I'm 57 and my wife is 55. We have $830,000 in a self- managed super fund, plus cash and shares of $205,000. We own our home, worth $550,000. We owe $4000 on our credit cards and also pay $800 a month for two more years on our car. I'm self-employed but with the poor economy I'm barely making a profit and, to be honest, I have just about had enough. My wife works three days a week and earns $30,000. We've one dependant child attending university until the end of this year. Do we have enough super for me to retire comfortably now or will I be better off to stick it out until I'm 60 so that I pay no tax? My wife enjoys what she is doing and is happy to keep working.
You can withdraw $165,000 from your super tax-free once you stop work so there is no reason to work until 60 just to be able to withdraw your super tax-free. How much you will need to retire on depends on such variables as the state of your health, how long you live, and the rate of inflation, but with financial assets in excess of a $1 million, you are well placed. The fact that your wife will continue to work means you will not need to draw as much as you would if you were both unemployed. An ideal situation would be for you to find a part-time job you enjoy it would almost certainly pay you more than you're getting at the moment.
I am 58, divorced, work full-time earning $83,000 a year and have one child still living at home. I have a $350,000 mortgage, no savings, and am finding it increasingly difficult to meet the mortgage repayments, although I haven't missed a payment so far. My home is probably larger than I need but I would prefer not to move as I love it. I have $446,000 in super $383,000 is a defined benefit component and $63,000 is an accumulation fund. I'd like to retire at 60 and have been considering using my accumulation super to repay my bank debt on retirement however, this would leave me with insufficient funds to live on for the rest of my life. My employer has assured me of part-time work and I also have an inheritance of $350,000, which would be realised in the next 10 years. Is my idea sound or ridiculous?
It's a sad fact of life that the future is promised to no one and, unfortunately, it is not uncommon for people you know to die suddenly. Therefore I suggest you follow your dreams, particularly as you are assured of part-time work to supplement your resources. The bulk of your super is virtually capital-guaranteed as it is a defined benefit fund, and your inheritance, when it comes, should mean you have enough assets for the rest of your life.
I'd like your opinion on a method I'm using to repay an investment loan. It was originally $295,000 and interest was paid in advance. My husband died and my accountant suggested I revert to a repayment loan. On checking with the bank I found that if I repaid $100,000 and then paid fixed-interest in advance on $195,000 for one year, I'd pay much less in interest. The bank has written saying my loan was to expire on June 30 and revert to a repayment loan of $1739-a-month payments ($20,868 a year). However, if I take another prepaid fixed-interest loan for one year, my interest in advance will be $12,000 at 6.14 per cent. I can further reduce the outstanding amount with the $8000 I've saved (or more if I have it) before taking out the next one-year loan. I'd like your opinion.
The main benefits of paying interest in advance are that you get the tax deduction in the current year, and you also fix the interest rate for the next 12 months. Your best option will depend on your tax position your accountant or financial adviser will be able to do the numbers for you and work out what the best option is for minimising tax.
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.
I'm 27 and my wife, 26, has just fallen pregnant. I earn $85,000 plus super and my wife earns $72,000 plus super. We own a one-bedroom flat we bought for $380,000 in 2007. It's valued at $460,000 and would rent for $470 a week. Our mortgage is $280,000. We'll be staying with our in-laws until the baby arrives and aim to save $70,000. To take advantage of our lower living costs for the next eight months, should we pay off the mortgage or put the savings into a high-interest savings account? We plan to rent for two years until my wife is back at work and eventually buy a house. We're happy to rent, as we'll be earning interest from the savings. Would it be best to sell the flat now and then put all the funds into a high-interest account after the baby is born, or keep the flat and start to build on the $70,000 deposit?
In view of the high cost of selling and the present depressed state of the property market, my preference is to hold and re-examine your options in two years. The best place for your savings in the meantime would be an offset account linked to the mortgage.
Frequently Asked Questions about this Article…
Do I have enough super to retire now with $830,000 in an SMSF plus $205,000 in cash and shares?
With financial assets in excess of $1 million (your SMSF plus cash and shares), you are generally well placed for retirement. How comfortable you’ll be depends on factors like your health, life expectancy and inflation. Because your wife plans to keep working part-time, you’ll likely need to draw less from your savings. The article suggests considering a part-time job you enjoy to supplement income rather than staying in full-time self-employment solely to delay retirement.
Do I have to keep working until age 60 to withdraw my super tax-free?
No — according to the article you can withdraw $165,000 from your super tax-free once you stop work, so you don’t need to stay working until 60 just to access tax-free super. Your exact tax and withdrawal rules can depend on personal circumstances, but the key point is there isn’t a requirement to work until 60 purely to get a tax-free withdrawal.
How should I decide if my super balance is sufficient to retire comfortably?
Deciding if your super is sufficient depends on personal variables such as your health, how long you expect to live, inflation and whether you’ll have other income (for example a partner continuing to work). The article recommends factoring in these variables and notes that part-time work can bridge income gaps. If you have over $1 million in financial assets and a working partner, you’re likely in a good position but you should model your expected spending needs.
Is it sensible to use my accumulation super to repay a $350,000 mortgage before retiring at 60?
Using your accumulation super to clear mortgage debt can leave you with insufficient funds for living expenses in retirement. The article cautions against draining your savings if it compromises long-term income. In that reader’s case the majority of super was a defined benefit (virtually capital-guaranteed) and part-time work plus a future inheritance made retiring at 60 a reasonable option. The takeaway: avoid using all your accessible super if it will leave you short for ongoing living costs.
What are the advantages of paying investment loan interest in advance (prepaid interest)?
Paying interest in advance can give you a tax deduction in the current year and locks in the interest rate for the next 12 months. Whether it’s the best option depends on your individual tax position, so the article recommends running the numbers with your accountant or financial adviser to see if prepaid interest minimises tax and overall cost.
If my bank says my loan will revert to monthly repayments, should I switch to a one-year prepaid fixed-interest loan instead?
The article explains that switching to a one-year prepaid fixed-interest loan can reduce interest costs for the year and provide a tax deduction, but whether it’s better than reverting to monthly repayments depends on your tax position and cash flow. Have your accountant or financial adviser calculate the comparative costs and tax effects to determine the best option for you.
We’re expecting a baby and can save $70,000 while renting for two years — should we pay off our mortgage or put the money in a high-interest savings account?
Given the high costs of selling and a depressed property market, the article’s preference is to hold onto the flat and reassess in two years. In the meantime, it recommends placing your savings in an offset account linked to the mortgage rather than paying the mortgage down or using a high-interest savings account.
Why is an offset account recommended for short-term savings before buying a house?
The article specifically recommends an offset account linked to your mortgage as the best place for short-term savings while you plan your next steps. It suggests holding the property for now and using an offset account during the period you’ll be renting and saving for a future purchase.
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