I'm 52, single and own my home worth $390,000. I have $50,000 in savings, $183,000 in super and earn $43,000 annually. What is the best way to make use of the $50,000. Should I salary sacrifice to increase my super? How much should I have in super when I retire at 67?
Provided you are prepared to lose access to the money until you retire after your preservation age, the best strategy would be to contribute the bulk of it to super as a non-concessional contribution, keeping within the limits. This would move the income on it from the 30 per cent bracket to the 15 per cent bracket. You may also be eligible for a tiny co-contribution from the government. How much you need when you retire will depend on many factors that include how long you will live, the state of your health and the earning rate on your money. As a rough guide, you could use 12 times your annual expected expenditure. It is important to meet with your financial adviser to fine-tune your strategies.
I'm 49 and work full-time on a salary package of $250,000. My company pays 12 per cent into super and I salary sacrifice $800 a month. My super is worth $480,000. My wife is 47, not employed and does not have any super. We were advised to open a super account for her and start contributions, which would be after tax. Would it be more beneficial to salary sacrifice into my super pre-tax for both of us rather than contribute after tax into a separate super account for her the difference being we would only have one super account between us as opposed to one each. I was born in 1962 and believe I can retire at 58.
Take urgent advice about the level of your contributions because unless you turn 50 before June 30, the maximum deductible contributions you are allowed from all sources is just $25,000 a year. Based on the figures you have provided, you may have excess contributions that are subject to an extra 31.5 per cent tax (in addition to the standard 15 per cent on taxable contributions). If you are aged 50 or over by June 30, 2012, your before-tax (concessional) cap is $50,000. From July 1, in the absence of amending legislation, everybody's concessional cap will be $25,000 a year. If your wife has no income, there is no benefit making non-concessional contributions to super at this stage. You are better off to make them in your name as you are two years closer to preservation age. If you were born between July 1, 1962 and June 30, 1963, the preservation age is 58.
I'm 65, working permanent part-time and also receive a pension. I own my unit, have a small amount of savings and have $73,000 in super. When I retire, should I put the super into a fixed deposit or leave it in super and take a transition-to-retirement pension.
The essence of a transition-to-retirement pension is that you salary sacrifice part of your income and make up the shortfall by starting an income stream from your super. Obviously, this will not be applicable to you when you retire. The main purpose of super is to save tax and, based on the information supplied, you will not be paying any tax on retirement if all your funds are kept outside the super area. In view of the relatively small amount, there seems no reason you should not leave the money outside super once you retire. It would be wise to take advice on the kind of assets in which to invest.
I took a package from my last job and now only owe $20,000 on my mortgage. I'm currently renting at $1500 a month. I'm receiving about $1300 from my rental property after costs. I have $40,000 in the bank and am looking to buy another property to live in. With today's market, I will need to borrow about $400,000 and would struggle paying a mortgage on my salary of $60,000 a year. What is the best way to go about investing this $40,000 as I would rather pay my own mortgage than pay rent.
There is no point in paying off the mortgage as you would lose the small amount of tax benefits available on that property. The key to success in investing is diversification, so talk to an adviser about investing surplus funds into a quality share trust. This will give you experience in another asset class and you can start small.
Advice is general readers should seek their own professional advice.
Contact noel.whittaker@whittaker macnaught.com.au. Follow him on Twitter: @noelwhittaker. Questions to: Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au /ask-an-expert.
My wife and I owe $310,000 on our mortgage and have $40,000 in savings with a 100 per cent offset account. Should we keep building up our savings, which offset the account, or should we put my wife's salary of $1200 a fortnight directly into the mortgage and keep making the normal repayments from both our salaries so we are, in theory, paying double. We want to pay the mortgage off as fast as possible.
I prefer using the offset account. This will give you the same interest savings as paying the money directly off the loan but will give you flexibility in case you have a change of heart and decide to rent the property at some stage.
Frequently Asked Questions about this Article…
Is it a good idea to put my $50,000 savings into superannuation as a non‑concessional contribution?
If you’re prepared to lose access to the money until you reach your preservation age, contributing most of the $50,000 to super as a non‑concessional contribution can be attractive. The article notes this can shift the tax on the investment from a higher personal tax bracket (example given: 30%) to the 15% tax rate inside super and you may even qualify for a small government co‑contribution. Make sure you keep within contribution limits and discuss your personal situation with a financial adviser before acting.
How much superannuation should I aim to have when I retire at 67?
There’s no one‑size‑fits‑all answer — it depends on life expectancy, health and the returns you expect. As a simple rule of thumb mentioned in the article, you could target about 12 times your annual expected expenditure in retirement. Use that as a starting point and meet with a financial adviser to fine‑tune the target for your circumstances.
Should I salary sacrifice into my super or make after‑tax contributions for my spouse who has no income?
If your spouse has no income, the article says there’s generally no benefit to making non‑concessional (after‑tax) contributions into her super right now. It may be more effective to make contributions in your name, especially if you are closer to preservation age. Also consider whether salary sacrificing into pre‑tax super for you is within concessional caps to avoid excess‑contribution tax — get urgent advice on your contribution levels.
What are the concessional contribution caps and what happens if I exceed them?
The article highlights that contribution caps can be time‑specific and that you should check your eligibility. It notes that, unless you turn 50 before June 30, the maximum deductible (concessional) contributions from all sources was cited as $25,000 a year, while those aged 50 or over by June 30, 2012 had a $50,000 cap. Exceeding caps may trigger an extra tax (the article mentions an additional 31.5% penalty on excess contributions on top of the standard 15% tax on taxable contributions). Because caps and rules can change, seek professional advice before making large pre‑tax contributions.
What is a transition‑to‑retirement (TTR) pension and should I use it when I retire?
A transition‑to‑retirement pension lets you salary sacrifice part of your income into super while drawing an income stream from super to make up the shortfall. According to the article, a TTR is not applicable once you actually retire. For someone with a relatively small super balance who won’t pay tax in retirement if funds are kept outside super, the advice was there may be no reason to keep that money in super after retiring. Always get tailored advice on tax and investment options before deciding.
I want to buy a home but only have $40,000 savings — should I use it to pay down a mortgage or invest elsewhere first?
The article recommends against simply paying off an investment mortgage if it would forgo tax benefits associated with that property. Instead, it suggests focusing on diversification: consider investing surplus funds into a quality share trust to gain experience in another asset class and start small. Ultimately, speak to an adviser to weigh the pros and cons of using savings for a deposit versus other investments given your income and borrowing capacity.
Is it better to put extra money directly onto the mortgage or keep it in an offset account?
The article’s view is that an offset account is preferable. An offset gives you the same interest savings as paying down the loan but retains flexibility — you can access the funds later if your plans change (for example, if you decide to rent the property out). Using the offset maintains the benefit of reducing interest while preserving liquidity.
How does contributing to super help reduce my tax compared with holding cash in a bank?
Contributing to super can lower the tax rate applied to investment earnings. The article gives an example where moving money into super can reduce tax from a higher personal rate (example: 30%) to the 15% tax rate that typically applies inside super. There may also be small government co‑contributions available for eligible people. As always, check contribution caps and personal tax circumstances and consult a financial adviser before moving funds into super.
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