Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. firstname.lastname@example.org.
I am 65, recently retired, and will be going on an aged pension. I have $55,000 in super. I believe this would be taxed at 16.5 per cent for the first $41,000, with the balance as a taxed component, so I would have to pay $6765 tax on the $55,000. Do you think I should pay the 16.5 per cent tax and put the balance in a fixed-term deposit at 4 per cent or roll it over into the allocated pension fund, pay 15 per cent tax and an annual fee, and have to reduce the amount by withdrawing 3.75 per cent each year? I am leaning towards the fixed-term deposit as I would not have to reduce the amount each year and would get interest.
Based on the information you have provided, it would appear that you lose 15 per cent no matter which strategy you adopt. In view of the relatively small amount you have in superannuation, it may be easier to simply withdraw it and invest outside the superannuation system.
I would like to invest in silver bars for my daughter's university costs. It would be in her name and she has four years of high school left. What are the tax implications if we bought now and were to sell before she starts university?
For starters, I wonder why you would want to invest in silver - why not gold, platinum or pork bellies? However, if silver is your thing, the profits will be taxed like any other investment asset. If you are carrying on the business of trading in precious metals, any profit will be added to your income and taxed at your marginal rate - if you are an occasional buyer, any profits will be capital profits and you will receive a 50 per cent discount if the asset is held for more than 12 months. These rules do not apply to collectables, which are taxed under a different system.
Our 19-year-old daughter has recently received $10,000 in back wages and compensation, which she sensibly wants to invest. We think she should lock it up for a very long period as she still lives at home and already has a small car. She can't afford to seek help from a financial adviser and has been looking at term deposits. We have often read your advice about managed funds and term deposits but would not know who to contact to look at this form of investing. Any advice you could offer would be appreciated.
It's a pity the continuing "reforms" of the financial advisory system have effectively priced lower-income people out of the market. A good first step for your daughter may be to read a book such as my own Making Money Made Simple and focus on understanding the difference between the way cash, property and shares work, and also the characteristics of short-term and long-term investments. The major benefit of share-based investments is that she can start with just $1000 to get a feel for that area.
My wife and I are in our early 30s with two children under five. Our combined annual income is $210,000 and we have a $300,000 mortgage on a home worth $700,000. I feel we should be more proactive in creating wealth but we have been too time poor to act. All our surplus income (after generous living expenses) is used to reduce the mortgage, as we consider a saving of 6 per cent to be better than most investment returns we would receive elsewhere, although this may be ignoring valuable negative-gearing benefits. Do you think we should be investing in shares or investment property, or is it better to reduce our home mortgage?
I recommend that people try to reach a stage where they can pay $12 per $1000 a month on their home mortgage. On a mortgage of $300,000, this is $3600 a month. Repayments at this level will keep the term to about nine to 10 years, as long as rates stay at less than 9 per cent. Making bigger repayments than this means you are effectively wasting income that could be better placed to build wealth. For example, a spare $1000 a month could be used as interest on a home-equity loan of say $150,000 to buy quality share-based investments.
There's no super secret - it's all in the mix
I've never really understood super — my fund has 40 per cent invested in growth and 60 per cent in balanced.
Is this a good idea or should I have it all in growth?
The essence of superannuation is that it is not an asset class like property or shares, but merely a vehicle that lets you hold assets in a low-tax area. Therefore, whenever you make the decision to invest, a major question to ask yourself is whether that asset is best held inside super or outside super. The right asset allocation for you depends on your age, goals and risk profile - a good adviser will be able to help you decide which mix is right for you.