Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.
I am 42 and about to get a separation payment of $70,000. My husband earns $120,000. Our home is worth $950,000 with a variable-rate mortgage of $38,000 and a fixed-rate mortgage of $88,000 that expires in June. The variable-rate loan has a redraw balance of $80,000. We have managed funds of $50,000. Should we use my separation payment, combined with the managed fund, to clear as much as possible off both mortgages when the fixed-term mortgage expires, or should we just clear the variable-rate loan and make a part payment against the fixed-rate loan when it expires?
You should be trying to maximise your deductible debt while minimising your non-deductible debt. I suggest you use all your resources, including the sale of your managed funds, to pay down your housing loan as quickly as possible and then take out a home-equity loan to buy into more managed funds. The interest on this latter loan will be tax deductible. Talk to your accountant about capital gains risks and who's name the strategy is best re-established in for tax purposes.
I am 59 and work full time; my wife is 64 and works part time. I have one super fund worth $85,000, an SMSF with my wife of $50,000, plus fully owned assets worth $220,000, which generate $15,000 a year. I have a mortgage-free home worth $1 million and a second home worth $650,000 with a mortgage of $130,000. I would like to work part time and live off the pension and super on about $45,000 a year. Can I achieve this without depleting my capital while still receiving the part-pension?
Right now the equity in the investment property is $520,000 and you have other financial assets of $355,000. These should grow in the next six years to more than $1 million, a level where you may be over the limit for the assets test for the age pension. The next five years presents an opportunity to move funds into super in your name as these funds will be exempt from Centrelink assessment until you're old enough for the age pension. This will maximise your wife's entitlement to the age pension over the next five years. If your financial assets exceed $1 million, you could have a portfolio constructed for an indexed income of $45,000 a year plus capital growth. Your SMSF has a small balance - take advice about moving the income-producing assets into it.
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.
Annuities fail to reach acceptable rate
I am a 71-year-old widow and receive an age pension of $740 a fortnight, assessed under the assets test. My assets total $204,000, of which $130,000 is superannuation that earns annual income of $6990. Once a year I draw down a lump sum of $5000. My house is mortgage free, valued at $900,000. I wish to move to a small apartment or retirement complex. The cost of this move would be about $650,000, which would leave me with $250,000 — I estimate I would need $32,000 a year to live. Would annuities help me to maintain a satisfactory level of income with the continuing support of the age pension? I note annuities are no longer excluded from asset assessment by Centrelink.
There are many different types of annuities, and some still receive reprieve from Centrelink's income test. I would be cautious about taking a long-term annuity at this stage. You are relatively young and you could be locking in today's low rates for many years.