Your questions: pros and cons of super

Your paper recently ran an article on how the government is raiding our nest eggs. My husband and I each have about $142,000 in a public super fund, from which we draw the minimal amount each month to supplement our part-pension. Should we leave our money in superannuation or transfer it to a long-term investment due to the current uncertainty around government policy? Would that affect our pension? The only other taxable current income we have is from Telstra and IGA shares that amounts to about $2000 a year. S.W.

I am generally not in favour of withdrawing from superannuation simply because of a worry that the government is raiding nest eggs. It isn't; it's just stopping people from adding as much as they might wish to. Also, remember that super pensions are ''pension friendly'' in that the return of your capital, known as the ''deductible amount'', is ignored by the income test.

On the other hand, if you took all your money out of super, you probably wouldn't earn enough income to pay tax, so it is a moot point whether you are better off in super or not. Withdrawal may save on fees if you are currently in a public-offer fund with high fees, but if you don't invest wisely, you'll lose far more money than you would save by lowering fees. Also, a withdrawal will see your non-super income increase and, when this is added to your taxable age pension income, you may end up having to submit a tax return, which would cost money if you use an accountant.

By the way, I presume that, at present, you do not need to put in a tax return, but I hope you are claiming the unused franking credits that come with your share dividends. If not, download the Tax Office's form NAT 4098, ''Application for refund of franking credits for individuals 2012''. If you haven't been doing it for previous years, use another copy of the form for each year and write in the year.

Admittedly, the government and its treasury are taking a one-eyed look at the superannuation system and continually commenting on the taxes on which they are supposedly losing out. However, I'd like to see some balancing figures that show how much can be saved in welfare payments (already the largest part of the budget, nearly half as big again as health and education outlays combined) if people are actually encouraged to save for their retirement. That said, there is no doubt that the recent increase in initial tax-free personal income - that is, the general concession to $18,200 rising to $19,400 from July 2014 - has made low-income earners wonder about the usefulness of superannuation.

To some extent, there's been a bit of smoke and mirrors applied because tax offsets that previously reduced the tax payable by low-income earners have been lessened or eliminated. The effective amount of tax-free income rose from $16,000 a year to $20,542 in 2012-13.

Too soon to retire?

My wife and I are 55, own our house, and are currently not working. We wish to retire and live off our dividends of $33,000 a year, plus cash interest of $18,000, without touching our principal investments. In our self-managed super fund we have $250,000 in shares, $190,000 cash, plus $100,000 in local government super. In non-super we have $430,000 in shares and $180,000 in cash. We also have two units with the Department of Defence worth $340,000, with $90,000 debt, and one house worth $250,000 with a $110,000 interest-only mortgage. Rents pay off debts. As our shares go up in value, do we sell some off, which would then affect our dividend value? We are not sure of the best way to do things. A.N.

You have accumulated some $1.54 million in net assets on which to see you through your retirement. Now, a 55-year-old woman has a statistical life expectancy of some 30 years, but if she is healthy and has good genes, it's always best to budget for another five years.

Assuming your portfolio earns an average of 4 per cent a year, it would allow you to begin spending $50,000 a year, indexed annually at 3 per cent, and the money would run out completely after 35 years. At that time, your indexed income would be paying some $136,600 but still buying the same amount of goods as $50,000 does today, assuming inflation also averages 30 per cent a year.

Right now you are assuming that your dividends and cash interest will keep up with inflation and thus allow you not to touch your capital, noting that you may end up requiring $136,600 a year to maintain your current living standards.

If all the money being printed in the US, Europe and Japan results in a surge in inflation, then early retirement may turn out to be unrealistic. To be honest, 55 is a very young age to retire in today's world.

The story Your questions: pros and cons of super first appeared on The Sydney Morning Herald.

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