's a there's a strong balancing act in terms of how we manage all that.
32:36
SPEAKER_02: Okay, so these are the ways clients can get money into super on top of this downsizer contribution.
32:40
SPEAKER_02: But you asked this question about uh div293.
32:45
SPEAKER_02: What a sexy rule that is, okay.
32:46
SPEAKER_02: So what they're saying is in that other diagram, remember I said to you that super has two tax rates, right?
32:53
SPEAKER_02: In the accumulation phase, it's 15%.
32:56
SPEAKER_02: And then in pension, it was zero.
32:59
SPEAKER_02: All right, remember I showed you that, okay?
33:01
SPEAKER_02: So anything that is income to super is taxed at 15% in accumulation phase.
33:08
SPEAKER_02: So when you make a contribution to super, super deems that income.
33:12
SPEAKER_02: All right.
33:13
SPEAKER_02: So this is the people kind of go, oh, there's a contribution tax of 15%.
33:17
SPEAKER_02: There's no contribution tax.
33:18
SPEAKER_02: Super pays tax on income at 15%.
33:21
SPEAKER_02: And when you make a contribution to super, so if I put$1,000 into super, they withhold$150 or$150 of tax needs to be paid, and you'll see your super balance have$850.
33:31
SPEAKER_02: All right.
33:32
SPEAKER_02: Um, so that's what happens for most people.
33:34
SPEAKER_02: Super goes in, it's taxed at 15%.
33:36
SPEAKER_02: Towards the end of the year, when you've done your tax return, that's that's the only time you declare your income.
33:41
SPEAKER_02: Yeah, going back to that then that question around this division two nine three, division two nine three applies to anyone whose income is it's more than 250k.
33:50
SPEAKER_02: All right.
33:51
SPEAKER_02: And so this 250K, that's not just their base salary, right?
33:55
SPEAKER_02: That's also their super contributions as well.
33:57
SPEAKER_02: And if they do sell an investment property and their income also goes above this 250k, well, you know, they need to pay that additional tax on those contributions.
34:05
SPEAKER_02: So that additional tax is we said it before, but you know, uh super funds pay tax on the contributions that come in it at 15%, that is income to the fund.
34:16
SPEAKER_02: And after the E is done and you've submitted your tax return, if your income is above this threshold, they go, Well, hang on, you're above this amount, we're gonna charge an additional 15% tax on that amount.
34:27
SPEAKER_02: And so on contribution for those who are high income earners, it's it's actually 30%.
34:32
SPEAKER_02: Okay.
34:34
SPEAKER_02: But any growth or any income on that investment after the contribution is always taxed at that 15%.
34:41
SPEAKER_03: Well, that sounds like quite a punishment for uh again.
34:44
SPEAKER_02: So remember I said the super is 4.5 trillion.
34:48
SPEAKER_02: This is the little pokes.
34:50
SPEAKER_02: This is the little pokes I was telling you about where money comes out of it.
34:52
SPEAKER_02: But look, largely, by and large, superannuation is still a great vehicle to pull money towards.
34:57
SPEAKER_02: All right, but it's one, it's one, I guess, feather in your hat, right?
35:01
SPEAKER_02: There are multiple ways to build wealth, but for a lot of younger people I do with, oh, I don't want to use super, I'll ignore it.
35:06
SPEAKER_02: No, super is very powerful.
35:08
SPEAKER_02: So you never ignore your super.
35:10
SPEAKER_01: And the earlier you get in, the more it compounds.
35:12
SPEAKER_02: Yeah, you talk about compounding effects.
35:14
SPEAKER_02: So we spoke about before about cash flow for clients.
35:16
SPEAKER_02: The idea of telling a client, hey, put lump sums of money towards super is hard to swallow.
35:21
SPEAKER_02: So instead I say to clients, look, if you can put$50 a week to super and not notice it, perfect start there.
35:27
SPEAKER_02: All right.
35:28
SPEAKER_02: And that$50 becomes$75, becomes$100 a week, right?
35:32
SPEAKER_02: And if you can do that and you are not noticing it, the compounding effect of that for someone in their 20s or 30s to when they get to retirement is huge.
35:41
SPEAKER_02: All right, slow burn, it's a bit boring.
35:43
SPEAKER_02: But I'm a fan of, you know, we we asked this question before about um, you know, helping what age group and things like that, right?
35:51
SPEAKER_02: The answer is not, you know, with advice, we're not giving big transformational advice.
35:55
SPEAKER_02: Sometimes it is, okay, but a lot of the times it's just building good habits.
35:59
SPEAKER_02: Okay, if you can build a good habit where you've got a regular savings plan, you're regularly putting money away.
36:03
SPEAKER_02: And if you can do things automatically without noticing you're doing it, that's that's the ticket to success.
36:08
SPEAKER_01: 100%.
36:10
SPEAKER_01: Downsizer.
36:11
SPEAKER_02: Yes.
36:11
SPEAKER_01: Can you explain that a little bit more?
36:13
SPEAKER_02: Oh, okay.
36:13
SPEAKER_02: So downsizer is this rule that was brought in to say, look, um, we've got these limits where people can contribute to super, okay, but there is also a downsizer contribution.
36:24
SPEAKER_02: So you've got a mum and dad, they've sold their home, okay, and they're going to downsize.
36:29
SPEAKER_02: Technically, the rules doesn't even say you need to buy another house, it just says you've sold your home.
36:34
SPEAKER_02: So you've sold your home.
36:36
SPEAKER_02: At that point, clients can get up to 300k each into super, and that's in addition to this non-concessional cap.
36:43
SPEAKER_02: So if a client has done 390 here and one here, and they've maximized their contributions in here and they've carried forward, so they've got as much as they can in this 300k is in addition to that.
36:54
SPEAKER_02: Okay.
36:55
SPEAKER_02: And the cool thing about downsizer is oh, now we're getting funny here, but downsizer, there's no age restriction.
37:01
SPEAKER_02: So for most people, um, to make a non-concessional contribution, you have to be 75, less than 75 to get a non-concessional contribution to super.
37:10
SPEAKER_02: All right.
37:11
SPEAKER_02: If you want to make a concessional contribution into super, okay, you can do so all the way up to age 60 or 65 or 67.
37:18
SPEAKER_02: They change the numbers all the time.
37:19
SPEAKER_02: But you can make deductible contributions to super, or you can put extra money in there and claim a deduction on it up to 65, okay?
37:26
SPEAKER_02: Beyond 65 or 67, whatever the age is, there's this thing called a work test.
37:31
SPEAKER_02: All right, you got to prove you're working.
37:33
SPEAKER_02: All right.
37:33
SPEAKER_02: And if you can prove that you're working, then you can still make these tax-deductible contributions to super.
37:38
SPEAKER_01: And what's an example you've seen?
37:39
SPEAKER_01: Have you seen this done with clients?
37:40
SPEAKER_01: And what are they putting that?
37:41
SPEAKER_02: They're putting the 300k and they and what are they doing for the Yeah, yeah, they're they're definitely doing because remember, the logic behind all of this, why we're trying to get money into super is for this sexy number here.
37:51
SPEAKER_02: Right.
37:52
SPEAKER_02: So if a client's got, you know, they've just sold their home.
37:54
SPEAKER_02: Let's say it's a husband and wife and they sold their home for millions of dollars, okay, and they're left with exactly 600 grand left, they will come to me and go, what do we do with this 600?
38:03
SPEAKER_02: We're going to invest it definitely, whether that be shares or managed funds or whatever else we invest in.
38:07
SPEAKER_02: But do we invest in their own name where they're paying tax at their marginal rate?
38:11
SPEAKER_02: But if we go, hang on, let's invest.
38:12
SPEAKER_02: We can choose the same investment, but let's use Super Worlds tax-free.
38:15
SPEAKER_02: That's a no-brainer.
38:16
SPEAKER_02: So the idea of where it goes and how we invest it, that's that's given.
38:20
SPEAKER_02: But you know, if we can take advantage of that, of that sexy tax rate, I keep referring to that.
38:25
SPEAKER_02: That's really powerful.
38:26
SPEAKER_02: All right.
38:26
SPEAKER_02: So yeah, that 300 grand limit, uh, it's it's one, it's a lifetime limit, so you can only do it once.
38:31
SPEAKER_03: And um, when you said no age limit, like a 30-year-old could do it.
38:36
SPEAKER_02: 30-year-old could do it, but who's downsizer?
38:38
SPEAKER_02: But I bring it up because I had a client who was 78.
38:41
SPEAKER_02: Yeah.
38:42
SPEAKER_02: And so I showed you here that if you're trying to make a non-consistent contribution, you've got to be less than than 75 to do it.
38:47
SPEAKER_02: Well, there's no age restriction on the downsizer contribution.
38:50
SPEAKER_03: Now, just to unpack that downsizer strategy, because I guess that would be a pretty common strategy retirees would be using, right?
38:57
SPEAKER_03: Yes.
38:58
SPEAKER_03: Um, one of the considerations they probably need to make is that very likely if they're going to do a contribution like that, it's going to push them over the threshold for age pension.
39:06
SPEAKER_03: Right.
39:06
SPEAKER_03: So how do you work with somebody to try to determine that and manage that?
39:10
SPEAKER_02: That's a good point.
39:11
SPEAKER_02: So we talk about a client having a their family home for such a long time, right?
39:15
SPEAKER_02: They bought that years ago, and that property they bought for whatever there's now worth three million.
39:19
SPEAKER_02: Okay.
39:20
SPEAKER_02: For age pension purposes, the home has always been exempt.
39:23
SPEAKER_02: Okay.
39:24
SPEAKER_02: The moment you sell it, all right, and you realize money and that money's sitting in your bank account or soup or whatever else, it starts to get counted.
39:31
SPEAKER_02: All right.
39:31
SPEAKER_02: So the chat I'm having those chats with clients way before they sell it.
39:35
SPEAKER_02: You've got to explain to them that look, a lot of your wealth is tied up in your home.
39:38
SPEAKER_02: Okay.
39:39
SPEAKER_02: And at the moment it's exempt for age pension purposes.
39:41
SPEAKER_02: But the moment you sell, you'll position some of it towards your next home.
39:45
SPEAKER_02: And whatever you spend in the next home, that's exempt.
39:48
SPEAKER_02: But whatever's left behind will be counted.
39:50
SPEAKER_02: All right.
39:51
SPEAKER_02: And so, yeah, it's one of these things where we talk to clients about that's a fine balancing act.
39:56
SPEAKER_02: All right.
39:56
SPEAKER_02: In terms of making sure they have assets to live off, but then try to stay within limits to get some sort of entitlement to age pension.
40:04
SPEAKER_02: So we we play with those now because it's it's definitely something we we model and consult to the client way before they even commence that transaction.
40:11
SPEAKER_03: Okay.
40:11
SPEAKER_03: So is it the case that you're trying to find that balance into how do we really maximize their retirement income, whether that be a combination of age pension and investment income?
40:22
SPEAKER_03: And also maybe trying to preserve, because I think with the age pension, like even if it's just one dollar age pension, they still get concessions and things, right?
40:29
SPEAKER_03: Correct, correct.
40:30
SPEAKER_02: So you'd have to check, I'll have to double check the numbers on it.
40:32
SPEAKER_02: But when it comes to age pension, all right, there are tests, all right.
40:36
SPEAKER_02: And there's an income test and an asset test, all right.
40:38
SPEAKER_02: And so the government applies both these tests, whichever one of those two tests gives you the lowest pension is the one you get.
40:44
SPEAKER_02: All right.
40:44
SPEAKER_02: And so I jokingly say to clients all the time, I hope I do such a good job that you have too much assets.
40:50
SPEAKER_02: It's a good problem, you know what I mean?
40:52
SPEAKER_02: Like I've built you too much assets, you you can't get retirement age, right?
40:55
SPEAKER_02: But I think for a homeowner couple, I think it's it's very generous.
40:59
SPEAKER_02: I think it's 1.1 or 1.2 million.
41:01
SPEAKER_02: I think it's about 1.1 million.
41:03
SPEAKER_02: All right.
41:03
SPEAKER_02: Where a client can have up to 1.1 million in assets and still receive about$1 in the age pension.
41:09
SPEAKER_02: I think it's$1,080,000.
41:10
SPEAKER_02: It's called a$1.1.
41:11
SPEAKER_02: All right.
41:12
SPEAKER_02: And so that's quite generous.
41:13
SPEAKER_02: You know, this is generous.
41:15
SPEAKER_02: So if clients get or exceed that amount, then the age pension drops off.
41:19
SPEAKER_02: I think you get full pension if you have 330,000 assets or less.
41:24
SPEAKER_02: I should fact check this, but there's a threshold, there's a lower limit and an upper limit.
41:28
SPEAKER_02: Okay.
41:28
SPEAKER_02: And so for most clients, if you've done a good job, most people will smash this.
41:32
SPEAKER_02: Okay, you come across a lot.
41:33
SPEAKER_02: One point something millions of clients have to be, at least initially, what we call a self-funded retiree.
41:38
SPEAKER_02: Now, remember, I said to you over here that in pension phase, you begin deaccumulating.
41:43
SPEAKER_02: So clients will eventually spend their money.
41:45
SPEAKER_02: And as they spend their money, eventually this balance will start to whittle down.
41:49
SPEAKER_02: The moment they get down to below this amount, age pension automatically kicks in.
41:53
SPEAKER_03: Is there a minimum that they, when they are in pension phase, is there a minimum that they need to be withdrawing from this?
41:57
SPEAKER_03: Yeah, okay.
41:57
SPEAKER_02: This is a good one.
41:58
SPEAKER_02: And I know we said we're going to talk about SMSF, so we'll get to it next, right?
42:01
SPEAKER_02: But when it comes to pension phase, all right, I said accumulation phase, it goes up, and in pension phase, it goes down.
42:07
SPEAKER_02: All right.
42:08
SPEAKER_02: This is non-negotiable.
42:09
SPEAKER_02: If you convert your super to pension phase, so when does someone convert to pension?
42:14
SPEAKER_02: It's 60 plus you stop work or 60 and and retire.
42:19
SPEAKER_02: All right.
42:19
SPEAKER_02: That's one way.
42:20
SPEAKER_02: All right.
42:21
SPEAKER_02: Or another way is 65.
42:23
SPEAKER_02: And the distinction there is, you know, at 65, working or not, you can convert to pension.
42:28
SPEAKER_02: All right.
42:28
SPEAKER_02: But once you convert to pension phase, the government does dictate a minimum withdrawal.
42:34
SPEAKER_02: There's no maximum.
42:35
SPEAKER_02: So our system is very generous in the sense that when you get to retirement, there's no maximum withdrawal.
42:40
SPEAKER_02: If you want to take the whole amount out, you can.
42:41
SPEAKER_02: I mean, obviously as an advisor, I'd say, oh, that's a bad idea.
42:44
unknown: All right.
42:45
SPEAKER_02: But there would be reasons for it.
42:46
SPEAKER_02: So if a client got to retirement and they had a$300,000 super balance and they retired their home loans$300,000, I'd say get rid of the home.
42:53
SPEAKER_02: That's that's a no-brainer to me.
42:55
SPEAKER_02: So we can withdraw whatever you want.
42:57
SPEAKER_02: There is no maximum withdrawal.
42:59
SPEAKER_02: The government does mandate minimums, however.
43:01
SPEAKER_02: And so the minimum you withdraw is based on age.
43:04
SPEAKER_02: So those, if if you retire at 60 or 60 to 64, it's 4%.
43:09
SPEAKER_02: All right.
43:09
SPEAKER_02: And 65 to 74, it's 5%.
43:13
SPEAKER_02: And then so on and so forth.
43:14
SPEAKER_02: So someone who's like 94, I think you have to withdraw 14% of his super balance.
43:18
SPEAKER_02: So we'll talk to clients when we get to that point.
43:20
SPEAKER_02: Okay.
43:21
SPEAKER_02: But yeah, superannuation says, you know, once you get to pension phase, whatever that balance is at the beginning of the year, you must withdraw 5% of that balance.
43:29
SPEAKER_03: Yeah.
43:29
SPEAKER_03: And is there an in-between phase?
43:31
SPEAKER_03: So I've heard people talk about transition to retirement.
43:33
SPEAKER_02: Uh transition to retirement was just a quirk that tried to shift you from here into here while still working.
43:39
SPEAKER_02: The government's largely closed that.
43:41
SPEAKER_02: So you can a transition to retirement, the logic behind it was that look, I'm working full time, but I want to transition to retirement.
43:49
SPEAKER_02: So what I'll do is I'll reduce my hours at work.
43:51
SPEAKER_02: I'll do three days a week at work, and then that two days a week where I've stopped working, I'll I'll withdraw the equivalent of two days worth of super.
44:00
SPEAKER_02: Right, so I'm transitioning to retirement, right?
44:01
SPEAKER_02: That was the logic behind it.
44:03
SPEAKER_02: And it was the industry jumped on it because they said, well, hang on, if we convert to a transition to retirement, we can move it to pension phase where it's tax-free, we can draw tax-free income from um uh from pension, and then we get the client to maximize contributions on this side.
44:17
SPEAKER_02: So we we can use it as a way to reduce tax.
44:21
SPEAKER_02: The government has kind of closed that now.
44:23
SPEAKER_02: They said we can commence transition to retirements, but you stay in accumulation phase.
44:27
SPEAKER_02: So you can withdraw from super, but you're still gonna there's some tax needs to be paid on it.
44:32
SPEAKER_02: So it it it still exists and the logic is still there.
44:35
SPEAKER_02: So for clients who are looking to transition to retirement, it's a strategy, it works really well.
44:40
SPEAKER_02: It's not something the industry pushes anymore because it largely got closed because they removed the the tax exempt status on.
44:46
SPEAKER_02: Can I talk about SMSF?
44:47
SPEAKER_02: Go for it.
44:47
SPEAKER_02: I'd love to do it, right?
44:49
SPEAKER_02: Let me talk to you about SMSF.
44:51
SPEAKER_02: Okay, so three minutes.
44:52
SPEAKER_02: Three minutes?
44:53
SPEAKER_02: No, no, no, no, no.
44:54
SPEAKER_02: All right, let me let me talk about SMSF, right?
44:56
SPEAKER_02: And because that that pension bit matters, right?
44:59
SPEAKER_02: When we spoke about, you know, minimum withdrawals, all right.
45:01
SPEAKER_02: So look, by nature, I'm dealing with a lot of younger clients, a lot of younger accumulators, and I do a lot of you know self-managed super funds and how people use their super to acquire a property.
45:11
SPEAKER_02: All right.
45:12
SPEAKER_02: So how does someone use their super to buy property?
45:18
SPEAKER_02: Well, the only way to do that is via this sexy thing called an SMSF.
45:22
SPEAKER_02: All right, or a self-managed super fund.
45:24
SPEAKER_02: So I explained to you before super is just a tax rate.
45:27
SPEAKER_02: So what a self-managed superfunding is, is that same sexy tax rate but self-managed.
45:33
unknown: Right?
45:33
SPEAKER_02: And so the person, it came about because there were people years ago, there were people who were stockbrokers or financial planners or people who were professional enough to kind of go, I'm not paying someone else to manage my super, I'll do it myself.
45:44
SPEAKER_02: I'm better than them.
45:45
SPEAKER_02: So that's where the logic came about, okay?
45:47
SPEAKER_02: And now with technology and accounting software and all these things, a lot of this self-managing is largely piled off to software, to your accountants, to advisors, okay?
45:57
SPEAKER_02: So one of the greatest reasons why people set up a self-managed super fund is choice.
46:03
SPEAKER_02: All right, it's probably the number one reason why people will set up a self-managed super fund.
46:07
SPEAKER_02: They want choice of how their retirement savings is invested.
46:11
SPEAKER_02: All right, because if you stay in your industry fund, not that there's anything wrong with industry funds being performing very well, but if you stay in your industry fund, you've got like seven options.
46:19
SPEAKER_02: You know, you've got growth option, high growth, balanced, conservative, that's all you get.
46:23
SPEAKER_02: And for largely for a lot of people, that's all that needs to matter.
46:26
SPEAKER_02: All right, but there are people out there who want to get active and kind of go, well, I want to pick my destiny, I want to choose my destiny here.
46:32
SPEAKER_02: So this is where SMSFs come in because it gives you choice.
46:36
SPEAKER_02: Okay.
46:36
SPEAKER_02: Now, when we say choice of investment, it is all these non-traditional assets.
46:41
SPEAKER_02: So it doesn't necessarily need to be shares or managed funds, it can be property, it can be, or it can't be residential property anymore, but it could have been residential property, it could have been commercial property, it could have been cryptocurrency, it could have been, you know, private investments, artwork.
46:55
SPEAKER_02: I've got clients in the past that have used their super fund to buy artwork.
46:58
SPEAKER_02: So that's the great thing with an SMSF.
47:00
SPEAKER_02: You've got choice, you have complete control of how you invest it.
47:04
SPEAKER_02: Okay, there has to be reasoning behind it.
47:06
SPEAKER_02: You can't just be like, oh, I'll buy this race car, it's gonna make me money.
47:09
SPEAKER_02: There's got to be some sort of investment strategy behind things, right?
47:12
SPEAKER_02: But the reality is that the greatest thing behind self-managed super funds is choice.
47:17
SPEAKER_02: Okay, so the clients I deal with are coming to me going, Hey, I heard you can use super to acquire property.
47:23
SPEAKER_02: Like, show us how to do that.
47:24
SPEAKER_02: All right.
47:25
SPEAKER_02: So the way we do that is via this self-managed super fund.
47:28
SPEAKER_02: Okay.
47:28
SPEAKER_02: And so this square, this is where that's your self-managed super fund.
47:32
SPEAKER_02: The first thing we do after the client's received advice, okay.
47:35
SPEAKER_02: So super is a financial product, all right.
47:37
SPEAKER_02: So this actually requires a statement of advice.
47:39
SPEAKER_02: So as a planner, we need to make sure that hang on, you know, we're a lot of education, okay?
47:44
SPEAKER_02: If you set up a self-managed super fund, this is the cost.
47:47
SPEAKER_02: All right.
47:47
SPEAKER_02: In your old super funds, we've researched your old super fund.
47:50
SPEAKER_02: This is the cost you're paying.
47:51
SPEAKER_02: More often than not, the self-managed super fund is going to cost more.
47:54
SPEAKER_02: Do you understand that this is the impact?
47:56
SPEAKER_02: They go, yeah, I understand.
47:57
SPEAKER_02: So our role when we're talking to clients is to make sure clients are informed before they make the leap into this, right?
48:04
SPEAKER_02: But let's say I've given my advice and the client says, Yeah, let's go ahead.
48:07
SPEAKER_02: We set up this self-managed super fund.
48:09
SPEAKER_02: And so as the planner, it's strange.
48:11
SPEAKER_02: We can recommend a self-managed super fund.
48:13
SPEAKER_02: We don't actually set up the self-managed super fund, right?
48:16
SPEAKER_02: That goes to the legal team or the accountants and they set up the self-managed super fund.
48:19
SPEAKER_02: So your self-managed super fund is set up.
48:22
SPEAKER_02: The first thing we do is open up a bank account for the fund.
48:26
SPEAKER_02: All right.
48:26
SPEAKER_02: And why is that important?
48:28
SPEAKER_02: Well, that allows us to do our rollovers.
48:30
SPEAKER_02: So clients roll over their super where it was before, and it's now in this bank account.
48:35
SPEAKER_02: All right.
48:36
SPEAKER_02: So let's say it's a husband and wife, combined balance of 500k.
48:41
SPEAKER_02: All right.
48:42
SPEAKER_02: This is the fun bit.
48:42
SPEAKER_02: And I know I'm talking to two brokers here because I'm going to show you the way I do it, right?
48:46
SPEAKER_02: But this is the fun bit.
48:47
SPEAKER_02: And so typically what I say to clients is, because I'm slightly conservative on this, I kind of say, look, that's starting balance, double it.
48:54
SPEAKER_02: And that's your purchase price for this property.
48:56
SPEAKER_02: All right.
48:56
SPEAKER_02: So I'm talking an L VR of around 50, 50 something percent, right?
49:00
SPEAKER_02: So here is a that's a commercial property.
49:04
SPEAKER_02: I'm not gonna put a roof on or a door, it's a commercial property because super funds can only acquire a commercial property.
49:09
SPEAKER_02: So let's assume the client finds a property for a million.
49:14
SPEAKER_02: All right.
49:15
SPEAKER_02: Well then the first thing you recognize here is there's not enough money to buy this property out, bro.
49:20
SPEAKER_02: Okay, so there has to be this loan.
49:22
SPEAKER_02: All right, there is a loan called an LIBA or a limited recourse borrowing arrangement.
49:26
SPEAKER_02: We won't dwell on that, okay?
49:28
SPEAKER_02: But the loan happens via this thing called a bear trust or a custodian trust.
49:33
SPEAKER_02: Because if I stop there, super funds can't borrow.
49:37
SPEAKER_02: That's been a rule since the beginning of time.
49:39
SPEAKER_02: So very clever accountants and lawyers way, way back in the day, figured out that if we set up a trust, all right, where the sole beneficiary of that trust is a self-managed superfund, all right.
49:48
SPEAKER_02: What ends up happening is I'm gonna ignore that there's stamp duty and costs like that, right?
49:53
SPEAKER_02: So there's a$500,000 deposit that went into this family, uh, went into this bear trust, and there is a$500,000 loan that's gone into this bear trust.
50:01
SPEAKER_02: The bear trust can now acquire that property, all right.
50:05
SPEAKER_02: All rent from that property flows through to the bank account.
50:08
SPEAKER_02: It's the bank account that pays the loan.
50:11
SPEAKER_02: All right, and so we could model and do some cash flow on this, but why am I saying to clients, keep the borrowing around 50 or 60 percent?
50:18
SPEAKER_02: If you keep your borrowing around that amount, what you'll end up finding is that the rent here on this side equals the PI repayments on this side, typically, depending on rates and outgoings and things like that.
50:30
SPEAKER_02: So no advice given.
50:31
SPEAKER_02: Yeah, you know, guys, there's no advice given there.
50:34
SPEAKER_02: Um, but this is just a very high-level strategy of how it all works, okay?
50:38
SPEAKER_02: And so why did I bring this up?
50:40
SPEAKER_02: Because we spoke about pension, all right, and um minimum withdrawals, okay.
50:44
SPEAKER_02: So one mistake we have, and I come across it many times with clients, is well, I'll buy one property, I'll sell it, and then I'll buy two, and then I'll just keep getting properties.
50:52
SPEAKER_02: The problem with only having property in super is remember what I said when you get the pension phase, there's a minimum withdrawal, all right.
51:00
SPEAKER_02: And let's say it's five percent for those clients between 65 to 74.
51:04
SPEAKER_02: Well, if you've got properties in there, all right, let's say the yield is exactly 5%.
51:09
SPEAKER_02: You go, well, I can pay myself that that minimum 5%.
51:12
SPEAKER_02: Well, no, because there's cost to keep your fund open.
51:14
SPEAKER_02: Are you going to pay your accounting fees?
51:16
SPEAKER_02: There's still possible you'd be in pension phase, so there wouldn't be taxes, but you'd be paying other fees in relation to it.
51:22
SPEAKER_02: So if you're not able to pay the minimum five percent, what ends up happening is oh no, I keep drawing this picture.
51:29
SPEAKER_02: Super has two sides.
51:30
SPEAKER_02: We've got accumulation and pension.
51:32
SPEAKER_02: All right.
51:33
SPEAKER_02: So 15% and 0%.
51:36
SPEAKER_02: All right.
51:38
SPEAKER_02: If a client gets to retirement and all they have in there is property, okay, and the property's yielding net yield after all costs 4%.
51:46
SPEAKER_02: Okay.
51:47
SPEAKER_02: And the law states you've got to pay minimum 5%.
51:50
SPEAKER_02: Well, if you go there and go, well, I can't pay the minimum 5%, the government says, Well, guess what?
51:54
SPEAKER_02: You weren't in pension phase.
51:56
SPEAKER_02: We're shifting you back, you go back to accumulation phase, you start paying tax.
52:00
SPEAKER_02: So I've heard of horror stories where a client has sold an investment property in their super fund.
52:05
SPEAKER_02: All right.
52:05
SPEAKER_02: Assume they're in pension phase, no capital gains tax.
52:09
SPEAKER_02: Forgot to pay themselves the minimum pension.
52:11
SPEAKER_02: And they said, Well, hang on, you didn't pay yourself this 5%.
52:14
SPEAKER_02: Well, guess what?
52:14
SPEAKER_02: You're over here, you pay tax on the sale of that property.
52:18
SPEAKER_02: All right.
52:18
SPEAKER_02: So super, remember I said super, we accumulate and then we eventually de-accumulate.
52:24
SPEAKER_02: So if you get to retirement and all you have in there is property, the problem with only having property in there is it's you can't fractionally sell your property.
52:32
SPEAKER_02: You can't be like, well, sell a few bricks and that's going to release some money with property if there's no other assets in there.
52:38
SPEAKER_02: You have to sell all or none.
52:40
SPEAKER_02: Okay.
52:41
SPEAKER_01: So you have cash in there that you can.
52:42
SPEAKER_02: Well, that's this is why I say to clients, if we keep our borrowing low, all right, there's probably an example where 10, 15 years from now, that super's gone.
52:50
SPEAKER_02: Because there is something missing from me.
52:52
SPEAKER_02: There's still contributions coming in.
52:53
SPEAKER_02: All right.
52:53
SPEAKER_02: And I I've ignored it because I'd rather have a property that funds itself without the reliance on super contributions.
52:59
SPEAKER_02: All right.
53:00
SPEAKER_02: But in the future now, we've got this unencumbered rent coming through because the property's been paid out.
53:05
SPEAKER_02: We've still got contributions coming through.
53:07
SPEAKER_02: This balance builds.
53:08
SPEAKER_02: You have to go to some sort of investment portfolio.
53:11
SPEAKER_02: All right.
53:11
SPEAKER_02: And so this is where I will put on my traditional financial planning and tick your box, get your property out of the way.
53:16
SPEAKER_02: And you want it?
53:17
SPEAKER_02: Yes.
53:18
SPEAKER_02: But we answered the question before about which one's better.
53:20
SPEAKER_02: The answer is I don't know.
53:21
SPEAKER_02: So make sure you have both.
53:23
SPEAKER_02: All right.
53:23
SPEAKER_02: And so as we're building money, we build this investment portfolio.
53:26
SPEAKER_02: All right.
53:27
SPEAKER_02: So if we remind where your super is at the moment, you're in some sort of industry fund, the money automatically goes into some sort of growth option.
53:34
SPEAKER_02: We're going to set up something very similar.
53:36
SPEAKER_02: Automatically goes into that.
53:37
SPEAKER_02: And then by having this portfolio, that now makes this withdrawal much easier because you can take the yield from here.
53:44
SPEAKER_02: If that yield is three to four percent, if you need extra, we can always sell an investment portfolio down.
53:50
SPEAKER_02: And so that gives you this option of being able to maintain this property for longer.
53:53
SPEAKER_02: And if you hold the property longer, all things being equal, it should keep rising.
53:57
SPEAKER_03: So yeah.
53:58
SPEAKER_03: Now, James, I'm gonna make you build an argument against yourself for a minute.
54:03
SPEAKER_03: Yeah.
54:03
SPEAKER_03: Because that's brokers, right?
54:04
SPEAKER_03: We we we get clients with all different types of appetites, right?
54:07
SPEAKER_03: So you mentioned that you kind of gravitate in most instances to lower leverage around that 50, 60 mark.
54:13
SPEAKER_03: But we've got clients that ask us for 70, 80, and even sometimes 90% LVR, right?
54:18
SPEAKER_03: So can you build a case of when that would make sense?
54:21
SPEAKER_03: Look, it makes okay, so there is an example.
54:25
SPEAKER_02: I I don't like it per se.
54:26
SPEAKER_02: This is just as an advisor being a bit conservative, okay.
54:30
SPEAKER_02: But I don't like the idea that if the rent is so low that when they pay these P and I repayments, it's not enough.
54:36
SPEAKER_02: So these contributions that are coming in have to fund the loan.
54:40
SPEAKER_02: Okay.
54:40
SPEAKER_02: Um, and I've got examples of a client who've done that.
54:42
SPEAKER_02: It was, it was, but then one person got really unwell and it's not working anymore.
54:46
SPEAKER_02: But that person was the breadwinner.
54:48
SPEAKER_02: So her super contributions were something like 22 grand a year to the fund, and the fund really needed those contributions to fund the property.
54:55
SPEAKER_02: All right.
54:55
SPEAKER_02: So that was really uncomfortable then because the clients knew the property was really good.
55:00
SPEAKER_02: They didn't want to sell it, it wasn't it was in a market that was booming, they didn't want to let it go.
55:03
SPEAKER_02: So what did the clients do?
55:04
SPEAKER_02: They started putting extra money, their own money, into super, all right, which I mean it helps, but if we were wine before we set up the self-managed super fund, clients never looked at their super.
55:15
SPEAKER_02: Right.
55:15
SPEAKER_02: You look at it once a year and go, oh, it's gone up.
55:17
SPEAKER_02: Thanks.
55:17
SPEAKER_02: All right.
55:18
SPEAKER_02: And that's what people did.
55:19
SPEAKER_02: And so if all of a sudden you need to now actively contribute or put extra in because it's kind of like there wasn't enough rent to cover the loan, it kind of removed what people were doing with the super before, which was quite, you know, just set and forget to some extent.
55:32
SPEAKER_02: So I like this idea of set and forget, but there are examples where it may make sense for a client to buy more.
55:37
SPEAKER_02: Okay, and those exam uh to borrow more.
55:39
SPEAKER_02: And those examples would be around, you know, high income earners.
55:42
SPEAKER_02: If you're a high income owner and your employer is automatically doing the$32,000 a year or$40,000 a year if you're getting more, if there's more contributions coming in on this side, and it's it's almost certainly guaranteed, by all means borrow more.
55:55
SPEAKER_02: You can definitely borrow more.
55:56
SPEAKER_02: The reality for me when it comes to this borrowing and how much extra is I need this to happen.
56:01
SPEAKER_02: The loan needs to be paid off before a client retires.
56:04
SPEAKER_02: Okay.
56:04
SPEAKER_02: And I would like that this loan is paid off probably 10 years before they retire.
56:09
SPEAKER_02: All right.
56:10
SPEAKER_02: Because then if you've got 10 years of unencumbered rent and 10 years of contributions coming through, this portfolio will be significant and it forms part of a client's greater portfolio for their retirement.
56:20
SPEAKER_03: And that potentially can protect them from having to sell the asset because they can't meet their minimum contribution.
56:25
SPEAKER_02: Correct, because what I'm one of the things in financial advice, we talk about things being um automatic and easy and habitual, right?
56:33
SPEAKER_02: The other thing I like about advice and in terms of whatever you get into, always have options.
56:37
SPEAKER_02: The more options you have, the better.
56:39
SPEAKER_02: So if a client gets to retirement and all they have in there is a property and they can't pay themselves the minimum, your only option is to sell.
56:46
SPEAKER_02: All right.
56:47
SPEAKER_02: Whereas if you've got another portfolio on the side, so you can maintain the property, so you have the option to either maintain or sell.
56:53
SPEAKER_02: That is a better outcome for clients, right?
56:55
SPEAKER_02: Um, and so the problem is when you're forced to do something, then there's this risk, this new risk comes in called um timing risk.
57:03
SPEAKER_02: Okay, that you get to retirement, you're 65, you're retired, you go, we're gonna sell the property then.
57:07
SPEAKER_02: What happens if that's the worst time to sell?
57:09
SPEAKER_02: And I've got examples of that.
57:10
SPEAKER_02: I had client who was 65 retired um during COVID, thought the sky was falling, sold their two investment properties.
57:16
SPEAKER_02: And so, what's happened to properties since COVID?
57:19
SPEAKER_02: It absolutely rocketed.
57:20
SPEAKER_02: The client would have had twice the amount of super had they waited three, four years, right?
57:23
SPEAKER_02: And had they had an investment portfolio on the side, it would have bought them that timer, it would have given them the option.
57:28
SPEAKER_02: So options are really important.
57:30
SPEAKER_03: Okay.
57:30
SPEAKER_03: And do you think the age makes a difference in to how hard they could leverage as well?
57:35
SPEAKER_02: Ah, okay, okay, okay.
57:36
SPEAKER_02: So when I talk to clients about this SMSF, I don't want to be rude.
57:41
SPEAKER_02: There are three things I generally talk about with clients, all right?
57:45
SPEAKER_02: One of them is the balance.
57:46
SPEAKER_02: Obviously, that matters.
57:48
SPEAKER_02: All right, because if a client's combined balance is 100 grand, I go, look, you we don't explore this just yet, right?
57:52
SPEAKER_02: Let's wait until it's big enough for this to make sense.
57:54
SPEAKER_02: Okay, so balance matters.
57:56
SPEAKER_02: The other thing for me is appetite.
57:58
SPEAKER_02: Okay, does the client have an appetite to get into assets that the traditional super fund can't get into?
58:04
SPEAKER_02: So typically property.
58:05
SPEAKER_02: If the client goes, look, I want to use my super to buy property, or if they've got the appetite and they know want to do it, definitely.
58:10
SPEAKER_02: Look here at KHR, clients have multiple properties, right?
58:13
SPEAKER_02: Four or five properties and they want to keep going.
58:15
SPEAKER_02: I'm not gonna try to battle them.
58:17
SPEAKER_02: They understand property, let's get into it, right?
58:19
SPEAKER_02: So, do they have this appetite for property?
58:20
SPEAKER_02: The last one is age.
58:23
SPEAKER_02: And I don't want to be rude on this, but I've had clients come to me in their 60s going, hey, I want to use my super to borrow to buy property.
58:29
SPEAKER_02: Look, you the unfortunately the ship has sailed there, it's too late.
58:33
SPEAKER_02: So this strategy works really well for younger clients.
58:35
SPEAKER_02: Yeah, and this is why by nature I ended up taking on a lot of the younger clients because this strategy works well for those in their 30s and their 40s, early 50s will entertain, but once you get into 55, remember I said I want clients to have a property and they're owned outright before they they get to about 55.
58:52
SPEAKER_02: So build that 10 years to build that investment portfolio.
58:54
SPEAKER_02: So age matters, age definitely matters, and it's if I rank them, it's probably the other way around.
59:00
SPEAKER_02: I would rank it the other way around.
59:02
SPEAKER_02: So this would be number one, that'd be number two, and then balance would be number three.
59:05
SPEAKER_02: Because a younger client can definitely start with a young, uh, a smaller balance because they've got more time to pay it off.
59:10
SPEAKER_02: You know, they they've there's the strategies around it.
59:12
SPEAKER_02: Whereas someone's a bit older, if they borrow too much, how do we pay this off?
59:16
SPEAKER_02: So age really matters.
59:17
SPEAKER_01: I think I agree with that.
59:18
SPEAKER_01: And you know, you helped us with our self-managed super fund.
59:21
SPEAKER_01: And, you know, we personally did gear up to you know 80%, you know, because of you know, obviously appetite, uh, age where we are, we wanted you know a bit of liquidity behind to potentially you know put into shares and things like that as well.
59:33
SPEAKER_01: So I think those three things are key.
59:35
SPEAKER_01: Um so it's not, I guess, a blanket, but I understand closer towards retirement, having that cash flow uh is is really important, which you know we totally agree.
59:44
SPEAKER_01: Frank, I think we've learned a lot today from Mr.
59:46
SPEAKER_01: James.
59:47
SPEAKER_01: Um I'm coming back.
59:49
SPEAKER_01: Invite me again, I'm coming back.
59:52
SPEAKER_01: No, but we're uh really thankful your wealth of knowledge here, the diagrams you drawed here make it really simple to understand.
59:57
SPEAKER_01: We're an interesting time in terms of you know self-managed super funds.
1:00:00
SPEAKER_01: So we'll definitely bring you back, especially after the rulings.
1:00:03
SPEAKER_01: And yeah, a lot to learn from self managed super funds.
1:00:06
SPEAKER_01: So thank you.
1:00:07
SPEAKER_01: Uh, and thank you for uh debunking some myths for us as well.
1:00:10
SPEAKER_01: Uh but yeah, thank you for your time.
1:00:12
SPEAKER_01: We've learned a lot.
1:00:13
SPEAKER_01: Thanks, James.