Four strategies for a low-income world
Firstly, you can spend less, save more, work longer and work harder. This is unlikely to be a popular or (for many) a practical strategy!
Secondly, you can take more risk. With dividend yields on equities still relatively high, dividend income looks attractive, but it will come with more capital volatility and if your timing’s wrong significant downside risk. Normal equity market volatility is around 12–14% p.a. and in bear markets prices can fall upwards of 30%. So higher income does place more capital at risk. Timing in the investment cycle will be critical.
Thirdly, restructure your portfolios. A strategy could be to build a “flatter” portfolio which makes more use of a broader capital structure – switching some cash into high quality, but slightly higher risk investments (like investment grade credit) and switching some equity into higher yielding debt investments.
Finally, you could incorporate some drawdown of capital to improve the consistency and predictability of the cash flow to the investor (as opposed to just using income). In essence crystallising asset price appreciation (Growth) on the back of the structural decline in rates. Depending on the entity there may be tax considerations, i.e. Capital gains tax. This too may not be a popular suggestion, given the strong preference investors have to leave their capital base untouched, but for those who have been beneficiaries of the last two decades of ever declining rates and rising asset prices it may well be the least risky path to generating appropriate and predictable outcomes.
End of year tax planning
Common Superannuation Tax Planning Strategies
|
Strategy |
How it works |
Key Benefits |
Indexation of limits as of 1 July 2021 |
|
Concessional contribution |
The maximum you can contribute and claim as a tax deduction is $25,000. This includes the Super Guarantee, Salary Sacrifice, some Insurance premiums. |
Reduces assessable income and hence saves income tax. Boost retirement savings. |
This is increasing to $27,500. If appropriate you may need to inform payroll to adjust your salary sacrifice amount. |
|
Spouse contributions |
If your spouse has earnt less than $37,000 p.a. then you can contribute up to $3,000 and receive 18% back at tax time. |
On the maximum of $3,000 = $540 tax rebate when you lodge your tax return. |
No change |
|
Non-Concessional contributions |
You can contribute $100,000 after tax each year while under 67. If you are 64 or under you can potentially use 3 years together. |
Boosting retirement savings which in accumulation is taxed at 15% and in pension 0%. |
This is increasing to $110,000 after tax each year while under 67. If you are 64 or under you can potentially use 3 years together. |
|
Spouse splitting |
You can split up to 85% of your super contribution to your spouse super account. |
If you spouse is older than you, they can access their super retirement savings earlier. Account equalisation. |
No change |
|
Catch up contribution |
If your account balance is less than $500,000 and you have not used the full $25,000 concessional contribution cap in the last 3 years you can make a catch-up contribution. |
Reduces assessable income and hence saves income tax. Boost retirement savings. |
No change |
Please note this information provided is general advice only and hence it may not be appropriate for you.
Please contact us to discuss before taking any action.
Kind regards,
The Coastline Private Wealth Team.
