Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. email@example.com
I am 35, married with three young children, on a salary of $103,000, plus super. My current super balance is $90,000. I work for a non-profit organisation and salary sacrifice the maximum amount allowed to my mortgage of $280,000 — I salary sacrifice $100 a fortnight to super and pay an extra $130 after tax a fortnight against the mortgage — our house is worth $500,000. We are considering investing in property and wonder if we should redirect the amount we currently salary sacrifice to super to the mortgage, even though this would mean not utilising the salary sacrifice for super. We think it would reduce the compounding interest on the mortgage and free up equity more quickly.
The money you salary sacrifice to super loses 15 per cent entry tax whereas after-tax money taken in hand would lose 38.5 per cent for a person in your tax bracket. The difference is only $611 a year, which is relatively small in the scheme of things. In view of your young age I agree that you are better off to direct spare funds to building up the equity in your home. Your employer will be making the compulsory super payments on your behalf in any event. When thinking about investment options don't ignore shares - in my view they will give better long-term returns than residential property.
I'm 63 and considering retirement before I turn 70. My mother died last year and I have inherited a half share of her house with my sister. I am considering whether to apply for a mortgage to pay out my sister and then rent the house. I spoke with a financial adviser from my super fund and he said, in my circumstances, he would advise against that, saying I would be better off putting the proceeds of my share from the property into my super. I own my own house, I have $212,000 in super and $50,000 in term deposits, and I work full-time earning less than $60,000 a year. My wife has only been a permanent resident since last year — she recently started work and has no super.
This is an increasingly common question as the parents of baby boomers die. I believe that buying a share of a bequeathed property from other beneficiaries is normally not a good strategy because you are morally compelled to pay a fair market price and you are restricting your choices to just one property. It makes more sense to take the money from the sale and then investigate other investment options - these could include placing the money into super or buying another property.
I am 59, work part-time and run my own SMSF. For the past two years I have been drawing a transition-to-retirement pension and now have two pension funds and an accumulation fund. This month, I plan to transfer some in my industry fund into my SMSF. Next month, I intend to roll all the pension funds and the accumulation fund into one pension fund. I will still be working so will still need an accumulation fund. Do you see any problem with this approach?
I certainly agree that you should be trying to minimise the number of funds. Unless your employer will pay your compulsory super only to an industry fund, it seems best to simply have all your money in your SMSF. Super is comprised of taxable and non-taxable components - the only way to segregate these components in a SMSF is to hold them in separate pension accounts. The taxable component loses 16.5 per cent (soon to be 17 per cent) death tax when passed onto a non-tax dependant, so be sure you aren't mixing these components up when consolidating to one pension account. There are some significant advantages for your estate in isolating these components. I assume you are taking advice about the administration of your own fund because there are high penalties for getting it wrong.
No need to fret over confiscated cash
Myfriend has just had $3000 confiscated by his bank (without any prior notification) because of the government’s no-activity-for-threeyears- on-the-bank-account rule. The recent budget announced that home owners of 25 years can downsize their homes and quarantine $200,000 of the proceeds from the pension test if those funds are placed in a bank account and not withdrawn for 10 years. Under current rules can the government confiscate this $200,000 after three years because of no activity? There is real fear in the community at present.
It is unfortunate that people are worrying unnecessarily. Even though the period has been reduced, this is the first time that unclaimed monies are earning interest. Furthermore, money is not lost, it is returned on demand. I appreciate that it may take a couple of months to get it back, but surely that shouldn’t matter too much to a person who has been so unconcerned about their money that they haven’t made a transaction for more than three years?
The proposed accounts you mention are exempt and not subject to the unclaimed-money rule.