Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. email@example.com
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
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.