Higher Rates Preventing Buyers from Looking for New Mortgages

Reddit

The idea of a multiverse is that multiple (infinite) universes can exist parallel to one another. Therefore, in some universe parallel to this one, the Australian housing bubble has already deflated, China’s credit bubble has also deflated, and America’s looming stock of unsold housing has reached a clearing price.

But in the universe in which your editor woke up this morning, none of that has yet happened. That makes this world, at least to these eyes, surreal. It’s not like the facts aren’t evident. In Australia, for example, the average house price remains so far out of reach for the new buyer that it’s laughable. Yet day after day, everyone in the press (and in polite society) pretends that things are going along quite normally.

Well, for another day they are. But there are signs of abnormality. Take the number of Australians looking for new mortgages and actually getting them. New home loan approvals fell by 5.6% from October to November, according to data released by the ABS. It was the steepest month to month fall in 18 months.

So is housing going to drive economic growth in Australia this year? Not according to the data. Higher rates may be preventing buyers from looking for new mortgages. Or it could be prices, which continued to rise. While the number of new mortgages fell, the aggregate value of the mortgages made actually rose slightly. Fewer mortgages but a higher aggregate value means rising prices.

The First Home Buyers went missing, as well. Well, not missing. But first home buyers as a percentage of new mortgages fell from 26% in November to 22.1% in October. You’d expect that the higher short interest rates go – and they do seem to be headed higher – the more FHBs will be squeezed from the market. So what?

Well, it doesn’t really matter whether housing drives the economy or not. No one buys a house because he thinks it’s going to be good for the economy. You buy a house because you want one, and it’s a financially sensible decision. With higher rates, high prices, and wage growth below the rate of inflation, the forces of financial gravity (in this universe) are conspiring against new home buyers.

Of course that doesn’t mean home prices will fall, as property spruikers will readily tell you. We’ve never lived in a place where you are assaulted by so many bullish (and bullying) messages about buying property as you are in Australia. For a largely secular country, property is nearly a religion.

Get on the ladder! You can never lose money buying property! House prices always go up! And all of God’s children said Amen!

Still, we can’t help but compare the emotional state of today’s Australian property bulls with the dot.com crowd circa 2000 and the U.S. housing crowd circa 2004. It’s not just a feeling, though. It’s a reality. House prices in Australia are not affordable. And with rising rates, they’ll get less so every day…until prices fall.

And by the way, all the FHB grant did last year was steal demand from this year. It accelerated the time frame people had for getting into a house by altering the financial incentives. The net result is lower demand this year…and a whole slew of Australians carrying huge variable rate mortgages as interest rates begin a new up-cycle. Nice work, politicians.

But what about shares? Is that a good place to have your money instead? Lately we’ve expressed doubts about commodity and metals prices for 2010. China’s regulators lifted reserve requirement s at Chinese banks since we wrote you yesterday. This is an anti-inflationary policy designed to cool off asset markets in China and lead to more responsible bank lending. Will it trigger a correction in metals prices, which have soared since the mid-point of last year?

“NO!,” says the Sweden-based Raw Materials Group. RMG does expect a first half correction. It argues that high metals prices have attracted production increases in recent months. But in the bigger picture, it says the metals industry hasn’t added enough capacity to meet growing demand following the big wipe-out in 2008. It cites two big bullish factors for this year: physical demand from China and financial demand from everywhere else.

Hmm. That sounds so…2007. Like we went back in a time machine. Same universe, same argument, different day. Except we know what happened last time an explosion in credit triggered huge price rises in asset markets. It went supernova and then…destroyed everything in sight by at least 50%.

Of course how much wealth is destroyed in a credit bust depends on what you bought with the borrowed money. China bought itself a lot of factories and fixed capital, including residential real estate. Maybe it will simply grow into all that added capacity over time, even if it has overbuilt today.

William Pesek from Bloomberg says, “The real problem is the quality of growth. The trillions of yuan lavished on the [Chinese] economy last year won’t boost demand for exports. Nor will it soon morph the nation’s rabid savers into enthusiastic consumers. If today’s public borrowing doesn’t create a domestic-demand-driven economy, then it’s risky.”

Getting out of bed is risky, too. But you more or less have to do it. You don’t have to invest in China. Pesek says you should be wary. He writes that, “China’s overinvestment in 2009 may have delayed this day of reckoning, not averted it. Officials in Beijing are on notice that savvy short-sellers are delving into their books.”

Not that a China reckoning is automatically negative for Aussie stocks. Granted, Aussie stocks were down yesterday. But so was Wall Street. So was gold. And so was oil. And meanwhile in the trenches of the economy, China’s Bright Food Group made a $1.5 billion offer for the sugar and renewable energy assets of CSR. This shows that regardless of what happens in the credit markets, Chinese companies are looking to own more Australian assets.

The Chinese certainly have an eye for underperforming assets. CSR is down 23.9% over the last five years while the ASX/200 is up 19.6%. Shareholders would expect better and might be amenable to Chinese overtures. But as we said yesterday, you have to get ahead of these moves, not trade their wake. Kris Sayce just put a “buy” recommendation out on one of 2009’s worst performing stocks. We’ll see how that goes.

In the meanwhile, there are many more questions to take up; including the one we closed with yesterday: who is going to pay for America’s $3 trillion in borrowing over the next 12 months. Tomorrow, the answer, and what it means to global markets.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
Reddit

Comments

  1. Such is the life of property bear.
    You know you’re right in the current world with the current rules.
    But the rules might change and now you’re in a different world and you’re wrong.

    Reply
  2. The real estate push and their media mates in the Murdoch press in Australia love the phrase “a record 3 interest rate rises”, referring to the RBA’s moving the cash rate up by a modest total of 0.75% in 3 x 0.25% pixie steps in 2009, but of course not mentioning that this minor move up came after an unprecedented 3.25% slashing and hacking of rates over just a few months in 2008/09.

    Reply
  3. Enjoying the platonic realism, Dan. As you infer, we’ve already _had_ the property crash in that other great universe of the mind. Crackling synapses, Batman, there goes China, too!~ Why fight conventional wars?! ;)

    Experimented with the Rating System, by the way. None of my computers, abroad or here, permitted me to give a Thumbs Up or a Star rating to any response. At a mate’s place, however, I used his computer… and whaddya know… it all worked! Now I’m not so paranoid that I’d ever suspect you’re blocking property bears’ ratings in that parallel Plato-Zen shadow world. After all, your confident belief in the demise of property means it isn’t necessary to censor alternate views… right?

    Anyone ever tell you your photo bears a more-than-passing resemblance to a past great president of the United States, Dan? Uncanny!

    Reply
  4. Every part of the monoply contolled media keeps talking up the realestate titanic.They are so worried that when the bubble bursts that they may also burst with it such is there precarious financial situation just look at News Ltd they will start charging for online content.Paying for the garbage they write is just such a turn off.For example a Brisbane paper wrote that 20 60 storey apartment blocks would have to be built for the next 10 years to satisfy demand in the housing market in Queensland alone.Yet on a recent visit to Cairns I couldnt help but notice the amount of FOR LEASE signs and the media tells us what a massive housing shortage there is.
    The housing bubble gum is going to burst in a big big way and there are going to be alot of mortally wounded investors and homeowners.The worst effected are going to be the state governments who rely so much on stamp duty and land tax not to mention local govts who have been riding a huge windfall from increased values and with all this revenue nothing to show for it in extra services.I can imagine the bloodbath that will happen when the bubble bursts with governments at all levels who are all in debt way way over their heads.
    Who is going to have to pay then????????????????????????????????????????????

    james espositos
    January 14, 2010
    Reply
  5. Don’t ignore the fact that politicians will change the rules as needed to ensure they’re re-elected (or electable if in opposition). If housing is a religion in Australia, what does that tell you about politicians likely-hood of changing the rules to stop a property crash?

    Even if that would help first home buyers, there are a lot more people with houses already than are looking for houses.

    Unpopular Truth
    January 14, 2010
    Reply
  6. The other religion around here is the belief politicians and governments can fix things. All they can do is postpone corrections and thereby make things worse (ie steal more money from private enterprise to sustain unproductive bubbles like real estate).

    Australians are pretty much socialists. Free markets are always on notice when elections come around. The Pollies like to engineer their futures by encourage the ‘something for nothing’ personality. See great article by Ty Andros: http://www.gold-speculator.com/editors-picks/18180-something-nothing-personality.html

    The day of reckoning cometh, it always does!

    Reply
  7. Sugar’s still looking good! CSR is into sugar is it not?

    Reply
  8. DD said: “Yet day after day, everyone in the press (and in polite society) pretends that things are going along quite normally.”

    Well the fact is that things are going along quite normally – For Oz anyway with house prices up not too far from their average for the last 55 years.

    Reply
  9. Ned, what’s your source?

    Reply
  10. Nigel Stapledon’s Oz house price data back to 1880 – Keen certainly seems to accept his figures.
    Some graphs based on Stapledon’s stuff here:
    http://www.stubbornmule.net/2009/06/property-prices/

    Reply
  11. Ned, i would like to see the comparison charts on wages and consumable products and see whether they have to averaged out since 1880’s. I think you will find that the wages have dropped off significantly in the last few decades and this is why the situation is untenable.

    I think i shared this a few weeks back but a mate of mine was stressed to the eyeballs that he was going to miss out on entering the property market after a messy divorce. He started looking at the $350,000 mark after a few Auctions in September he went back and got approved for $420,000. In november after being at many unsuccessful auctions (mainly being outbidded by first homebuyers) he applied for a loan of $535,000 and purchased a 2 bedroom unit. After his deposit and the stamps surveying etc he had finance $518,000. He earns around $85,000 as a new car salesman, he is a sole income earner and has done this on a 35 year loan and interest only. One of the major 4 banks assessed him as a viable borrow of a half a million dollars based on this scenario. Hs base retainer is $36,000 and the rest of his income is derived from commission, he is on $85k because of the stimulus and the investment allowance bringing forward hundreds of new buyers before Dec 31st. What happens when this dries up, he cannot afford to take a drop in wage but this will come as sure as the sun rises.

    As he was being outbidded by FHO i can only assume the stupidity has been spread a lot further than just this one incident. There is a world of pain just around the corner and for the best part everyone is overly confident that we will be sheltered from the worlds problems because we have iron ore??

    Reply
  12. We also should look at trends from the 1800’s namely boom and bust trends. Before every great recession/depression there is an initial shock e.g. GFC then a very quick, fluid and confidence building recovery, this is invariably followed by a sharp deep pre-longed decline.

    from the 20-30’s through to the 70’s-80’s and even as early as the 90’s this has happened.

    History will repeat itself, this time round though we have really lost sight of how high up we have gone. When the floor does come out from underneath this ponzi scheme the fall will take a heavy heavy toll on you, on me and everyone that lives on this overpriced landscape.

    Reply
  13. I’m suprised in the number of people STILL predicting a house price collapse?? I thought Steven Keen was the only one that remained deluded. What the “housing bears” do not realise is that there has been an enormous amount of money printed globally in the last few years in order to “fix problems”. This money cannot be taken out of the system but miraculously for now is yet to translate into excessive inflation because people are still cautious about paying what they think is too much for an asset. But every day we get further away from 2008 without any major events the world gets more confident. Therefore the magic formula that still applies is CONFIDENCE + MONEY SUPPLY = INCREASING ASSET PRICES. Its already happening. House prices in Australia have now gone back to their 2007 peak. Unemployment has already peaked and we are about to see a real tick up in wages (particularly in WA with huge resource projects coming online with nobody free to work on them). This combined with a housing shortage is a recipe for strong house price growth, not just in Australia but worldwide. My gut feel is that house prices in 5 years will be up around 40% from todays levels, but then again so will wages and rents. Any money kept in cash is likely to have its purchasing power severely eroded.

    Reply
  14. Brian is on the money

    Reply
  15. Similar thoughts crossed my mind re “comparison charts on wages and consumable products” Wages. Had a quick look at the time but didn’t find anything I felt to rely on.
    Re “the situation is untenable” … I’m not sure it is untenable. And I think we’ve got to be careful about saying things as absolutes if there is a chance they aren’t.
    It is one of the attractions of this site though I guess … It expresses things as absolutes. So it’s readers can opt to abrogate responsibilty for thinking for themselves. Even though their absolutes may later prove to be absolutely wrong. Or at least so early that readers could/would(?) have been financially disadvantaged by following them.
    But Yes, as things are, for the average single wage earner to decide to have at crack at buying the average house mightn’t be something that the average banker would feel to finance right now.

    Reply
  16. “No one defies economic laws,” he [Scott Kennedy, who heads the Research Center for Chinese Politics and Business at Indiana University] said. “Eventually you get it, whether you want it or not.” (Michael Wines, “As China Rises, Fears Grow on Whether Boom Can Endure”, nytimes.com, January 11, 2010).

    Unfortunately it appears that Steven Keen failed to grasp history. When Central Bankers began to intervene in December 2007 to prevent the crisis, it suggested at the time, that there would be one more bubble before the collapse, or near collapse, of the world financial system.

    History suggests that the world economy is in the expansion phase of the present crisis, similar to 1933-37 and 1975-80/81.

    When the Government Finance Bubble bursts then Steven Keen’s prediction of a price collapse will be exceeded in magnitude.

    The former Morgan Stanley economist, Andie Xie, provides a possible time-frame for the future:

    “The policy consensus to prop up the global economy with stimulus will continue until inflation takes off or governments are broke,” Xie said. “This strategy is too expensive to last.”

    Inflation will likely become apparent in 2011, and a “vicious wage-price spiral” could take place the year after, Xie said. He said the lag between money creation, which happened last year, and inflation may take more than 18 months.

    Asian policy makers are already studying capital controls to limit “hot money” inflows that may stoke asset bubbles and force their currencies to appreciate.

    “Inflation would scare central banks into tightening dramatically in 2012, which would pop the current asset bubble,” Xie wrote. “By then the global problem would be more serious than now. In addition to the leverage problem in the household and financial sectors, the government sector would also be hugely levered then.”

    The trillions of dollars that governments are spending is “buying some time,” Xie said. One of the risks is that governments may not have enough money to “cushion the pain during the coming economic restructuring,” the economist wrote.

    “The whole world is drinking poison to quench the thirst,” Xie said. “It may feel like relief now. The sickness will strike in 2012.” (Shamim Adam, “Bernanke Low Rates ‘Poison’ to U.S. Economy, Xie Says”, bloomberg.com, December 8, 2009).

    Reply
  17. When did any Dailyreckoning punters ever tip fixing your mortgage interest rate?

    Would love to know whether fixing mine at 5.54% from Dec 1st for 3 years was a good move (delayed due to missing paperwork from Jul) and if it is, why no one at your office recommended it to me?

    Perhaps my memory is too short and I have forgotten all those tips and worthwhile advise to fix. I Would appreciate someone pointing out where this advice was offered just to reassure myself that other advice offered may have equal foundation and merit.

    Reply
  18. Joe, if you fixed 5.54% for three years from 1st December 2009, you are an effing genius. We should all kneel and salute you, right now, causing all Australia’s sulphur-crested cockatoos to rise, flapping madly and causing hurricanes in southern China, precipitating economic chaos there, thus stimulating a property collapse across Australia.

    Please enlighten us. With which lending organisation did one secure that three-year rate in December?

    Reply
  19. NAB Pete.
    As I said, we agreed in July, but due to some paperwork mismanagement, staff moving onto new positions, it wasn’t finally fixed until Dec 1st 2009.
    So yes, I must be an effing genius. Seems (excluding capital gains tax) I can get a higher return saving than my bank does lending.

    Reply
  20. The front pages of both the Heralf sun and the Age put melbournes median house prices up to $540,500 and rising at an average rate of $766 per day. That means if it keeps going at this rate the median house price will be around $815,000 by the end of the year. suggesting that interest rate rises are having an effect is ridiculous, thuis market could easily take another percentage point ot 2 and still be able to maintain steady pricing at worst.

    You would be mad not to be on the property ladder right now, i myself have resided myself to the fact that at 29 i will never own becuase i thought i was a genius at stayed out of the market in the hope it would fall. I looked at the basics, home value Vs yearly income and ascertained it was all going to fall like a deck of cards. The reality is the market is not driven by people n my scenario, it has strong foundations in supply shortages, seasoned wealthy investors (which this country has an abundance of) foreign investment and those who purchased 10 years ago are all on a natural progression to upgrade.

    I made a mistake and will feel the effects of it for the rest of my life as will my children as they grow up in rented homes in affordable suburbs and the low socio-economical environment that produces. All i can syathough is you would be mad to not get in now if you can afford it, there is no sub prime here in OZ and never will be, we have so many more determining factors that put a strong foundation under our prices. The people driving the market now that FHO have dropped off in August/September will not be effected by interest rate rises anytime soon to think otherwise will religate you to be standing a long side me in the land of RENTING FOR LIFE

    Reply
  21. Thanks, Joe. I’ll talk to NAB. At 6.0% we were told we had the best rate in Oz. It’s certainly a strange situation when a borrower can get a three year fixed loan from NAB for 5.54% for three years… while a saver gets 6.8% for one year from Westpac!

    Reply
  22. Flying, 23/1/’10″…melbournes median house prices up to $540,500 and rising at an average rate of $766 per day…. thuis market could easily take another percentage point ot 2 ”

    Yes, the market could probably take a 3% rise, Flying. To an investor, that’s deductible anyway.

    Your best hope is that the government gives ALL homeowners a tax write-off on their mortgages.
    There’s an election coming. Don’t be surprised if you see the introduction of this fair(er) concept… .

    Reply
  23. “government gives ALL homeowners a tax write-off on their mortgages” – Now that WOULD be a case of property prices on steroids! So I’d be inclined to save the concept up for a time when prices just could need a bit of stimulus somewhere down the track maybe? But yeh, with our vote grubbing pollies, who’s to really know.

    Seems the KHR is being leaked frantically now. Nothing too nasty that I can see at all. Except they’ll need more tax rather than less – But that’s no surprise. More tax breaks for oldies who keep working maybe? Hmmm – Gotta admit I’m not especially keen. We’ll just have see what the devil in the detail is perhaps?

    Yeh, the It’s a bubble and it’s gunna crash brigade would seem to be at a bit of risk of not owning a house anytime soon at this rate. I hedged my bets in that regard and bought a couple in early 2008. Plus sat on cash to buy a couple more if they corrected. Didn’t particularly enjoy the experience at the time either I can tell you! But it’s been working out OK so far. Ya pays ya money and ya takes ya chances hey?

    Reply
  24. Now Ned, let’s think of the positives! Think how may more young kids would be assisted to get into a home. (I’ll be lucky if my two don’t try to put me into one…! :) )

    Reply
  25. I don’t trust the mean buggers Biker – Once they do that the logical corollary is to want their CGT on the joint when you sell it. And I don’t find that an attractive prospect at all!

    Suspect your boys may let you stay out of the fuddy duddy farm providing you continue to be useful around the place – To paraphrase Paul Hogan: “Keepa digging Mario!” :)

    Reply
  26. Got to look very closely at Super, Ned. While there’s (still) a provision to roll CGT into Super (albeit 15% tax) it’s not too bad.

    Really need another hour with our accountant… but I’ve done five lots of new Dep Scheds _myself_ (too short a timeline after the trip) so I doubt we can cover everything I need to ask in a morning.

    Doesn’t look like too much to worry about in the KHR, from the leaks of things…

    Reply
  27. It does seem that super will continue to be treated kindly Biker. And as to the KHR in general, I’d call it all pretty much benign from what we’re hearing. It’ll have its effects for sure. But nothing that specifically targets me in an unhappy way that I’ve been able to spot to date. (Except the wine tax maybe? :) ) CGT might go up a bit? Goodo, don’t sell. Or yes, sell “soon” and push the money into super as you suggest.

    It’ll just be nice to see all the unknowns and maybes laid to rest. Then I’ll run my thoughts past a wise old bean counter too.

    As to your comment elsewhere: Depending on just when any further age based tax breaks might kick in, I’d love to continue enjoying an early retirement now and maybe head back to work when/if low taxes make it REALLY attractive. But I’d doubt the incentives will be that strong.

    If I was real close to 60 I’d probably buy another house in the name of the SMSF. But I’m too young. And will need the rental income if I’m to continue to avoid being conscripted into one of Kev’s forced labour gangs. So suspect my solution to it may have to be buying a house in the name of a Discretionary Trust.

    Biker’s Property Maintenance – In a logical and rational world one might be tempted to assume that there could be no advantage in paying oneself a wage on which you then have to pay tax to do things that you could otherwise do for yourself for free. But in our world I suspect there can be?

    And yes, that’s why accountants exist – They’re supposed to be smart and know about such things. (I do recall a bloke I know who’d become very fond of his little family business, being quite indignant one year when he got a snakey letter from the ATO informing him that at some point they did actually expect established businesses to start showing a profit they could begin extracting tax from! :) )

    Reply
  28. Wine: My missus says I’m to stop stocking the stuff, Ned. Probably have enough now to last. Depends how long I live, I guess… . Anyway, graysonline has changed their auction strategies, possibly to frustrate blokes like me.
    CGT: I’m expecting that our situation won’t be retrospective, so we may beat that.
    Showing a Profit: No problem there, especially once the super pays out all debt. It’s only the major tax issue that really worries me, hence the van, etc., and my ‘wage’…. write-offs.

    “It’ll just be nice to see all the unknowns and maybes laid to rest.” We discuss this frequently….which way to go, etc. I figure we’re now almost right back at the start: Writing down every question we don’t have a definite answer to… and then researching all over again. Problem is, we need some _definite_ information from the KHR to base the questions on. At this stage it’s all “What If?”

    Reply
  29. Fully expect you’re correct about no retrospectivity. But either way 25% on CGT really isn’t that low. And given that it’s investment type income, it doesn’t seem to be something they are especially keen to crucify. If they bump it up, it won’t be by too much maybe.

    I was expecting them to get serious on all the disparities in tax rates on different entity types and asset classes. But there doesn’t seem to be much on that filtering through at all. Just too difficult and entrenched perhaps? Or maybe they still really haven’t got a clue and just want to keep their options open? Which isn’t much different to me I guess! So I’ll just wait patiently for the recommendations now.

    Vino – I saw a couple of somewhat senior Russians distilling their home brewed vodka into a 2 litre plastic coke bottle with a twig in it in the backyard one day – Maybe I’ll give that a go – I gather it usually means you don’t have to plan for an especially lengthy retirement? :)

    Reply
  30. When it comes right down to it, I need to do some guestimates on whether a fully self funded retirement is a realistic option for me. So I’m keen to see what little helping hands/incentives there might be for yours truly in that regard.

    If it doesn’t seem to be realistic, then between now and 60 (a bit under 9 yrs), I get to run down my cash. Then flog off (or do a reverse mortgage on???) the rental house in my name. And live on that between 60 and 67. And then flog off the house that’s in the name of my super fund at 67. And go into retirement with that cash in one hand and the other held out for the pension and all the perks bleating Please help me, I’m poor!

    Side Note: If there’s lots of mini-mes doing same over this period (as there could be), it just may represent a chance for the poor deprived Gen Ys to pinch a cheapy house or two off us evil depraved old boomers – Maybe – There’s very few guarentees in this life obviously.

    Alternatively, if I reckon I really am a chance to be able to ride off into the sunset as a fully self funded retiree with a smile on me dial and without a care in the world (or any wish for tax payer support), the main question (for me), becomes Do I buy my next house in the name of my SMSF or a Discretionary Trust? (As I’ve had a look at alternatives like trading stocks and bullion and currency and figure that if there are any rules, I sure don’t understand them!) And I’ve been waiting on Ken Henry to give me a few hints on that as well.

    I do wish Rudd would extract the digit! Come on Kev, get a wriggle on; We aren’t all pollies … Some of us have important decisions to make mate! :)

    Reply
  31. PS: I could do another decade or two of work I guess? But unlike Biker, I’m fat and lazy. And have pretty much lost interest in helping all our squawking gimme gimme Gen Ys get across the line.
    I tried a few times? But they looked at me with eyes bugged wide open and said I wouldn’t do that!!! Or Nah, I tried that and didn’t like it! (To suggestions like working OS; And doing a plumbing apprenticeship and such like.)
    So MY turn now thanks! :) :) :)
    With emmigration being a very real option providing I structure my finances correctly before bolting. (For which I still need some info ta muchly please Kev?)
    Not that I dislike Oz. Quite the opposite in fact – Definitely one of my most preferred places.
    It’s just that I find its people have gotten a bit estranged from reality. Especially over the last decade or so – During which time I was mostly admittedly away.
    So its certainly possible Oz iz just fine. And its me that’s lost the plot … And Oz iz now led most happily by Krudd??? (Yeh, RIGHT!!!!)
    Hey, it IZ possible as I said???? So no probs – I’m quite happy to move on as stated.
    I’ll probably emmigrate to Tassie – That still wasn’t part of Oz last I heard? :) :) :)

    Reply
  32. We never really set out to be SFRs, Ned. Independence was always a dream, but until we hit our late forties, it seemed an impossible goal. At that point it all just seemed to take off… all the buying and selling… churning, if you like… suddenly went ballistic. It all just came together during the next two decades. Then salary sacrifice boosted the Super, after we sold a $125K block for an effective $325K… and lived off that, while sal-packing nearly all our wages for a few years. Nothing wrong with supplementing your retirement with an OAP… we’ve just exceeded that possibility… .

    We’re getting a lot of offers on empty blocks and houses at the moment… even on stuff without For Sale signs. This might mean a greater shortage of stock than we’d thought. Missis is in ‘We’re holding’ pattern, so we’re not responding with any enthusiasm at all. Maybe the market picking up over here has shocked all the realtors and investors out of hibernation(?)

    Tassie? We’ve always wondered about QLD…! :)

    Reply
  33. SFR – Yeh, I’ve just got to figure out if I’m really all that motivated to give it a shot? It’d be nice as I said. But I’m not inclined to kill myself to achieve same either. Enjoying life regardless has lots of attractions once one has backed off a lot re the work thing … I’ve found anyway. Which is why Ken and Kev probably aren’t that keen to see too many of us figure that out? :)

    And I have a bit of an idea of the risks after having done a practice run during the GFC – Handy learning experience that – Every child should have a GFC as part of their earliest financial experience perhaps?

    Seems to be plenty of stock over this way Biker. But maybe not so close in to town – I haven’t been looking there lately?

    Re your lady’s thoughts – Same old storey – Good dirt – Hold unless you can get your price plus a bit – They aren’t making anymore of it. Houses are a different story – Handy things for getting income. And tax breaks for the neg geared. But they are quite specifically depreciatting assets. And a bloke has to be a bit careful about the possibility of buggering up the potential of a nice bit of dirt by putting the wrong house on it.

    Tassie – I like the thought of the cool – Anything 28 or over is “hot” in my lingo nowadays. Plus the fact that house prices are still down a bit of course. :)

    Reply
  34. …zzzzzzzzz…hehehehe…zzzzzzzzz…LQQK!!!…zzzzz….Yeh!…PS: Ya ya ya…

    Reply
  35. If we get more Rudd, we’ll have more favouritism for people who do no work and did no work – maybe not the glorious return of a decent old age pension, but definitely tax hits against anyone who doesn’t qualify for a pension.

    So if you go for SFR you’ll probably end up partly paying for someone else’s also. That’s the case in pretty much any first world country. It’s possible to circumvent, but you have to take the risk of being poor on the books – like, for example, giving your kids their inheritances before you’re dead, etc. But it’s an ongoing process, not an event, otherwise it’s like being dead – you’ll get forgotten within six months.

    Then you can be an old fogey walking about in brown cordies and old shirt, with your seniors card, pension and whatever else, no debt and no cash, and then living off the support of your kids, which is a tax break for them, etc. I’ve seen it done, and the old duck died at 95 with assets of $10k. You need the right family culture though, otherwise you might get thrown in a mini-skip nursing home or something.

    Reply
  36. The impending Aussie housing crash from such ridiculously overpriced levels will be a welcome correction and the sooner it happens the better.

    Reply
  37. Everything you say there is good commonsense Dan. Ta.

    No kids here – So at least that’s pretty clear cut – For better or worse. When I croak I’d ultimately like to see my home go towards my brother’s two kids. Although there’s no expectations or committment. And that suits me fine.

    It does seem to me that a lot of people go into retirement without any real plan though. And whether one is going to specifically target being a pension recipient and why, has to be a fundamental part of the plan.

    I suspect there could still be a huge amount of general misunderstanding out there as well. I’m thinking specifically of a tradie I know who remarked to me that he was surprised to see super go down in the GFC – As he thought that once you had money in super it couldn’t go down. And the bloke is NOT a fool – He’s run a successful business for many years. And was financially astute enough that when he trundled himself off to a financial advisor (pre-GFC as it happened), and they laid out “the” plan, he said Yep, most of that sounds OK – But I’ll give the bit about borrowing $100k to invest in stocks the skip as it sounds a bit risky thanks.

    Then there is another 50 something yo property manager I was talking to just this week, who was under the impression that when she sells her home in town and moves into her seaside unit which was purchased as a rental and has been a rental ever since, that somehow or other the fact it becomes her new home, will magically make the existing CGT liability go away.

    Then there’s a mate of mine who’s a legal eagle and about as good as you’ll find when it comes to taxes – Who has considerable super – And pre-GFC had “planned” to retire in 5 years at 55 yo. But when I asked him a pretty basic question about super (of which I only have a little bit compared to him) that seemed relevant to me as another budding retiree, he had no more idea than me.

    I suspect a lot of people are just so busy working and doing all the day to day stuff, that they simply don’t get around to getting some good info and making some plans – Not until they suddenly find out they have a problem.

    Reply
  38. Dan: “So if you go for SFR you’ll probably end up partly paying for someone else’s also.”
    Yes, continuing high taxes are the most likely scenario. Can’t see any of the other stuff happening, frankly.

    Bargearse, if wishing will make it so, you’re onto a good thing here. It worked for Vera Lynn and the troops, anyway…. a WW2 morale booster when things looked grim… . You should probably repeat “… the impending Aussie housing crash from such ridiculously overpriced levels will be a welcome correction.. ” more frequently, _daily_ rather than weekly, perhaps… . :)

    Reply
  39. I probably should have a crack at being an SFR if I reckon there is still a chance after I’ve crunched the numbers. I’ve spent all my adult life carrying one bunch of fleas or another on my back – So it’s not like anything has especially changed in that regard. And pre-GFC I wasn’t really planning to retire until 60 anyway. More just a case of having chosen to take a bit of time out – Which can become addictive! :)

    Of course the thought that Rudd would love to flog me back to work has been making me feel to “kick against the pricks”! (Nice old biblical saying that … Ta Biker.) But if at any point the plan doesn’t seem to be working out, then I can always take Steve’s advice and just get rid of my cash by buying a nice flash joint to replace this dunger. (Or more likely another dunger on a decent sized bit of dirt would suit me better personally.) And I’ve heard nothing about that option being closed off. Ta fellahs … Could be the basis of a plan. And a backup plan.

    I’ll definitely continue to bear the emmigration option in mind though – I really don’t like being told what to do by a bunch of gimme gimme merchants. And there are other countries around where when the locals see someone who has a bit more than them, they think Gee, wonder how I can be like that – Rather than Gee, wonder how I can legally steal some of that. So if I’m finding that I’m developing a real big attitude problem it probably would be best for all concerned if I buggered off again. All good … I also have an ultimate escape plan I can check out medium term.

    Cheers … And Ta again to all! :)

    Reply
  40. Some interesting comments, Ned. You’d need to know the retirement/tax laws in the country you’d ‘flea’ to :)
    though. Our son in Montreal, who has money in both Canada and Australia, is just coming to terms with this.

    This site seems worth a look: http://www.superguide.com.au/accessing-superannuation/tax-free-super-for-over-60s

    May be outdated after any recommendations of the KHR are initiated, but for now it seems relevant… .

    Reply
  41. True enough mate – I had a nice offer to emmigrate not too long back. But as I said then, my lack of knowledge on your investing laws would be a hassle. Because at my age and in my somewhat happy financial circumstances here, getting my investment strategy in order is priority number 1. More important than a job even. Heck, if a bloke is still capable of getting out of bed most mornings, he can get a job. But there does come a point in life when one starts to suspect he could begin to walk into some age based financial hand grenades if he is not careful. :)

    Thanks for the link. I’ll check it out. And even if the regs should change, then at least when my bean counter says It’s all changed you know; It now works like this … I’ll have some idea where he’s coming from.

    To be dead honest, the thought flicked through my mind very recently that once the KHR stuff and the response has unfolded, and he’s got his head around it, to just put it on him to visit me here at home for a day while we work through the whole kit and kaboodle. Would be well worth the bit of expense I think.

    Reply
  42. Well in our scenario we’re assuming that decades from now a house will still be a house and people will still have the right to own land, etc, and charge others for its use. And barring a rapid collapse in population, we figure that’s still a safe path – overpriced today or not (mainly because land can be turned to productive use). And we’ll continue the tradition that those in the extended family who can work support those who can’t, and each does his or her bit – minding kids, or mending houses, and other money saving (but not money earning) activities, and the pool of wealth grows. Obviously that doesn’t exactly match your scenario, Ned (though it easily could if you were good enough mates with your brother), but it’s better than relying just on dollars.

    Emigration is not a bad thought, though. Kind of like what Oscar Wilde said: “If this is how the Queen treats her prisoners, then she doesn’t deserve to have any!” – life in the “second world” ain’t half bad as long as there’s a bit of peace and quiet to get on with things. It’s just a different life, with its own drawbacks. Saying more than that would be best done on a remote verandah and a slab of beer.

    But I really don’t trust Superannuation. It was good when nobody did it, but now it’s too fat, too popular, and far too obvious. People lack a wartime mentality in Australia. They trust their masters far too much.

    Reply
  43. Dan: “But I really don’t trust Superannuation.” So, if you could take a very large bag of the $tuff and run, right now, you would, Dan?

    I’d figured that there might be a major correction in Australian property by 2030, but the missus just explained to me that Gen A will be as large as the BB Generation.* We were walking along the Swan River foreshore, looking at thousands of million dollar units (one of which our son rents) thinking “This stuff is priceless… we should have bought some of _this_ years ago…. ”

    Ned, “…age based financial hand grenades… ” sums it up nicely. We were discussing the fact that it might be possible to make a lethal mistake, choosing one path instead of the other… . Let’s start writing up Q Cards, was our conclusion… . * Apparently, after Gen Z, this current batch of kids goes back to Generation Alpha. (The stuff ya learn when you’re just out for a Sunday avo stroll along the riverbank.)

    Reply
  44. Gotta hedge one’s bets Dan – MOST especially in relation to government. They are becoming the next great force to be reckoned with given that any pretensions to having “free markets” croaked along with Lehman Bros and AIG.

    Yes, I take your point in relation to my bro … But he’s a good bit younger than me and has shown some pretty strongly developed tendencies to hold his hand out in the past – Albeit to our ma and pa than to me as such. Know them for what they are rather than what one might like them to be and noone will be too disappointed perhaps? And a real good lad regardless.

    As to his kids – They’re half chink. (He got himself a real good little missus there I think.) But they are still pretty young, so I’m waiting to see how they shape up.

    Reply
  45. Yes I checked out that bit of age based demographics too Biker – Your missus is 100% correct. Barring Great Depression II which we have every reason to suspect will be responded to with money printing anyway, about the best a sad sorry old bear like me might still be able to hope for is a bit of a flat spot to pop up in the next decade … Barring China collapsing in a crisis of absolutly catastrophic mayhem and ruin of course!!! Hey, it doesn’t hurt to think “happy” thoughts while one is revising their strategy surely? :)

    Reply
  46. And Bargeass said: “It’s a bubble and it’s gunna crash!” (Just thought I’d help out in your abscence mate! :) )

    Reply
  47. Fair enough, Ned. Our strategy is ongoing, has taken years already and has been carefully laid. It’s maybe not as clever as Pete’s with his nose for good properties, or as good as some people’s ability to play stocks .. it’s not the same kind of empire building. Psychology is a big component, but so it is for any kind of business involving humans .. and you need safeguards, most definitely. It all builds on trust, and there are of course risks. But that is family life. It’s almost always better than having no family.

    Hedging bets is also right, but the thing is, if you go through life never giving anything but only taking (or rather giving to institutions that promise one day to give back), in the end the up-and-comings will remember you for that, and will just dictate the terms and shove you around when you’re too old to defend yourself. I’ve seen that happen a lot. If you spend life making friends with your kids/nieces/nephews then you strike onto one or two which you in the end can mentor and share projects with, and right there you have a link with the future, and a base to build on – less reliance on institutional sources for the necessary things such as finance, social supports etc. It pays its own kinds of dividends, and flies totally in the face of the teachings of mainstream coffee-table magazines, which is a proof in itself.

    PS: not sure who is going around giving out the funny comment scores, but who cares, it’s all good reading lately as far as I’m concerned.

    Reply
  48. Yeh, I ignore the “scores” nowadays as well Dan. If they wish to say something helpful, then they can peck away a finger at a time and hit the “Submit Comment” button as readily as me.

    I’m a real big believer in family Dan. But I’m also realistic enough to accept that it doesn’t necessarily work out in our culture any more. As to my niece and nephew – Well, for whatever silly ways my bro might have had as a younger bloke re money, he’s definitely shaped up to be a really good dad. The kids and I get on real well. Although they also know their old uncle Ned isn’t quite the pushover that ma and pa can be.

    It’s all poking along OK I think?

    Reply
  49. “But I’m also realistic enough to accept that it doesn’t necessarily work out in our culture any more. ” .. yeah that’s true to an extent, but I remember reading somewhere the point that “if it happened in history, then it’s sure to be doable again”. I know, though, that in old age, people looked after by family fare better than those in institutions. They eat better, they are happier, and get the sort of advocacy that no money can buy – especially in hospital, where it really counts.

    Rudd (and probably every other pollie) thinks he’ll fix the future with spending money on stuff like nursing homes, and all that, but he’ll be stopped by the fact that there are not ever going to be enough nurses willing to staff them. A lot of elderly end up in them who could have stayed home had they had a daughter or son to keep an eye out for them, leaving more room for the ones who are impossible to look after without qualified nursing. Had the government not been hell-bent for the past 40 years in busting up the family unit (through changing laws, taxes and favouring mass media) and instead creating a 20 million herd of individuals who don’t want to help anyone unless they get paid, there would not be the sort of old-age crisis that exists today.

    Reply
  50. Well, I just scored your comment a “5” for what little that might be worth Dan?

    But to more than an “an extent” I think – We have lots of severely dysfunctional families in this country these days. Including lots of potential “families” of one.

    I’m probably not the most positive of chaps – And doubt that our home grown damage can be reversed. So I’m happy enough to see lots of way more family orientated migrants pour in. We stuffed ourselves – Time to take the cure – And be grateful it is at least open to us as an option.

    Reply
  51. You might be right Dan – It could be time me bro’s eldest visited for a weekend? And when he squawks about the fact that the hot water doesn’t seem to be working Uncle Ned, I just say Yeh, I usually have a cold one one mate … But if you want there’s a jug on the kitchen bench and a bucket in the laundry? :)

    Reply
  52. Dan: “A lot of elderly end up in them who could have stayed home had they had a daughter or son to keep an eye out for them, leaving more room for the ones who are impossible to look after without qualified nursing.”

    You’re definitely on the right track here, Dan. But let’s contrast the Canadian and Australian situations, for a moment. My wife’s ma and mine are similar ages. When care is needed, Canada will find the resources to give her A1 care 24/7 in the family home. My mother will get around 10% of that. (In fact, she won’t, because family _will_ step up.) But what of the millions of elderly who a.) have no family; b.) have no financial resources(?)

    Doing my Masters in Canada back in ’87, I was required, as an overseas student, to do some units of Canadian history and sociology as compulsory subjects. (I was also required to do some legal studies, but that’s another story… .) One thing I quickly came to realise is that Canada was (and may still be) a decade advanced of us in considering the needs of the elderly. I saw that in practice when my wife’s grandfather received an astonishingly high level of care, in the family home, in his mid-nineties. Yes, he was wealthy, but this care was supplied free to all, provincially and federally(!)

    There’s no substitute for family care, of course, but I’m still awed by the provision of care extended to _all_ Canadian families in their declining years. No wonder Obama is trying to approach the example of Canadian health care in the US. He probably has _Buckley’s_ chance, of course, in The Land of the Lobbyist, but you’ve gotta admire the passion and intent… .

    Reply
  53. Ned, I’ve tried to ‘even the score’ in the ratings, but it looks like DRA has blocked the entire west coast! My son, who has a doctorate in computer engineering, is baffled by this… . Is it what Greg refers to as the ‘Connolly Censorship’ effect? Surely DRA is not so paranoid about our contributions that they’d block whole states from giving ratings feedback? Certainly a 400 km stretch of the WA coast _appears_ to be ‘blocked’.

    My personal, very biased view? Keens’s demise coupled with rising realty prices… particularly in Melbourne… has caught DRA on the hop. To allow property bulls to upgrade star ratings would be counter-productive, hence the bar(rier). How about it, Jon Bain? Aren’t you based in SWWA? Does the rating system work for you?!

    Reply
  54. Aussies are such precious little personages – I was just chatting to one of my OS connections and they reckon it’s minus 28 and the taps have frizzed up at home – So there’s no water there for now. Hmmm … Minus 28 is no biggy – And will probably be over in a week or two? Well before the home supplies of bottled water even get properly cool? Which is what me OS connection reckoned too.

    Got to admit that my violin strings have got a bit stretched regarding all the gimme gimme lttle Aussie whingers … Give me a Cooee when you think you really ARE battling a bit and I’ll TRY to pretend to show a bit of interest perhaps?

    Reply
  55. I lost a bit of interest in Mr Keen’s thoughts when I realised they were based on the thought that Aussies were “turning Japanaese”. Yeh, there might be some theoretical similarities in relation to debt. But I figured that the practical differences in relation to some things like demographics and what we do for a living in the world, might be vaguely relevant too?

    Reply
  56. Maybe that’s where Keen’s zero interest prediction came from, Ned, but it’s hard to escape the conclusion that he foresaw a simple ‘domino effect’… the US fell, the UK fell… Australia must fall next… . That’s too simple a thesis, of course, so it needed propping up with all kinds of academic analogies. It also needed some stagecraft… a media event… the sale of one’s own domicile, to get the crash really rolling. A New York Times article summed up the US fall recently as poor banking practice. I think that aspect may have actually been even worse in the UK, where bank advertising actively promoted _second_ mortgages.

    That’s simplifying things, of course.

    Since DRA took up the theme of the Great Property Crash, we’ve been inundated with scores of ‘good’ reasons why it would happen here. Most have been logical, even mathematically sound. The simple fact remains that we are not the US, or the UK… and we’re most certainly not Japan. We’re may be a little like Canada, in that we both have an immense trading partner close at hand (China/the US) and our banking practices are still, if anything, conservative. Realty in both Canada and Australia plateaued in the last two years, then took off once the fear rolled through… .

    Aussies really are battlers. In writing up the history of our family, I’n now covering the Depression years, during which my forebears survived on rabbits and cockatoos to help hold their property… and my grandfather, Charlie, took back the farm by force at one stage, following a series of ongoing defaults. I’ll concede that times have changed, but much of our Aussie resilience persists. I don’t think Keen factored that into the equation when he staged the most-publicised house sale we’ve ever seen in Australia.

    Reply
  57. Back to Super, Ned:

    http://southern-star.whereilive.com.au/news/story/noel-whittaker-how-to-get-your-super-super/

    Read on from the para beginning: “A further option…. ”

    At present, we’re leaning towards a mix-and-match arrangement, in which we’d take the maximum $48K tax free from property rents annually… and leave the rest in Super earning 3.5% annually, to pay us around $50K (also tax-free). In both cases, we wouldn’t need to touch any principal… .

    Off to see the accountant now… .

    Reply
  58. Best morning yet with our accountant, Ned. We learned some incredible stuff… . Some of it we thought we knew… but didn’t. Luckily our ignorance won’t cost us anything. Caught it just in time… .

    And we’re canning a large percentage of our salary packaging on Wednesday. It turns out we actually _overdid_ it. More tax write-offs than we can use…

    Our bloke’s view is that I should take my Super and whack it into property and offsets. He’s iffy about the KHR. Based on what he outlined, including some issues we didn’t know existed (despite our past diligence) we’re going to commence building the next project, soon. (NB: In addition I can buy the diesel van… and all the equipment I want… but I can’t pay myself a wage… . Won’t need it… .)

    Reply
  59. That’s a real interesting article Biker – Thanks.

    By and large I’ve been working off the stuff that flows on from here (using the Table of contents on the far right):
    http://www.ato.gov.au/individuals/content.asp?doc=/content/86252.htm&page=1&H1

    The ATO stuff tells a bloke what the regs are. But Whittaker’s stuff tells you how you can potentially work around them by the sounds?

    A very important section seems to be where he says “the existing system already has plenty of scope for retirees to restructure their affairs so that they can retain their assets in super and not be forced to withdraw them” and then goes on to say “you could commute your account based pension fund back into superannuation … The downside of this is that you would be moving from the tax free account based pension area, to the superannuation area where earnings are taxed at 15 per cent”

    I’m going to need to give the implications of that a lot more thought.

    His point about franking credits is well worth bearing in mind. It’s a bugger of a way to organise your finances though – Buy some stocks because they pay fully franked dividends and the tax credits will be handy for offsetting against your other earnings. (I had kind of hoped the KHR would to do away with that sort of nonsense – But now strongly suspect it’s just too entrenched with too many people having made investment decisions based on it for them to be keen to have a fiddle.) They don’t want to crash the All Ords any more than they want to see house prices fall over I guess.

    Given my age, I hadn’t been giving any real thought to that SATO thing at all – But it’s a REAL handy one to bear in mind of course. And even his point that there are some things that some funds can’t/won’t do because their “software” doesn’t support it is definitely one more recommendation for having an SMSF – Hey, the trustee of my fund acts solely in my best interests at all times and nothing is too much trouble I can assure you!

    One that I came across in my readings that I personally found interesting was the possibility of pulling up to the low cap amount of 150k (indexed) tax free between preservation age and 60 – Providing it’s a “taxed element” – And I’m pretty certain that virtually all of mine is.

    Did you run the possibility of buying property in the name of a SMSF past your accountant or is he suggesting you just get out of super altogether?

    Reply
  60. I haven’t read enough about it yet but I was reminded of this when I read your comment, Pete. http://en.wikipedia.org/wiki/Double_taxation – If you ever wondered why people are keen to become dual citizens of certain nations, then this might be the reason. Maybe it only makes sense once one is filthy rich, but since it’s obviously legal (as much as I disagree with it) it’s probably worth a look too?

    Reply
  61. Ned: “Did you run the possibility of buying property in the name of a SMSF past your accountant or is he suggesting you just get out of super altogether?” Yes, we looked at it closely. In the end we all decided it really wasn’t necessary. To be honest, we have all the property we need, now. Just need to build on some empty blocks… which keeps me busy and out of trouble… . :)

    Reply
  62. Sounds like your bloke doesn’t trust Ken and Kev and Super too much at all Biker. Be a shame if it does go that way. Compulsory annuities “for life” purchased from the government? I doubt they’ll see too many more voluntary contributions being made! :)

    Reply
  63. Ned: “…your bloke doesn’t trust Ken and Kev and Super too much…” Exactly _his_ point, Ned. He stopped contributing a few years back… and it turns out he’s building almost as many homes as we are. I think his costs might be higher… building for capital appreciation, rather than as rentals. He explained that it’s the ongoing uncertainty of Super. (It has really worked well for us, but those days may be over!)

    This is the first year we’ve had so many rentals simultaneously, so, to some extent we were in completely new territory, especially considering the high level of salpacked Super we’ve committed… . Erred on the side of overcommitment… but we really should have cracked a bottle of Moet sitting by the pool tonight! :)

    Dan, that URL was interesting. We’d had some experience of this back in ’95, when the missus was on a teacher exchange in Canada. It has a lot of relevance to Son#2’s current situation, wherein he earns money in Australia (property) and Canada (interest on cash; and shares) simultaneously. In the first situation the ATO will owe him a packet; he tells me he’s paying the Canucks their dues… .

    Reply
  64. Well, if you don’t feel to trust it then Yes, you need to play your hunch and grab some cash I guess. I don’t have that option of course. The only good thing about it from where I sit is that I’d get to poke a bit of fun at me mate the legal eagle who has “considerable” super – As he’s a right little socialist at heart – Contribute here to Kev’s road building project etc!!! Nah, couldn’t be … Even he’d be wanting to vote for Attila the Hun? Stop it Biker, you’re scaring me! :)

    Reply
  65. In four years you can TTR, Ned. If you’re unsure about Super, extract the MAX. We have always gone for the minimum, but you might find it fruitful to take the max, tax-free, to complete your projects.

    Reply
  66. Yep, it might be that I’ve got 4 years to become very well educated in how to get money OUT of super. It’ll just be great to see the KHR thing released – This process of leaking little bits has gotten to be a bit silly.

    I guess I’ll be looking at Discretionary Trusts to work around the state land tax thing. Presumably that option will remain open to us. Either that or buy in a different state. As it doesn’t seem like the national land tax thing got up. Although as mentioned before, I like to be physically close to my property assets.

    Do you think that could be why the review didn’t recommend raising the employer contribution rate from 9% to 12% perhaps? While there’s just a chance they think they could be able to sell us on the annuities idea, taking more money off us to put into those annuities could look just a bit too much like a desperate grab for cash? :)

    Reply
  67. Ned: “Do you think that could be why the review didn’t recommend raising the employer contribution rate from 9% to 12% perhaps? ” My view is that they’ll be very, very careful about any initiative which threatens to derail the economy right now, Ned.

    The good thing about TTR is that an initial step involves putting your super into a new TTR account, so that your funds work in an entirely tax-free environment. At 55 you can start withdrawing funds tax-free… on top of any other income. The trick is to ensure you pay 1% or less in annual fees. We pay less.

    We don’t find taxes or rates a burden, Ned, but QLD may be different. Remember it’s all deductible! :)

    Reply
  68. It is a strange system. Put your money in here for your retirement. Oh, you want it out before you retire – No probs. I’m beginning to suspect that they rely on a lot of people not really knowing how it all works and just keeping on keeping on. And in fairness, it does seem that the fact we had the national super to backstop the stock market has worked in our favour recently. I’ll look into TTR some more then – Ta.

    These Yanks are quick on the uptake – I was just reading an article written today entitled “Obama facing huge economic challenges ahead”. :)

    Reply
  69. Comment by Pete on 23 January 2010:

    Thanks, Joe. I’ll talk to NAB. At 6.0% we were told we had the best rate in Oz. It’s certainly a strange situation when a borrower can get a three year fixed loan from NAB for 5.54% for three years… while a saver gets 6.8% for one year from Westpac!

    Some institutions need cash.

    Reply
  70. NV: “Some institutions need cash.” Don’t understand, NV. Didn’t you _borrow_ at 5.54%? Westpac has been _paying_ 6.8% for one year… .

    Reply

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au