I have moved back to Australia from London with my fiancee to escape the contagion gripping Europe. I am 29 and earn $120,000 a year. After living costs and paying rent, I will have savings of $850 a week. My fiancee is studying full time and not working. Do you think I should put the $850 entirely towards a deposit on our first home or should we split it between shares and a deposit? I have always had a passion for investing in the sharemarket and have read about the benefits of buying in gloom and selling in boom. My sense is the market is well and truly in gloom and it would be a good time to buy. I have time on my side so can benefit from capital growth of the shares over time when the market eventually bounces back. Or do you think the share story is something we should do after saving a deposit on our first home?
There is an old Indian saying: you cannot chase two rabbits at once. Both the housing market and the sharemarket appear undervalued, so you will need to decide whether buying a home or building a share portfolio is your main priority. At your age, I would prefer saving for a home you can always take a loan against the equity in the property to buy shares later. Also, your employer should be paying superannuation for you, so you could have an interest in shares right now by keeping all your superannuation in the share-based area.
We are in our mid-70s and have a self-managed super fund. When we started the fund many years ago, we were advised to set ourselves up as individual trustees. Recently, we have been advised to set up a shelf company to be our trustee for the reasons you gave in a recent column. We have established the company but have not yet taken the step of making the change. We are aware of a recent case in which SMSF members wishing to make a similar change were faced with selling all their ASX assets in the market and re-buying. This involved substantial costs by way of brokerage and sell-buy price differentials. We would not be willing to meet costs of this nature.
The technical team at OnePath advises that a change of trustee in a SMSF will typically only represent a change of legal title for assets, not a change of beneficial ownership. As a consequence, this will typically not be a capital gains tax event, even though there is a possibility CGT could apply on certain assets in some jurisdictions. It is generally not necessary to sell and repurchase assets, so brokerage and market timing issues should not be a problem. Just make sure you take expert advice.
My husband and I, aged 74 and 68, are retiring in December. Our assets are $360,000 in super, $120,000 equity in property (an interest-only mortgage) and $30,000 in the bank. We will be assessed by Centrelink on our assets at the time of retirement. Income from our assets plus part pension will probably not cover our living expenses. Given our ages and the aforementioned shortfall, is it preferable, with regard to Centrelink and taxation, to move our super to an allocated pension or to term deposits in a bank?
If you are going to be assessed under the income test, you are better off having your money in an account-based pension within superannuation because a portion of the income stream will not be counted by Centrelink. If you are particularly risk-averse, you could keep your money in cash within super. Your adviser will be able to do the sums.
My parents are retired and are struggling financially, and my single sister is struggling to pay off her mortgage. My parents would like to sell their property and buy half of my sister's house, which has a two-bedroom granny flat where they can live. This means they will both have no mortgage. How do they go about this?
They should seek specialist advice about establishing a granny flat or life interest in your sister's house. For social security purposes, the sale of your parents' home is the realisation of an exempt asset. Usually, the market value of the granny flat is taken to be what they have paid for it, but in some cases a reasonableness test can be applied. The advice will need to include their likely pension entitlement and the future cost of aged care.
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 before making decisions. Email: firstname.lastname@example.org.
I am 43 and have $60,000 in super half in one fund with fixed interest, half in another fund with Australian and international shares. I earn $130,000 and contribute 9 per cent to super. I also have a small mortgage of $40,000. My wife is 38 and does not have super as she is from overseas. We are planning to have a child. I am worried my wife and I will not have enough money to retire on. What value would we need at 65 based on my current age? Can I contribute more than 9 per cent?
Calculating how much you need when you retire can only be a rough approximation at best because you have to factor in an estimated rate of inflation as well as the compulsory superannuation contributions from your employer. These are supposed to increase to 12 per cent over the next eight years.
However, if we assume that inflation is 3 per cent and your funds earn 8 per cent, you will need $1.34 million when you retire if you are to draw an income of $4000 a month in today's dollars. This would require indexed payments of $1095 a month starting from now.
Fortunately, you're only young, so you have time on your side. Your first step should be to form a relationship with a good adviser who can guide you for the next 30 years. They should be able to suggest effective strategies to you and also monitor your progress.
You can make concessional contributions of up to $25,000 a year this includes the employer contribution, which is 9 per cent.