Ask Noel
I am 56, retired and thinking of cashing in all my super ($170,000), as I am no longer making contributions. I plan to put $150,000 of non-concessional contributions into my wife's super. Is this a good idea?
If you have made no previous withdrawals from superannuation, the whole $170,000 withdrawn should be tax free. This would certainly save you paying fees on two separate superannuation accounts, but it may be worthwhile taking advice about your overall situation. For example, if your wife is younger than you, it may be a good strategy to put the money in her name as that could help you maximise overall Centrelink benefits. However, the downside could be that you would be losing access to it until she reaches her preservation age and is able to fulfil a condition of release.
I am a 29-year-old woman earning $95,000 a year. I don't own any property and my only debt is a student loan in the UK to which I pay $500 a month. Do you have any advice on how to invest some of my savings, or is it better to continue saving for property? Is there anything else I can do to help me save more for the future?
If your goal is to buy your own home as soon as you can, your best option is probably to continue building up funds in the bank until you achieve a sufficient deposit. If the goal is more medium-term than short-term, you could investigate using a First Home Saver account. If you do, make sure you understand the access restrictions.
I am an Australian citizen who recently moved to the US. I have $12,000 sitting in a savings account earning 5 per cent interest a year. I am looking to invest this, but I am not sure if I should invest the money in a mutual fund in Australia or bring it to the US and invest it here. What would you recommend?
It would appear that the Australian dollar is now weakening against the American dollar. If you believe this trend will continue it may be worthwhile to invest the money in the US to gain a currency advantage - you also may find there is a greater range of investment opportunities in America. Remember that the Australian stock market is less than 2 per cent of world stock market capitalisation.
I am 44, my husband is 47 and our gross income last year was $106,000. We have a mortgage of $480,000 with $140,000 in an offset account. The loan is variable at 5.61 per cent and will hopefully be paid off by 2030. Our total super was $215,000 in June 2012. We have $150,000 in managed funds - $135,000 in an Australian tax-effective share fund and $15,000 in a balanced growth fund. We have had the managed funds since 1999. Do you think we should cash them in and place the money in our offset account to decrease the term of our loan? I realise we will miss out on growth of the investment, and will have to pay capital gains tax, but wonder if it's better in the offset account so we pay less interest on the loan and pay it off quicker. We'd like to be debt free in 13 years when my husband is 60.
The Australian sharemarket has averaged 8 per cent growth a year for the past 10 years and it's reasonable to believe that this kind of return will continue. Furthermore, interest rates here appear to be moving down, which means less interest will be payable on your mortgage. It would take repayments of just $3000 a month to pay off your mortgage in 13 years. Provided you feel you can handle that, I would leave the share-based assets intact and reinvest all the income from them.
Another option is to redeem the managed funds, pay $150,000 off your home loan and then take out a separate interest-only investment loan for $150,000 to buy other managed funds. The interest on this debt will be tax deductible and you will have improved your tax position. This loan could be paid off once your home loan is out of the way.
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Frequently Asked Questions about this Article…
According to the article, if you have made no previous withdrawals from superannuation, the entire $170,000 withdrawn should be tax free. However, it's worth getting personalised advice because withdrawing and moving money between accounts can affect fees, access rules and other benefits.
The article says this can save fees on multiple accounts and might help maximise overall Centrelink benefits if your wife is younger. The downside is you could lose access to those funds until your wife reaches her preservation age and satisfies a condition of release, so consider your cash-flow needs and get tailored advice.
If your primary goal is buying a home as soon as possible, the article advises continuing to build up funds in the bank until you have a sufficient deposit. If your goal is more medium‑term, you could investigate a First Home Saver account, but make sure you understand any access restrictions before using it.
The article suggests a First Home Saver account can be useful for medium‑term saving toward a home deposit, but cautions you must understand the access restrictions attached to these accounts before committing your funds.
The article notes that if you believe the Australian dollar will continue weakening against the US dollar, investing in the US may give you a currency advantage and a broader range of investment opportunities. It also points out the Australian stock market is less than 2% of world market capitalisation, implying fewer domestic options compared with global markets.
Per the article, a weakening AUD versus the USD could make investing in the US attractive for a currency advantage and greater investment choice. That said, the recommendation depends on your view of future currency trends and your individual situation.
The article recommends leaving share‑based assets intact given the Australian share market averaged about 8% a year over the past 10 years and interest rates appear to be moving down. Reinvesting the income from managed funds was suggested. An alternative mentioned is redeeming the funds, paying $150,000 off the home loan, then taking an interest‑only investment loan for $150,000 to buy other managed funds — the interest on that loan would be tax‑deductible and could improve your tax position.
The article states that repayments of about $3,000 per month would be sufficient to pay off the mortgage in 13 years, provided you feel comfortable handling that repayment level.
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