Episode 44.3 - Money for Jam part 3 - Returns from the sun
Part 3 of our miniseries has a look at the economic benefits of solar PV systems for retirees and how hugely beneficial they can be for people on a part Age Pension Have a listen!
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Alex Hont 0:17
Welcome to the masters of finance podcast. We've got a little mini series coming up for you over the holidays we're going to call money for jam we go through a few ideas of how you can get money for really not doing very much. For part three of the money for jam series, we're going to have a look at why solar is beneficial for people in retirement and especially people on the aged pension. Have a listen.
Chris Haggart 0:38
Chris Haggart and Alex Hont are authorized representatives of Moran Partners Financial Planning, any opinions expressed in this podcast are solely our own and do not reflect the opinions or views of Moran Partners Financial Planning, or any entity we are associated with. This podcast is for informational purposes only and should not be used for or doesn't constitute investment advice.
Alex Hont 0:58
Okay, Chris, welcome back for part three, the last part of our money for jam series. Are you getting hungrier the more we talk about jam?
Chris Haggart 1:06
I was just thinking about that! I haven't had lunch yet, so I was like yeah ok. Yep, I'm gonna go upstairs and have some some scones.
Alex Hont 1:14
I think you'll look for anything that's got jam in it. All right, we've fluffed around in the first two let's get into it Chris the the last part of our money for jam series is around how solar photovoltaic you know solar panel array that you stick on your roof that generates you electricity, how it can really benefit you in retirement. I mean it will benefit you anyway but really in retirement, and especially on the aged pension but let's start with how it works some of the facts and I say facts but research.
Chris Haggart 1:44
I really like this one. I think it's a it's probably not as well known as as the first two.
Alex Hont 1:52
Yeah, well probably I mean, the the first two are really kind of tax rules, right and policy decisions. This is gonna be more of a lifestyle, you know, kind of thing. And I think the only qualifying factor for this one is you need to have a roof. Right? Which I know sounds silly because I live in, but I lived in an apartment building for nearly 10 years and I used to get calls from those solar people and I'm like I don't have a roof. I can't do anything.
Chris Haggart 2:11
My roof is someone's floor.
Alex Hont 2:13
That's right. So I want to run through this. About some of the facts or some of the research that we've done. And we've had a look at Canstar and they talk about the cost of a five kilowatt solar system in Victoria as being around about the $5,000 mark. Okay, we're going to use round numbers. Just for interest sake, I'm sure you can get one cheaper, I'm sure you can get one more expensive. So it costs you about $5,000 to install this. Now, if I look at a study done by the University of New South Wales and the Australian Photovoltaics Institute, they had a look at and calculated the savings on different capacity systems and a system that was between four and six kilowatt hours gave you an annual saving of somewhere between $900 and $1200 on your bills.
Chris Haggart 2:56
That's pretty good.
Alex Hont 2:57
So look let's just, you know, use round numbers. We like round numbers and it's easier for us to do the mental math.
Chris Haggart 3:02
Shall we say 1000?
Alex Hont 3:03
$1,000 Yes. So you spend five, you spend $5,000 installing a solar system and you save $1,000 in bills every year.
Chris Haggart 3:12
Alex Hont 3:12
So if we do our mental math, that's it. That's 20% saving. It is right, you know, yeah, that's a 20% return on your money.
Chris Haggart 3:20
Yep. Wow, look at that. It takes five years to pay it back.
Alex Hont 3:24
That's right, you break even after five years.
Chris Haggart 3:25
Which is awesome.
Alex Hont 3:27
And so every year after that, you're well ahead.
Chris Haggart 3:29
Which is fantastic. Like, you know, what. There aren't many investments where you're going to get a reasonably, we wouldn't say guaranteed but a reasonably high probability of 20% without too much risk. That's, that's a pretty good return.
Alex Hont 3:46
It is a pretty good return. And as you said, you know, even investment markets, if you make 20% in a year, any investment does 20% in a year, very rarely does 20% the next year or you know, year on year on year. Whereas this you know depending on your view on electricity prices, but it seems to be, you know, our lack of land of lack of policy on on energy here in Australia, but they're probably going to go up. Yeah. They have been climbing steeply.
Chris Haggart 4:10
Definitely, it's definitely not getting any cheaper, especially if you're watching today tonight.
Alex Hont 4:14
And even not ignoring the issue of feeding tariffs and how much you getting back for the extra power you generate? You know, without going into that aspect of it, we're just going to make the assumption that you save about a thousand, you know, $1,000 a year. So, so, really, if you're in retirement, you know, the idea is you should be trying to cut all your costs as reasonably as possible.
Chris Haggart 4:37
Well, yeah, in the sense that you no longer earning so if we can reduce the drain relatively reasonably from your investment assets that fund your lifestyle. That's a good idea.
Alex Hont 4:49
That's right. And as we said, You're not going to earn, you're unlikely to earn 20% on that money that you would otherwise spend on a solar system without taking a lot of risk. So it's kind of a big winner for those in retirement.
Chris Haggart 5:01
If I had a magic wand, could we make that return a little bit higher?
Alex Hont 5:06
Ah, I think you know what, Chris, I think we can.
Chris Haggart 5:10
Don't even need a magic wand.
Alex Hont 5:12
How do you make that return higher? What's your what's your wand? In fact, as you said, what's the what's the what's what's gonna make it higher?
Chris Haggart 5:19
Well, with the centerlink assessment criteria, as it currently stands and legislation, most clients are what we call assets tested. So the amount of pension that they receive is dependent on the level of assets that they currently own. Right? So if we're able to spend $5,000 on a solar system, we reduce our assets by $5,000. So we're going to receive an increase of our pension entitlements because of that.
Alex Hont 5:55
Now, just just to preface that, this assumes that you're you have more assets than the lower threshold and less assets than the upper threshold which means that you're in that part where your pension changes depending on how many assets you have not where you've sunk, so not where your balance your assets have gone below that threshold where you get the full pension.
Chris Haggart 6:12
So you're not a full pensioner, you're a part pensioner and you're looking to get a 20% return plus some and help the environment.
Alex Hont 6:19
So what's the rate that you're you know, for every thousand of dollars of of assets that you have, or you that you spend? Yep. How much does your pension go up?
Chris Haggart 6:28
So it goes up by $78 a year.
Alex Hont 6:30
Which is 7.8%. So what you're telling me Chris, is if I'm one of these people, I'm on the aged pension. I'm getting a part pension and I spend money five grand on installing a solar system on my house. Yep. My cost of living goes down by $1,000. Yep. And I get more pension?
Chris Haggart 6:49
Alex Hont 6:50
I get $340 more pension a year. So I get a total return of 27.8%. So my payback period has also come back by a year now. Yeah, right pretty good. So more than a year so it's probably 3.8 years. And I just think that's money for jam.
Chris Haggart 7:07
It is. It's a it's less well known way to yeah, just get ahead.
Alex Hont 7:15
Well, as we said in retirement is all about trying to limit not limit your spending but you know, if anytime you can reduce it and increase your pension, you're winning.
Chris Haggart 7:23
Yeah exactly what what you've you've reduced your compulsory expenditure here. That's right. And so what it might mean is you've got an extra thousand dollars a year to take holidays or you know, spend on the grandkids or do whatever you want to do.
Alex Hont 7:37
Party on Wayne.
Chris Haggart 7:38
Exactly. Head to the casino.
Alex Hont 7:40
Alright, that wraps up our little mini series over summer. Stay tuned for the next episode of the masters of finance podcast coming to you probably January, February. Yeah,
Chris Haggart 7:50
Yep. hope everyone's keeping cool.
Unknown Speaker 8:03
Thanks for listening to this episode of the masters of finance podcast. If you want to hear it again or hear any of our other episodes, you can find us on iTunes, Stitcher, or Spotify. Or you can also head over to our website at www.moranfp.com.au to find all the episodes and some other material that we have for you. If you want to get in touch with either Chris or I, you can find us on social media or get in contact with us through the website. We hope you enjoyed this episode and look out for the next one coming soon.
Transcribed by https://otter.ai