2016 in Review

Well, it’s time to do a quick review of 2016 (actually my year is up to my birthday in 2016, which is in November).

In this post, I will look at how we have fared during the year, with the general aim of producing the types of diagrams which are good candidates for outputs from an interactive web site. But before we begin, we have to look at yet more rule changes!

Superannuation Changes after the 2015/16 budget but before 2016/17!

Non-concessional caps

The 2015/16 budget announced a $500,000 lifetime retrospective non-concessional super contribution  cap, as explained here. This policy has now been scrapped, and in its place is an indexed $100,000 non-concessional contributions annual cap, that applies from the commencement of the 2016/17 financial year. In addition to the cap, there is a new rule which states that you cannot make non-concessional contributions if your Total Superannuation balance is more than $1.6M.

Your “Total Superannuation Balance” is made up of the present value of your accumulation account(s) and the current value of the the initial value of any pension mode accounts that you may have created.

There are also some more complicated rules about the bring forwards rule when your total superannuation balance is near $1.6M (e.g. if it is more than $1.4M but less than $1.5M you can only contribute $200K using the bring forwards rule and then only over a maximum period of 2 years) and also during the transition from the old $180K limit to the new $100K limit. More details may be found here.

Works Test for over 65

One good thing about the 2015/16 budget was the scrapping of the works test for superannuation contributions after 65. From our point of view, this rule change was very handy as it meant that we no longer had to sell our house prior to 65 in order to be able put the proceeds into Super. Unfortunately this scrapping provision has itself been scrapped..

Energy Supplement

Although not a rule change, I missed this one in the original budget analysis. In the 2015/16 budget the Energy Supplement (an additional payment that was originally supposed to compensate pensioners for the Carbon Tax) will no longer be available to new pensioners.

Headline Figures

	Actuals		Planned 2017
	2016	2017
Cash	$717,616.21	$823,947.81	$514,539.91
Superannuation	$628,935.69	$701,926.45	$564,647.01
Property	$1,415,135.68	$1,732,773.87	$1,317,744.64
Total Assets	$2,761,687.57	$3,258,648.13	$2,396,931.56

The table above provides information on actual amount on assets in 2016 and 2017, and the projected figures from the baseline plan developed near the end of 2014. All figures are in 2017 dollars (using an inflation rate of 1.3% for 2016 year).

	% change from 2016 to 2017	% change from 2015 baseline for 2017
Cash	14.82%	60.13%
Superannuation	11.61%	24.31%
Property	22.45%	31.50%
Total Assets	17.99%	35.95%

The above table provides the percentage changes.

You can see that

• Cash grew strongly due to the good savings rate. I will move some of this to Super soon.
• 2016 was a very good year for Sydney property and it is growing much faster than projected in 2015.
• Superannuation continues to grow strongly due to good organic growth (about 6.5% in real terms) and contributions.

Spending in 2016

We spent about $35K in 2016 (excluding rent). This included two overseas holidays, and two return trips to AU for my wife. It was a little bit more than last year, but still under our budget of $40k. $35K is  4% more than the old age pension ($33.8K now that the energy supplement is no longer available), so looks like we are containing our costs quite well.

The total outgoings were about $117K.

Total income was about $229K.

Updated Spending Patterns

Because of the changes in the bring forwards rule, unfortunately it will no longer be possible for us to put all the proceeds of our house sale into Super. We will now only be able to contribute $600K ($300K each).

The diagram below shows this clearly. We  will be sitting on some cash after the house sale:

The diagram below shows the updated spending pattern. You can see that I earned slightly less than last year and we spent slightly more.

The ratio of our projected spending to 70 to our employment + investment property income in 2016 is now about 73%. Financial planners normally state that this ratio should be between 70% and 80%, but of course this is entirely fallacious as the ratio should be based on spending, not income!

The ratio of our present spending to average projected spending after retirement is about 30% (or looking at it the other way around, the ratio of average projected spending to present spending is 334%!).

The average spend in the 2016 graph was $98,400 (in 2017 dollars) and is now $115,010, about a 17% increase. If we look at after retirement only, the spend is now $117,200 and was $100,200 (again around a 17% increase).

The diagram below shows how the new spending pattern compares with the baseline spending created back near the end of 2014. All figures are in 2017 dollars. You can see that spending has increased quite a bit and we will now not be eligible for the pension until 84 (when there will be more than a 50% chance that at least one of us will no longer be alive!). Also, as we are spending less than the amounts planned in the baseline pattern, our spending in subsequent years continues to increase.

2016 in Review Conclusions

2016 was a good year for us from a financial point of view and we are now in a much better position than was planned towards the end of 2014, despite adverse changes in legislation in the intervening period. I will probably contribute an additional $120K in Super in the next week or so, although this will only result in a marginal increase in average spend if we spend at planned levels.

I would like to  produce an interactive web site which can produce similar diagrams to those in this post (and in the remainder of the blog), as I think this would be helpful to other pending retirees. It has certainly been helpful to me, and much more so than the existing online calculators.

I will be working for some of 2017 as I am on contract and I don’t really know what will happen after this. We will have to see!