Noel Whittaker has been immersed in the world of personal finance and retirement for decades and has written dozens of books on those topics. In this Q&A, he covers essential territory for retirees and those planning for retirement.
Inflation and rate rises
YourLifeChoices: What is your take on the Reserve Bank’s nine interest rate rises to fight inflation?
Noel Whittaker: Inflation is not caused by people spending. It is caused by floods and bushfires and shortages. Talk to any builder and they can’t get tradesmen and they can’t get materials.
‘Albo’ [Prime Minister Anthony Albanese] was talking about one million houses in five years, but I don’t know how. I don’t think the average person paying more on their mortgage will change much.
It was all caused because the RBA dropped rates too much in the first place.
In Europe the rates were negative. In Norway, if grandma put $100,000 in the bank, she loses $1000 over 12 months capital guaranteed, but if the grandkids buy a house, the bank pays them the mortgage payment. Crazy!
The Age Pension is indexed to inflation so the bigger inflation, the bigger the Age Pension and 3 per cent on money in the bank. Seniors are least affected.
I think rates will keep going up. I’m predicting another two .25 per cent rates rises.
YLC: So think the ‘feds’ have got it wrong?
NW: Absolutely! In February 2021, Reserve Bank governor Philip Lowe said no increased rate rises until 2024 – people rushed out to buy overpriced houses. You also have the government encouraging zero deposit – it’s a recipe for disaster.
On a chart I saw recently, there was one big circle that was labelled ‘noise’ (which is media); then there was a smaller circle which signified the Reserve Bank and then there was a tiny spot in the circle which was what we can control. People spend too much time worrying about the noise and the Reserve Bank, and we should be only worrying about what we can control.
Your home and retirement villages
YLC: What is your view on retirement villages, thinking mentally, physically and financially?
NW: Every decision has good points and bad points. The most important aspect of healthy ageing is having a social network. This is particularly important if one partner needs care or if one partner dies. If you are in a community, you have support and I think that’s a really good aspect of community living.
The cost, if you sell your house and buy one of these, you lose at least $150,000 in capital and because you are turning an exempt asset (your home) into assessable assets (namely cash), it may affect your Age Pension.
YLC: How about reverse mortgages?
NW: Absolutely. The government expects people to use the equity in their homes because the average superannuation balance is only $200,000. The only way to get the equity in your home is to sell or mortgage it. Now if you wait until you are older and make sure the reverse mortgage on your home is no more than about 15 per cent of your home value, even though everything is growing, your home value should grow faster.
Income streams and super
YLC: How do you see 2023 panning out in relation to super?
NW: I think it will be a better year for super – markets will be okay.
YLC: Where should you put your cash?
NW: There are things called lifetime income streams where only 60 per cent counts for the Age Pension assets tests. You would have to put $400,000 into one of them to bring your assets down to $160,000 for the pension. It’s a good product in the right circumstances because you exchange the money in the bank in a very Centrelink-effective way to get an indexed income for life, and that suits some people.
YLC: How do you avoid the ‘death tax’?
NW: Super has a taxable component and in some cases, a tax-free component. It’s fine if it goes to your partner – your partner will get it tax free. Leaving money to a non-dependant (and at our age, you would think that our children are independent), there would be 17 per cent tax on death.
If you had $500,000 in super, you would lose $35,000 in death tax. The easiest way to avoid the tax is to instruct your enduring power of attorney, when death is near, to take your superannuation out tax free and have it transferred to your bank account.
YLC: What is the most important aspect of estate planning?
NW: Make sure your family knows where your will and advanced health directive are and who is your enduring power of attorney. It’s not much use having them if your loved ones don’t know where to find them.
Go to Noel’s website for more valuable information and to buy any of his books.
Do you think the Reserve Bank has got it wrong? Do you fear the interest rate rises will push the country into recession? Why not share your thoughts in the comments section below?