Does My Bum Look Big in This?

Hi Scott,Recently on Facebook a woman around the same age as me (36) asked how much super others had. This resulted in many women of a similar age posting that, despite taking time out to raise kids, their super was well into six figures. Curious, I ran my numbers through some online calculators and freaked out! I am currently single, earning $58,000, with no kids, and have only $56,000 in super. What can I do, apart from after-tax contributions, to boost my super?

Leanne

Hi Leanne,You’ve just asked the financial equivalent of ‘does my bum look big in these pants?’First up, I wouldn’t give a pixel about random people crowing on social media about the size of their … assets.Second, your balance will generally be a function of when you started work, whether you take time off (for kids, illness, Eat Pray Love), and what you earn (the more you earn the higher your employer contributions, and the greater your ability to chip extra in).Still, I’m as competitive as anyone, so I hunted down the figures for you (see table above):The average super balance for a woman your age is $48,874, according to ASFA.Yet what really matters is what your super looks like on the day you retire: the average balance for people at the time of retirement in 2015-16 was $270,710 for men and, frustratingly, only $157,050 for women.Thankfully, you’ve still got over three decades to fit into your super spandex pants.Here’s what I’d suggest you do. Go to the Government website moneysmart.gov.au, head over to their superannuation calculator, and punch in your details.Actually, I’ve already done it for you, and here’s what I found: based on your age, income and super, you’re on track to retire with $247,623. (This figure is in today’s dollars … after taking into account inflation.)Not bad, but let’s move the dial. If you switched from your super fund’s default ‘balanced’ option into a ‘high growth’ option, the calculator suggests you’d boost your fund by about $20,000, to $267,941.And if you switched to a low-cost fund, you’d increase your end balance by almost $50,000, to $297,609.Better in your pocket than a bank executive’s!And once you buy your first home, you might consider salary-sacrificing an additional 5.5% of your wage into super (making 15% overall -- see ‘Barefoot Step 5’ in my book), which would boost your end balance by more than $150,000 to $402,663.Yet the single best thing you could do right now is to work out a way to earn $5,000 more a year.You can do that by preparing well for your end of year review -- by working hard and setting performance goals -- and then asking for a raise. Or starting a side hustle. Being single gives you more flexibility to try some of these options. There are a lot of ways to do it (again, see my book).And one more thing, don’t compare yourself to anyone else.The only person you’re competing against is yourself.

Scott

The Super Hero

Today I want to introduce you to Mia, who this week became a quiet hero to hundreds of thousands of Aussies around the country … without them even knowing it.

Mia is a single mother of two kids.

Recently she read my book, and got up to the part where I encourage readers to check their super fees by reading the fund’s PDS (Product Disclosure Statement), and their super statements.

So that’s exactly what she did.

When she checked her MLC (a division of NAB) Masterkey Personal super statement, she noticed she was being charged a $20 monthly ‘Plan Service Fee’ … and had been since way back in 2012.

So she called up MLC, and was told that the fee related to an accounting firm … that she’d never heard of.

“I have very little in super, I’m a migrant and a single mum. I have never, ever seen an advisor or got any financial advice”, she told the MLC rep. A polite brush-off was all she received.

But Mia persisted.

(After all, twenty bucks may well be peanuts to the NAB, but it’s a lot to a single parent with a tiny balance.)

Yet, after multiple phone calls, MLC basically told Mia not to call again: there was nothing she could do.

But Mia persisted.

She spent hours reading through super legalese, and commented (in an email to me) that she found much of it eye-popping, and painstaking: “I can’t tell you the number of times I dozed off trying to read and understand some parts of the PDS and that fine print. It took me weeks, but at the end it was worth it!”

That’s because MLC finally admitted that the plan service fee was a mistake. And they not only offered to pay her back, but as a ‘goodwill gesture’ offered her an additional $400.

But Mia persisted.

“I thought, are you kidding me … a ‘goodwill gesture’?’”

So she lodged a complaint with the Superannuation Complaints Tribunal.

And after months of back and forth, guess what the result was?

Last week MLC was ordered to repay a whopping $67 million to 305,000 members for dodgy ‘plan service fees’!

There’s another word for ‘fees for no service’ ‒ it’s called theft.

Yet for some reason the law draws a distinction between being robbed with a pen and being robbed with a gun.

Now, I’m sure that she wasn’t the only person who complained. Still, Mia is a hero. She persisted, stared down an arrogant bank, and won ‒ not only for herself but for 304,999 other customers who all deserved better.

Tread Your Own Path!

I Didn’t Get Paid!

Hi Barefoot

Interesting column last week about super not being paid. In my office almost everyone has not been getting super since November last year, and some for 12 months. But, like you said, it shows up on our payslip as being paid. A few people have approached the boss as far back as last year, and as recently as two weeks, and the boss said that there was a ‘glitch’ with MYOB and that the money is in the ‘cloud’.

Mel

Hi Mel,

It doesn’t sound like a glitch ... more like you’re getting stitched.

Times change but the bulldust stays the same: it goes from ‘the cheque’s in the mail’ to ‘the money’s in the cloud’.

Well, after 12 months of not being paid super, it’s about time you made it rain ‒ with your boss’s money!

I’d suggest you go to the ATO website, lodge a complaint, and have them investigate.

Legally, employers have to pay super at least four times a year.If your boss is looking to the clouds to pay your super, it tells me that:

One, the business is struggling. Or two, your boss is a crook.

Neither bode well for getting a gold watch in 20 years’ time.

Time to start looking for another job.

Scott

Helping Out My Mum

Scott,

At the age of just 30, I am VERY aware of the importance of super. Here’s why. My mum is two years off the pension and has $8,000 in super. Yep, not a typo. I am going to ‘gift’ her $200,000 or so from the sale of my house (I have another, so will not be homeless), and she will be able to buy a house on which she will owe nothing. I have two questions for you. How might this ‘gift’ affect us? And how can Mum, who works full time earning $40,000 a year, maximise her super in the two years of work she has left?

Tracy

Hi Tracy

I hope my daughter looks after me as well as you do for your mum!

First up, let’s look at what you’re trying to achieve: you want to put a stable roof over your mum’s head so she has a sense of security and doesn’t have to worry about moving.

If I were in your shoes, I wouldn’t just give her the cash.

Instead, I’d consider buying an investment property in your name and renting it out to her.

There are three advantages to this:

First, when she goes on the age pension she’ll get rent assistance ‒ the maximum payment is $134.80 per fortnight.

Second, as long as it’s an arms-length transaction, you’ll be able to claim the interest and related expenses of the property against your tax, like any other investor can.

Third, it makes things a lot simpler. You should have a written tenancy agreement that sets out who pays for what, and what upkeep she’s expected to do, just like you would for any other tenant. That’s not only going to help you prove this is an arm’s-length transaction, but also manage everyone’s expectations. Also, in the event of her passing, the property is yours and is separate to her estate.

Now, as far as how your mum should manage her money over the next few years before she retires, here’s what I’d suggest if it was my mum:

When she retires she’s going to live on $23,597 per annum (the maximum pension for a single person, not including rent assistance and the health care card, worth at least $1,500 a year).

I’d encourage her to be a ‘practice pensioner’ – by living off that figure now and saving the rest of her wage.

Her aim should be twofold:

First, to have a goal of at least $100,000 in super when she finishes full-time work in five years (not two!).

Second, to never retire … keep working part time at least a day or so a week, and supplement her pension by up to an additional $6,500 a year (which, thanks to the Budget, will increase to $7,800 on 1 July 2019).

The upshot is that you’ll have an investment property with a great tenant. Your mum will have the security of a home, plus $100,000 in super to draw on, and she’ll be earning more in retirement (after tax) than she is right now!

Of course, you should run this past your accountant and financial advisor, but that’s how I’d do it.

Scott

The Big Budget Changes You Missed

Far as I can tell, we’re the only country that goes a little ‘Hollywood’ for the Budget. Other nations just read theirs out on a Tuesday afternoon in parliament, and no one gives a toss. Not us. We lock all the journalists up, and give the Treasurer the prime-time razzle-dazzle.

And last week’s Budget was a little … Family Feud. A bit, er, boring.

So what did we learn?

My first takeout is that Australia is the Jay-Z of the world economy … we’re swimming in cash. That’s largely because there’s been an uptick in the global economy, which is boosting the price of our resources. It’s also because unemployment is low. Oh, and also because we’re running a fairly aggressive immigration policy.

This pile of cash is what’s funding the centrepiece of the Budget ‒ a $10-a-week tax cut for low- and middle-income earners. It’s also what ScoMo hopes will fund what is effectively a ‘flat tax’, where 94% of the population pays 32.5% or less.*

*In seven years’ time.

Look, in seven years’ time I plan on living on a Tuscan vineyard so I can drink vino and wear slacks without socks … but I’ll have three kids in primary school by then, so the closest I’ll get to bellissimo is my local, La Porchetta.

Bottom line?

I’m not getting my holiday, and you’re not getting your flat tax.

Anyway, while the tax cuts stole the limelight, the real story ‒ which was largely ignored ‒ was the changes to super.

So here are three things that really deserve prime-time attention:

First, if you’ve been shocked by what you’ve seen at the Royal Commission (and you should be), you can now teach these bozos a lesson, switch your super fund, and not get whacked with an exit fee.

(Still, anyone who’s tried to roll over their super knows it’s harder than breaking up with your high school sweetheart. There’s so much back and forth, so many itty-bitty details and forms … it’s almost like they want you to give up and keep your money there!).

Second, a campaign that I’ve been banging on about for years is the rort of compulsory life insurance through super. Young people collectively pay nearly $200 million a year in life insurance they don’t need. The Government will now force super funds to stop automatically charging young people under the age of 25. That’ll add thousands of dollars to young people’s end balances.

Third, the government is finally moving to protect one of the biggest cash cows of the super industry: the 6 million inactive (read: forgotten) accounts that super funds feast on. The Government has put a fee cap on these low-balance funds and is making it easier to consolidate them.

All in all, it was a terrible night for the super fund lobbyists, which means it was a great night for you and me. In fact, I think the super changes will potentially have a bigger long-term impact than the short-term tax cuts. Just don’t expect to read too much about it. After all, super isn’t very Hollywood, is it?

Tread Your Own Path!

Your Book Is Stressing Me Out

I started reading your book last night and was discouraged when I read about your SMSF strategy. About two years ago, on advice from a financial advisor, my husband and I set up an SMSF, and we have since purchased a property with it. It was extremely stressful to set up, and the cost of ensuring compliance is ridiculous. My question is: should we close it (and how do we do this?),  or would the financial and emotional cost be too high?

Prue

Hi Prue,

I must admit it doesn’t look so good.

For one thing, I’d be very wary of having the bulk of my super assets tied up in one investment property.

I’m yet to see a case where someone has bought a residential investment property via an SMSF that was actually a good deal for the client. Often they’re a three-way play — an accountant, a financial planner, and a property developer who share in upwards of $50,000 commissions they load onto the purchase price of the property (plus the SMSF fees, plus the borrowing commissions).

I’d also be very wary of the adjectives you’ve used in describing the process thus far: “extremely stressful” and “financial and emotional costs”. Sounds more like a colonoscopy than holistic advice.

But I don’t have all the facts. So if I were in your shoes I’d get some second opinions — firstly a valuation on the property from a local real estate agent, and secondly an assessment of the SMSF from an accountant with no links to the guys who set it up. Once you’ve assembled the facts, act quickly. I’ve never seen more time turn a bad property into a good one.

Scott

Baby, I’m Bamboozled

Hi Scott,

I just had a long chat with a financial planner. The topic came to rolling over to their actively managed SMSF, and I asked them about using a low-cost passively managed super fund instead. They then bamboozled me with talk of MERs, ICRs, fully-franked dividends and tax credits, and how these factors mean that their actively managed fund would perform better than a passive fund (even after fees). Can you enlighten me, please?

Terry

Hi Terry,

An example will work best here.

It’s like you go to your doctor for your annual check-up and say, “Do you think I should eat more fruit and veggies, and perhaps do 30 minutes of exercise each day?”

And the doctor replies, “Bugger that! I’m offering 20% off lypos this week. Wouldn’t you like some washboard abs, Tubby? Well, you can have them — next week. We’ll just suck that lard out like liquid. No lycra needed, and better than eating bloody broccoli!”

Bottom line?

The advisor just bamboozled you with bulldust.

There are three things you need to understand.First, finance is the only industry where (in most cases) the more you pay the less you get.

Second, you don’t open an SMSF (Self Managed Super Fund) for higher returns. Studies show that 80% of managed funds fail to beat a simple index fund over five years, principally because of the fees managers charge. There’s no way they can guarantee higher returns.

Third, you should walk away from any professional who tries to bamboozle you. At the Royal Commission this week, ASIC’s Peter Kell said the regulator had found that 90% of financial advisers who provided advice on SMSFs failed to act in the best interests of their clients.

Trust your gut!

Scott

Mortgage or Super?

Hi Scott,

On page 156 of your book it says: “So with your home deposit saved and your house bought, it’s time to give your super contributions a boost.” Could you please settle an argument for my husband and me? Do you mean house bought as in mortgage paid off, or do you mean purchased but still paying off the mortgage?

Kirsten

Hi Kristen

After you buy your home, you boost your super.

As the little girl on the taco ad says, “Why not do both?”.

To clarify, here are the relevant Barefoot steps:

Step 4: Buy your home.

Step 5: Increase your super to 15 per cent.

Step 6: Boost your Mojo to three months of living expenses.

Step 7: Get the banker off your back.

Now, there are three reasons you should follow the steps and the little Mexican girl:

First, for the average wage slave, super is still the best tax dodge going round.

Second, you’re diversifying your nest egg ‒ most people end up retiring with too much home and not enough super.

Third, it puts your retirement savings program on autopilot. The current compulsory employer contribution of 9.5 per cent isn’t enough ‒ you need 15 per cent if you want to spend your golden years swilling sangria in Spain rather than necking a stubby in Shepparton.

Finally, if you follow the Barefoot Steps, you’ll use your ‘fire extinguisher’ account to eventually hose down your home loan quicker (Step 7), which will have you livin’ La Vida Loca sooner.

Thank-you for reading.

Scott

Robbed with a Pen

Dear Barefoot,

Five years ago we were advised to start up an SMSF and buy a property within it. We bought a unit for $400,000, for which we had to borrow $275,000. Since then the value of the unit has dropped by more than 30 per cent ‒ it is now valued at $260,000! Our monthly super contributions are sucked into the property as the monthly rent does not cover the mortgage and expenses. Should we continue as we are and hope the property value increases over the next few years, or sell and start rebuilding our superannuation from scratch?

Dave

Hi Dave,

You got robbed with a pen, you poor bastard.

If someone walked into your home and stole $40,000 off your kitchen table, they’d be locked up for larceny.

Yet most of the spivs that market these SMSF schemes trouser up to $40,000 in commissions.

They know the apartments they’re flogging are horribly overpriced, and that they’ll eventually blow up their client (which is why they often advise their clients to “never, ever, sell” ‒ because if you never, ever, sell, you’ll hopefully never, ever work out you’ve been ripped off).

But these guys don’t go to jail, they go to Italy ‒ first class.Research firm Rainmaker says the true cost of fraud over the last decade from SMSFs is a staggering $103 billion, once you include the loss of investment returns from no longer having the money to invest.And that’s precisely where you are right now.

Your new super contributions are being eaten up by a loss-making property that you hope will come good. But hope isn’t a strategy, Dave. Besides, in all the years I’ve been doing this, I’ve never seen time turn a bad property into a good one.

So let’s deal with the facts: you were flogged an overpriced property that was never worth the $400,000 you paid.

If I were in your shoes, I’d sell the property, and begin again ‒ this time in an ultra-low-cost industry super fund.

The clock is ticking, Dave. It’s time for action.

Scott

Too Good to Be True?

Dear Scott,

A friend has signed up with an investment company where they have set up a self-managed super fund (SMSF). This group uses this money to buy him investment properties, which they buy and then run. It has not cost him a cent other than his super. He thinks this is a great retirement plan. We are middle aged and trying to get ahead for retirement. We have a big house (in a ‘povvo postcode’), a blended family of five kids, and a huge mortgage ‒ and we feel trapped! Is my friend’s experience too good to be true? Help!

Alison

Hi Alison,

Well this sounds like a thoroughly bad idea.

He claims “it has not cost a cent other than super”.

Well, unless his super consists of cans of Pal Meaty Bites, I’d suggest it is in fact a nest egg that he needs to grow to a sufficient level by the time he retires ... so he doesn’t end up eating dog food in his golden years. And if he’s investing in a scheme like this, it’s highly likely he’ll end up eating home-brand dog food (the stuff even my sheepdog rejects because it gives her gas).

Okay, enough of the dog jokes.

Alison, I want you to call your friend and invite him over.

Boil the kettle, pour yourselves a cuppa and, together, read the next question.

Scott

We Smell a Rat!

Dear Barefoot,

My wife and I desperately need your help. We have been following your wise advice for many years. We do not earn a lot (I am on $80,000 a year) but by implementing your plan we have accumulated $1 million in super, $250,000 in shares and $160,000 in savings. I am 64 and want to retire, so I went to see a financial advisor. He recommended we take all our super and invest it in five Vanguard ETFs plus an SPDR Dow Jones Global Real Estate Fund. We smell a rat ‒ do you?

Frank

Hi Frank,

Before we get into sniffing rodents, first let me give you a pat on the back: on your income you’ve played an absolute blinder — well done, mate!

Now, I don’t know what you’ve got a whiff of, but I’m not sure if we can call it a rat just yet. See, the Vanguard ETFs (exchange traded funds) and the SPDR (or ‘Spider’) ETFs are ultra-low-cost index funds — the fees are around 0.20 per cent, or $200 for every $100,000 invested. To quote financial rapper Jay-Z, “I got 99 problems but the fees on these ETFs ain’t one”.

That being said, things might get a little pongy if the advisor tries to wrap in substantial admin fees on top (not that I’m saying they will, but keep a close eye on it). Know this: on your balance, paying an additional half a percent will end up costing you an extra $100,000 in fees over the next decade. Ay caramba! That’s a lot of Coronas!

Look, if you’re going to invest your super in low-cost index funds — and that’s a smart strategy — I’d suggest you do it via an ultra-low-cost industry fund. You should be able to replicate the advisor’s stated portfolio for fees of less than 0.10 per cent, and under $100 a year in administration fees.

Sniff, sniff!

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Too Old to Die Young

Scott,

Subconsciously I always thought I would die young, as my parents and older sister did. So I have tended to ‘live for the moment’. Now that I am still (thankfully) here at 69, I am too old to die young! My husband and I continue to work in our own business, which we enjoy. Our joint taxable income last financial year was $116,000, and we have $750,000 in business loans. If we sell the business and pay off the loans, we should realise about $600,000, but that’s it — no super, no house, no assets. Should we buy something modest, or rent?

Jill

Hi Jill,

You’d be amazed how many people I meet who tell me that retirement ‘just sort of crept up on them’ ...… over 50 years.

But I’ve got a few suggestions that should help you out.

First, talk to your accountant before selling the business, as there are capital gains tax (CGT) exemptions for small business owners who are selling and retiring, especially if they’ve owned the business for 15 years and it has a turnover less than $2 million per year. Depending on your circumstances, it may be more tax efficient to roll the money into super — and then you could take out a lump sum and buy a modest home.

Second, given that you’ve enjoyed your business, why not negotiate with the new owners (once you’ve sold) to continue working in it a day or so a week? It’s good for your transition to retirement, and good for the transition of the business. Best of all, you could earn $20,800 ($13,000 p.a. of work bonus and $7,800 income) before your rate of Age Pension is reduced.

Combined this equates to $35,058 of Age Pension and $20,800 of employment income, for a total of $55,858 p.a. of income. The best part is that it would be tax free — couples can have $28,974 p.a. each of income tax free, thanks to the Seniors and Pensioners Tax Offset (SAPTO).

Scott

You’re Wrong, Barefoot

Hi Scott,

I have been taking you out for Date Nights (well, your book) and I am up to Date Night Number Two, which is getting my super sorted. There’s a problem, though. My ex-boyfriend has said I should not follow your recommendation on the Hostplus Indexed Balanced Fund. He says that it is not diversified enough, that low fees are only one factor when deciding on super, and that there are better-performing funds available. My super is currently with Asgard. What are your thoughts?

Tina

Hi Tina,

First let me say that the Indexed Balanced Fund is what I use for my own money — but if your ex-boyfriend has found a better fund, then power to him!

Yet it seems to me that his reasoning doesn't quite stack up.

I actually swiped my super fund strategy from legendary investor Warren Buffett.

Let me explain:

When Buffett dies, he’s investing his entire estate on behalf of his wife as follows: 10% into short-term government bonds, and 90% into an ultra low-cost S&P 500 index fund, which automatically tracks the 500 largest companies in America.

That’s it!

Your ex-boyfriend’s claim that the Index Balanced Fund “is not diversified enough” is absurd.

The fund invests as follows:35% in 200 of the largest businesses in Australia -- like the banks, BHP, Rio, Telstra, Woolies and CSL.40% in 1,582 of the world’s largest businesses -- like Apple, Facebook, Google, Nike and Nestlé (and the portfolio is partly hedged to protect against currency fluctuations).

15% in fixed interest.10% is in cash.

That’s better diversification than Mrs Buffett will get!

Here’s you: ‘Yeah, but what about property?’

Here’s me: ‘Most Aussies have the bulk of their wealth tied up in very expensive residential property, so it makes sense to balance that out by investing in local and global businesses’.

Here’s you: ‘Yeah, but low fees aren’t everything. I could get better returns …’Here’s me: ‘The Hostplus Indexed Balanced Fund is the lowest cost super fund in the country, and one of the lowest cost funds on earth. It’s pretty simple: the less fund managers take, the more you make’.

Here’s you: ‘Yeah, but what about other funds that get superior returns?”

Here’s Buffett: “I believe the long-term results from (investing in low cost index funds) will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers”.

Scott

Reminder: I first wrote about this years ago and highlighted the low fees. Today there are cheaper index super funds on offer. How do I know? Because my readers constantly email me about them! So before you do anything, go to YourSuper.gov.au and compare super funds first.

Ripping Off a Pensioner?

Hi Scott,

My mother received around $300,000 as an inheritance. Being financially illiterate (after a lifetime of illness and living on disability pension), she went to a NAB financial planner, who put her money into a superannuation account with MLC. The good part is she is still eligible for her Disability Pension. The bad part is that NAB charges around $2,500 per year for their ‘advice’, and MLC charges around $3,000. Is it a rip-off?

Chantelle

Hi Chantelle,

There is no way anyone on a disability support pension should be paying $2,500 a year ongoing for advice. (Besides, if your mum is under the Age Pension age, whatever she has in super is exempt from the asset test). What she should do is go and see a free Centrelink Financial Information Services Officer (FISO), who will help her maximise her pension -- for free.

As far as the cost of her super goes, it’s about average: over the next decade, she’ll end up paying over $50,000 in fees. (If people paid their super investment bill the same way they do their quarterly power bill, it’d be a bloody outrage, but it’s all out of sight, out of mind.) If she can ‘fight the power’, I’d suggest she switch to an ultra-low-cost industry fund.

Scott

Million Dollar Payday

Dear Scott,

I am 24 years old and I earn $40,000 a year working part time. Today I received a lump sum of $1,000,000 (after costs) due to being run over by a car seven years ago. I need to pay around $5,000 a year in ongoing medical costs. How should I invest this money, and is it worth setting up a trust and a ‘bucket company’ that reinvests in itself?

Max

Hi Max,

First up, you won’t have to pay tax on the payout itself, but you will pay tax on any investment earnings you earn on it. Now, would I invest the money in a trust and then distribute the investment income to a company?

Possibly. The trust will give you asset protection benefits, and the company acts as a ‘bucket’ to theoretically cap your tax rate at the company tax rate of 30 per cent. But know this: it’ll also gobble up a few thousand dollars a year in fees to your accountant.

However, let’s not put the cart before the horse.I

f I were in your shoes, I’d keep it simple:

I’d buy a nice little unit for cash (say $500,000).I’d put $15,000 into Mojo (high-interest online saver account).

I’d put $25,000 into term deposits with different maturities to cover any medical costs within the next five years.

I’d also kick $25,000 into your super.

Then I’d invest the rest ($435,000 or thereabouts) into good-quality Aussie shares (either via a trust, or in your own name), tick the ‘Dividend Reinvestment Plan’ option (so your dividend earnings are automatically reinvested rather into more shares), and let your money compound.

Scott

What’s Wrong with Ethical Investing, Barefoot?

Hi Scott,

I am currently reading your book. It interests me to read how lovingly you speak about your family, yet I have not come across any mention in the book of investing ethically, socially or environmentally. You suggest readers should switch to indexed super and stock funds, but do these align with your values? Having said that, I am currently getting ripped by high fees on a well-known ethical super fund. So what is the best and cheapest way to invest ethically?

Helen

Hi Helen,

Your ethical fund is ripping you with fees? That doesn’t sound too … ethical.Still, as an investment option within superannuation, socially responsible investing (SRI) is so freaking hot right now. It’s the financial equivalent of a paleo-approved, gluten-free, organic kale and almond milk combo shake (and you get charged through the nose-ring for both!).

My view? I think you need to be careful about outsourcing your ethics to a bunch of … finance guys. That being said, I strongly believe in ethical investing, so much so that I have an ethical fund: it’s called the Pape family portfolio, where we make our own investment decisions, based on our own convictions.

Scott

Why are people stealing my book?

Every father wants to be a hero to his son.

So, a few weeks back, I took my four-year-old to a bookstore to show him my bestseller.

Only problem? I couldn’t find a single copy anywhere (not even in the bargain bin).

“Your book. It isn’t here, is it Daddy?” he said, consolingly.

This wasn’t going well.

Thankfully a shop assistant recognised me and said “follow me”.

She took us out to the storeroom and showed us a sign pinned to the staff noticeboard (see pic).

“Barefoot Investor … Because of theft, NO copies will be kept on the floor.”

True story.

I didn’t know how to handle this one with the boy: “Daddy’s book is popular … with thieves.”

Yet I’m taking it as a win — even with the pilfered copies, the book has still sold over 300,000 copies!

And its success has meant that I’ve received thousands of follow-up questions on the book, far too many for me to answer individually (though I try!). With that in mind, here are the top questions people ask me.

“Is this really how you manage your money?”

Yes it is.

I’ve lived the nine Barefoot Steps

Liz and I have set up our buckets. We have a shared bank account. We do our Barefoot Date Nights.

And that’s why I believe the book has resonated so strongly with people — I know it works.

The steps won’t make you rich overnight, but they will give you a clear path that will keep you and your family safe.

“You need more than $250,000 to retire on!”

Well, having more money is certainly better

In case you haven’t read my book, my chapter on nailing your retirement sets out my ‘Donald Bradman Strategy’, which says that to enjoy a comfortable retirement you don’t need $1 million … or $2 million.  

As a minimum, I argue you need three things to have a comfortable retirement where the money doesn’t run out:

A paid-off home, around $250,000 in super combined (or $170,000 if you’re single), and the ability to continue working a few days a month (which you should do, no matter how much dough you’ve got, to keep the grey matter ticking over and to get you out of the house).

Some people got all ‘Tony Abbott’ about the fact that I advised people to rely on getting the age pension.  

Let me defend myself:

First, the average Aussie approaching retirement has around $200,000 in super, so my strategy is giving them something realistic to aim at … rather than simply just throwing up their hands in the air.

Second, let me be very clear: I do not encourage planning to rely on a government handout. In fact, I wrote the rest of the book so you can set yourself up to not need the Donald Bradman Strategy!

“Can’t I just use my offset account for my Mojo account?”

Sure you can.

(I have received literally hundreds of emails from people who tell me they could be $48.50 a year better off by using their offset account for their ‘Mojo’ — my word for savings.)

It’s just not how I do it … but the most important thing is that you have Mojo!

Again, the power of this book is that it’s what I’ve actually done in my life.

And, personally, one of the things that really helped me was giving each of my accounts a name.

There’s power in being intentional about things, and you tend not to dip into an account that has a name on it (the more emotional the better).

When my house burned down, I went to my Mojo account and drained it.

“Should I keep my credit card … just in case?”

You could do that … but it’s like a drunk keeping a beer in the fridge just in case a ‘mate’ comes around.

The truth is that credit card ‘rewards’ for all but the highest spenders are a gimmick … and their value gets eroded with every passing year (some points are worth as little as half a cent each).

Yet showing your kids that Mum and Dad can get through life without relying on someone else’s money?

In the words of the MasterCard ad … priceless

“How do I get my partner on board?”

Right now people all over the country are going out for their Barefoot Date Nights.

If you can’t rope your partner in with the promise of booze and good food, what else can I do?!

“Will you be updating the book?”

Yes. I’ll be updating it every year. In fact I’ve just finished the 2017/18 update, which will be released for Father’s Day.

There’s also an audio book version that I’ve laid down.

And finally …

“What happened to your alpacas?”

I’m pleased to announce that Pedro and Alberto, my two highly protective alpacas, are still very much alive and spitting!

Tread Your Own Path!

My Totally Independent Financial Advisor … Sucks

Barefoot,

My wife are in our early 50s. Adult kids. We earn $180k a year combined, with $200k left on our mortgage, $200k in savings, and $350k (combined) in super. This week my wife and I met with a financial advisory firm who claim they take ZERO commissions and proudly claim their independence from EVERYONE. All good so far, but when we saw their fee pricing … bill shock moment! They want $7,500 up front as a project fee, then $600 per month thereafter. They were admittedly thorough in their fact-finding about our situation, but we just cannot accept their price as a good value proposition. Curious as to your thoughts.

Warren

Hi Warren,

Well done for seeking out an advisor that takes zero commissions. However, let’s be honest: your advisor is not truly independent … he has a vested interest in advising you to write him a $600 cheque each month!

However, it may be worth having them review a simple, set and forget plan: pay off your mortgage. Review your insurance. Build up a three month Mojo fund for emergencies. Then continue working hard, but save harder: salary sacrifice $25,000 each into a low-cost super fund. Invest the rest via a family trust into low-cost index fund that you can distribute tax-effectively to your adult kids.

Think of it this way: if you invest the $600 a month into shares, in 20 years time it could be worth $330,000.

Scott

Thank You Barefoot

Scott,

We spoke way back in 2010. That was the year when my husband died, I had a six-month-old baby, and I could not afford my mortgage repayments. Since then I have treated your (first) book like a bible. Now I have tripled my super, am building up my savings, and am working towards being financially independent. I just wanted to say “thank you”.

Alex

Hi Alex

Six years ago your family tree probably looked like a shrivelled up little sapling.

Today it’s not only strong but it’s growing into something magnificent!

Make no mistake, your actions over the past six years have literally changed your family tree forever.I’m proud of you.

Scott

An Update on the First Home Saver Super Accounts

I’m a little ‘dusty’ as I write this.

You see, as a card-carrying DIK (Dad I Know), I don’t get many leave passes from my wife … so when I got an invitation to an EOFY (End of Financial Year) finance shindig, I couldn’t pass it up.

After all, the EOFY is the one time of the year it’s socially acceptable for bean-counters to get on the grog.

You can picture it, can’t you?

Sharon was in the storeroom dishing out Cabcharges like party pills. Craig had a shandy. And late in the night Dennis got loose and moved his superannuation investment option from ‘balanced’ to ‘high growth’.

Boom!

So today I’m a little like a bear with a sore head.

And when I’m hungover, my tonic of choice is to call Treasury and talk tax policy on behalf of a reader.

Paula’s Problem

I got this question from Paula last week:

Hi Scott,

I’ve been reading your newspaper column since I was in primary school (my dad got me into it)! Now I am studying nursing at university, working part time in aged care, and saving for a home. I am very interested in setting up a new ‘home super saver account’. However, I called up my super fund (HESTA) and they don’t seem to know much about it, and they actually said it won’t come in till next year. Can you please clear this up for me?

Paula

My first reaction was “hell, have I been doing it for that long”?

My second reaction was, on Paula’s behalf, to follow up on the progress of the First Home Super Saver Scheme (which, if you remember, I talked about in my column some time ago). What I found is that it looks about as well planned as my son’s finger-painting, currently stuck on our fridge:

“What do you think of my picture, Daddy?”

“Oh that is beautiful! It’s a …. truck … right?”

“No! It’s a picture of you and mummy riding a horse.”

“Oh, yes! So it is!”

A quick refresher for those of you in the back row:

The First Home Super Saver Scheme was announced by our Treasurer on Budget night as a $250 million air kiss to housing affordability. As ScoMo crowed on the night, by making voluntary contributions of up to $15,000 per year and $30,000 in total, “most first home savers will be able to accelerate their savings by at least 30 per cent”. For an average earning couple it’s worth an additional $12,000.

From ‘Yeah!’ to ‘Meh’

That was in May.

The First Home Super Saver Scheme is set to launch on 1 July but, like Paula mentioned, none of the super funds I spoke to had the foggiest. And after speaking to Canberra, I worked out why.

The Government has had a bit of legislative constipation — the scheme hasn’t yet been passed into law. A spokesperson for the Treasurer said they were adamant that it would be tabled in the Spring session of Parliament, and that it would be passed.

Fair enough. But, to my mind, there’s a lot of uncertainty around it.

So should you open one up?

Maybe … (and, of course, only if it actually makes it into law).

You could consider opening a First Home Super Saver if you’re planning on buying a home in the next few years, and you already have a decent deposit. After all, it could be worth $12 628 extra to an average earning couple, compared to saving in the bank. Not bad.

However, since the Government announced these accounts I’ve had a lot of well-meaning parents and grandparents — not to mention savvy young savers like Paula — write and ask about opening one up for the long term.

My advice?

Don’t touch it.

Quite apart from the fact that the Government is still in need of some legislative laxatives, what happens if the current mob is voted out and the new mob decides to ‘ghost’ the First Home Super Saver Scheme (like you did with that mummy’s boy you dated twice in 2004)?

Well, if the scheme were scrapped, it’s possible your savings could be locked up in your super till you retire.

So, Paula, all I can say right now is: watch this space.

Tread Your Own Path!