Ask Noel

I'm 58 and intend retiring or finding part-time employment when I reach 60. My current salary is $53,000 and I own my home. My super balance is $300,000, to which I salary sacrifice, and have been drawing a transition-to-retirement (TTR) pension for three years. My wife and I have managed share funds worth $280,000, to which we have a margin loan of $50,000 and contribute $750 a month. We also have $150,000 in a term deposit. In this time of financial upheaval, we wonder if we should put some of ...

I'm 58 and intend retiring or finding part-time employment when I reach 60. My current salary is $53,000 and I own my home. My super balance is $300,000, to which I salary sacrifice, and have been drawing a transition-to-retirement (TTR) pension for three years. My wife and I have managed share funds worth $280,000, to which we have a margin loan of $50,000 and contribute $750 a month. We also have $150,000 in a term deposit. In this time of financial upheaval, we wonder if we should put some of our term deposit into managed share funds as I know having that much in the bank is not really a good move long term. I'm seeing a financial adviser but he doesn't know about the money we have in the bank.

It is important to tell your adviser of your entire financial position, otherwise he or she will not be able to give you appropriate advice. One of the planks of building wealth is to agree on an asset allocation with your adviser and then stick with it unless there is a major change in your circumstances. Once you've done this, the amount of money you should hold in shares will become obvious.

I'm a student starting full-time work next year. I've been offered a package with a defined-benefit component. Considering I have 40-plus working years ahead, I'd like to know if this is superior to an accumulation plan. As I understand it, growth under a defined-benefit plan occurs at a very slow rate early in one's career due to heavy discounting. As I'm unlikely to continue to work for the same employer for my entire career, and given that the portability of a defined-benefit plan is limited, how can I ensure I'm not worse off if I'm forced to take a lump-sum payment when I move employers? And is salary sacrifice possible under a defined-benefits plan?

Defined benefit plans are becoming rare because, as you point out, most people don't stay with the one employer all their working life. Also, they put the risk on the employer, whereas an accumulation plan puts the risk on the employee. I believe you are better off to opt for an accumulation plan as you'll have much better flexibility and control. Any voluntary salary sacrificed contributions to a defined benefit plan go into a separate accumulation fund.

My daughter is a student who works part-time and earns $12,500. She and her friends have debit cards but would like to get a credit card with a limit of $2000, to have "just in case" and for more financial security overseas. She has a term deposit with a bank, and we have credit cards with another bank, but because the income requirements are in excess of her income, she doesn't qualify for a credit card with either of them. I also recently applied for a credit card, but as my "formal taxable income" from an SMSF is limited, the application stalled but now appears to have been approved. Are there any low-limit (maximum $2000) credit cards available for people whose formal taxable income is less than $10,000? This seems to be an ideal business opportunity as it is a niche market for both ends of the financial earning spectrum.

Westpac offers a Student Visa Card for students over 18 it has a minimum limit of $1000 and approval is based on the ability of the holder to pay. Part-time income is acceptable for this type of card. Other options are to get a debit card in her name and top it up as necessary, or make her a supplementary cardholder to one of your own credit cards.

I'm a student in my final year of mining engineering. I will be starting on a package of $110,000 next year and have no idea what to do with it. What is a good way to invest my money and how can I avoid paying heaps of tax?

Unfortunately, there are very few avenues available to avoid paying tax. You could transfer money to super using salary sacrifice, where it will be in a low-tax environment, but you would lose access to it until your preservation age, probably 60. You could borrow for investment but you will find that the income from the investment will offset most of the tax deduction provided by the interest. At your age, your main priority should be to manage your money well and start building a portfolio. I prefer shares because no capital gains tax is payable until you sell and, provided the dividends are franked, there will be little tax paid on the income from them.

Is it possible for tax purposes to deduct interest on a personal loan to invest $5000 in shares? I'm not eligible for a margin loan. My conservative expectations are for 10 per cent growth in share price and a yield of about 3 per cent a year over five years about the rate of the personal loan interest.

Provided the purpose of a loan is to buy income-producing assets, you can claim a tax deduction for the interest. Neither the type of loan nor the asset mortgaged affects the tax deductibility. Just make sure you keep new loans separate from your housing loan.

I'm 50, currently not working and have $500,000 in a term deposit earning 6.1 per cent. I own my house, worth $700,000, have $80,000 in super and no debts. Would it be better to top up my super with cash or leave it where it is? I started with $120,000 in super five years ago (on the advice of a planner) but since the credit crunch, it has been reduced to $80,000. I plan on retiring permanently, have no children and am fairly careful with my outgoings.

Super is not an asset like property or shares but merely a vehicle that lets you hold assets in a low-tax area. In view of your age, I can't see any downside in your transferring part of your cash into super, as long as you stay within the contribution limits, as you will be in the 15 per cent tax bracket no matter where your money is held. Having the money in super would give you tax benefits if you start work again, and Centrelink benefits if you want to claim Newstart allowance.

In a recent column, you said: "If your defined-benefits fund is an unfunded one, you will still be subject to tax on withdrawals on that fund after you reach 60." I've never seen this mentioned before. Can you please expand on it?

Members of unfunded funds are usually public servants whose super payments are funded from general revenue, which means the contributions have not suffered the 15 per cent entry tax. This is why they are called "unfunded" funds. Consequently, tax is payable on withdrawals even after age 60.

If I salary sacrifice a large sum of money, can I use this as a lump sum when I retire? Does the money that my employer puts into super have to be used as an allocated pension? What I am really trying to find out is: once I have sacrificed this money to super, is it out of my control or could I request a large sum in one hit for, say, the cost of a new car, above my agreed allocated pension sum in one year?

Under the current rules, you can take all your superannuation as a lump sum if you wish once you reach your preservation age and satisfy a condition of release if you are under 65. Therefore, there is no reason why you couldn't eventually make lump-sum withdrawals.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice. Email:

I'm 58 and earn $300,000 a year. For the past two years I've put the maximum amount of $50,000 pre-tax into my super. However, the amount allowed has been reduced to $25,000. What else can I do with the spare $25,000? One idea is to take out a mortgage with my daughter and jointly purchase a unit as an investment. I'd put the $25,000 towards the mortgage repayments and in two years my daughter would buy me out at $50,000. Would the $25,000 each year be tax-deductible on the loan repayment if the investment was negatively geared?

You could certainly borrow for investment but only the interest is tax-deductible and the income from the investment tends to negate the benefit of the tax deduction. I'm not in favour of buying a unit with your daughter, as there will be transfer costs and capital gains tax when you transfer the balance of the home to her. Your best strategy may simply be to put the money into super as a non-deductible contribution at least that will transfer it to an environment where income tax is just 15 per cent.

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