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Ask Noel

MY WIFE and I are self-funded retirees and have our own self-managed super fund. We aren't entitled to the Commonwealth Health Card and seem unlikely to receive any government support for increased living costs arising from the carbon tax. It seems older Australians who spent many years accumulating retirement savings are penalised for exercising prudency, rather than those who lived the high life and can dip into government resources. Should older Australians contemplate spending up big as they ...

MY WIFE and I are self-funded retirees and have our own self-managed super fund. We aren't entitled to the Commonwealth Health Card and seem unlikely to receive any government support for increased living costs arising from the carbon tax. It seems older Australians who spent many years accumulating retirement savings are penalised for exercising prudency, rather than those who lived the high life and can dip into government resources. Should older Australians contemplate spending up big as they approach retirement in order to enjoy dipping into government coffers?

Unfortunately, financial pressure is growing on all governments as the population ages. I don't see much relief for self-funded retirees in the near future. However, if the aged pension concessions are important to you, you could consider running your assessable assets down to $998,000 (couple) which is the current cut-off point to be eligible for a part-pension. Your own home is not included in this figure.

I'm 50 and not working this financial year. I have income from shares and rent. My super is less than $50,000 and I've just transferred it into a retirement savings account. Can I make concessional contribution to my super? I've made phone calls to my fund and the call centre couldn't tell me how to do it.

As you are under 65, you can contribute to super without passing the work test. Just keep in mind your concessional cap is limited to $50,000 this financial year.

How much of an emergency fund should people have? How does an emergency fund compare with income protection insurance or mortgage redraw?

An emergency fund is something you can fall back on if you face an unexpected financial crisis. You cannot always rely on income protection insurance as the calamity may not meet the requirements of the policy but a mortgage redraw facility is fine if you have the resources to repay the additional loan when things improve. Other options are an offset account or an undrawn credit card. I would think that nine months' expenditure would be a reasonable amount for an emergency fund.

I turn 55 at the end of this calendar year. I only have about half of what I need to retire at 60. I understand that I can transfer the balance to a pension fund at 55 to reduce tax from 15 per cent to zero. This year I salary sacrificed the $50,000 maximum amount to super. However, I believe the maximum salary sacrifice amount will reduce to $25,000 from July 1, 2012. What is the most tax-effective way to contribute additional funds for retirement above this modest amount?

There are moves afoot to retain the $50,000 cap after July 1, 2012 for people with balances less than $500,000. I suggest you continue on your present course and reassess the situation next year when the rules may be clearer.

After a disastrous business venture, we opted to rent and invest $95,000 in a managed fund, the idea being that the interest would help pay the rent in the event of my wife being left with only a single pension. Since 2006, the fund's value has reduced to $67,000. As we are in our late 70s, we are not sure we can wait for the market to recover. My calculations suggest that if I cut my losses and invest the balance at 6.4 per cent I would be more certain of recovering the money in five years. What do you think?

Unfortunately, nobody can consistently and accurately forecast when markets will come back up again. In view of your ages, peace of mind is probably more important than retaining the status quo while you wait for the market to recover, so it is hard to argue with the strategy of placing the money in the bank, where it is safe from market falls.

Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au.

Questions to: Ask Noel, Money,

GPO Box 2571, Qld, 4000, or see moneymanager.com.au/ask-an-expert.


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