Ask Noel
earn $68,000, salary-sacrificing to the maximum, but I'm considering reducing work to part time this year. My partner has just given up work. We are both 61. We have $640,000 in super (85 per cent in equities) and my wife has $35,000 in two funds. She has $7500 in shares and I have shares valued at $80,000 with a margin loan of $30,000, the interest being covered by dividends. We have a $36,000 mortgage on our home worth $340,000, and I have a vehicle lease payout of $13,000 due in September. How are we placed for retirement? Do you think we should discharge the mortgage with the investment proceeds?
You are doing better than most, but I would certainly work part time for as long as I was able because this will produce additional income, as well as reducing the amount you need to draw from your asset base. At your age, I can see no reason why you should not pay off the debts - if your shares have some unrealised capital gains, consider withdrawing your wife's super tax-free to pay down the loans. Work with an adviser to establish whether you have sufficient capital to retire; how much you need will depend on your expected expenditure and how long you expect to live.
We are a couple in our early 30s looking for a house to buy. Can you give us some advice on capital gains tax because we are thinking of buying a place, renting it out for two years, then moving in. I understand that if we hold it as an investment property, it is tax deductible until we move in. After living in the house, if we wish to sell, do we need to pay CGT, and if so, how much? Is this the best way to start investing in property?
Your best option would be to buy the property as your residence and live in it for a period, then move out and make it a rental. Provided you did not claim any other property as your residence, you could then be absent for up to six years without losing the CGT exemption. If it was a rental before it was your residence, the capital gains tax would be apportioned on a time basis when you eventually sold. Outgoings, such as interest and rates, are tax deductible while the house is available for rent.
I am 72 and my partner is 68. We are both retired. We maintain two homes that we own outright - one in the city valued at $1 million and one in the country worth $400,000. We have $400,000 in savings to provide income, but it's insufficient. Can you suggest a way that we can keep a city home (preferably the one we own) and increase our annual income to $60,000?
Depending on what other assets you have, you may be eligible for a part age pension. But even if you were and you sold the country home for $400,000, you would still not be able to generate a safe income of $60,000 a year. Your only options seem to be to find some casual employment or draw down on your capital. As your capital reduces, your age pension will increase. This may reduce the rate of draw down. Under this strategy, $800,000 would probably last until you're well past the age of 90, but between now and then, it's likely that you will need to downsize your home. This would release further capital. As I see it, the problem is not yours, it is your beneficiaries'.
I am 51, a single male living in a house valued at $750,000 with a mortgage of $210,000. I have an investment property valued at $570,000 with an interest-only mortgage of $600,000, which earns net rent of $400 a week. I have $360,000 in superannuation and earn $150,000 a year before tax. Am I on the right track to financial security heading into retirement? If my employment situation changes, I am concerned about my level of debt.
You are doing very well, except for the investment property. It is probably costing you $20,000 a year before deductions such as depreciation are taken into account. If we assume this loss reduces to about $15,000 after tax, it is clear that the property has to appreciate by at least $15,000 a year for you to break even. Only you can decide if it is better to cut your losses and get out now or wait for an upturn. In the meantime, make sure you salary-sacrifice to the maximum, use all your spare cash to reduce your home mortgage, and keep the bulk of your superannuation in share-based investments to give you diversification.
Do some research to bridge the rookie gap
The explainer
I'm interested in investing in shares. What books would you recommend to a rookie investor?
If you do a web search, you'll find hundreds of choices, but the best way to start is probably to enrol in one of the free courses offered online by the Australian Stock Exchange. You could also browse the business section of a good bookshop to find something with a layout and style that suits you. As your knowledge grows, many avenues will open up.
Frequently Asked Questions about this Article…
Noel suggests working part time for as long as you can because it provides extra income and reduces how much you must draw from savings. To decide if you can afford to retire, work with a financial adviser to model your expected expenditure, life expectancy and asset base so you know whether your capital and income streams are sufficient.
At age 61 Noel recommends paying off debts where possible. If you have unrealised gains in shares, consider using tax-efficient sources — for example he suggests withdrawing a spouse’s super tax-free if eligible — to reduce mortgage and margin debt. Paying down high-cost debt reduces risk in retirement, but confirm details with an adviser first.
It depends on the order of use. If you buy it as your residence and live in it before renting, you can later move out and be absent for up to six years without losing the CGT main residence exemption. If it’s a rental before it becomes your residence, CGT on any later sale must be apportioned on a time basis between the investment and residence periods.
Yes. While the property is held as an investment and available for rent, outgoings such as interest and council rates are tax deductible. Keep records of the periods the property was genuinely available for rent to support deductions.
Noel notes options include checking eligibility for a part Age Pension, selling the other (country) property to release capital, taking casual paid work, or drawing down on capital. Downsizing later can release further funds. Be aware that drawing down capital can increase pension entitlements and affect means-tested benefits — discuss timing and strategy with an adviser.
Noel says only you can decide whether to cut losses or wait for appreciation. In the meantime, maximise tax-efficient strategies: salary-sacrifice to super, use spare cash to reduce home mortgage, and review how much of your super should remain in growth assets (shares) to maintain diversification. Assess the cashflow hit from the property when making the decision.
Reduce leverage where possible: pay down mortgages and margin loans to lower interest and repayment risk in retirement. Consider using tax-free super withdrawals where appropriate, ensure dividends and interest cover loan costs, and seek personalised advice to check whether you have sufficient capital and the right asset mix for retirement goals.
Noel recommends starting with free online courses from the Australian Stock Exchange (ASX) and browsing the business section of a good bookshop to find beginner-friendly investment books with a style that suits you. As your knowledge grows you can expand into more advanced books and courses.
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