Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. email@example.com.
Please clarify information regarding the increase of the concessional super cap to $35,000. I turn 59 on June 28 and would dearly love to increase my contributions to $35,000. My financial adviser says I have to wait until I am 60.
The increase in the concessional cap applies to the 2013-14 financial year, and to people aged 59 as of June 30, 2013. The idea is to simplify the age treatment - obviously anyone who is 59 before June 30, 2013 will be 60 for the financial year ended June 2014.
Is there a "rule of thumb" for how much you should pay for financial advice? I'm in my mid-20s and starting to get serious about my finances, which includes employing a financial planner. Some companies I'm meeting with are charging almost $10,000 a year for their services, which seems steep. I earn $70,000 a year and have the same amount in savings.
A professional financial planner is required to spend considerable time getting to know you, and then even more time preparing and implementing a full plan, called a Statement of Advice, for your guidance in the future. The initial cost of this should be between $2000 and $3000 if your affairs are not unduly complex. Ongoing costs are a matter for negotiation between you and the planner, but a figure of $330 to $440 an hour is probably reasonable. As well as technical competence, good communication is fundamental to the client-planner relationship. Keep in mind that the upfront and ongoing fees can often be paid on a pre-tax basis and should show a tangible benefit for you within a few months of implementation.
I am 55, my husband is 60, and we have one child. We run our own business earning a combined income of $145,000 a year. We own properties to the value of $1.9 million, with liabilities of $44,000. Our rental income totals $31,000. We have $230,000 in cash, $278,000 in super, $150,000 in shares, and $250,000 cash in our business. My husband would like to retire in the next five years. Should we be putting more money into super? I have considered buying a property to offset my personal tax bill - $200,000 of the cash is in my name. Do you have any recommendations for managing our finances?
At your age, lack of access is not an issue so I would certainly be ploughing as much money into super as possible. Buying a property won't save you much tax when the income from that property is taken into account. For example, if you borrowed the entire purchase price of a $500,000 investment property returning 4 per cent net, the income would be about $20,000 and the interest would be about $30,000. The tax savings would be no more than $4000 a year. You are extremely well placed for retirement, the main thing is to make the right asset choices inside super.
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Diversification is not going backwards
We are married, in our early 30s, have total earnings of about $280,000, own our apartment valued at $750,000 and have $450,000 in cash. We have no debt. We would like to upgrade to a house for about $1.2 million, and are also planning to start a family, which would mean a single income. We could buy a home outright, with a small amount of debt for renovations, or do something more strategic to build our future - but we really need a house. I'm concerned investing all our worth in the house will put us back to square one. Your opinion would be very much appreciated.
I certainly don't agree that buying a well-located house with minimal debt is going back to square one. You would be acquiring an asset that would give you free rent for life and a comfortable lifestyle. You are young, with a good income, and the next step after acquiring the house might be to take advice about borrowing against the home for a good share portfolio. This will give you diversification and some tax benefits - the beauty of shares is you can borrow to a level that suits your situation.