Ask Noel

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

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

I turn 57 in November, work part time, and need to set up a transition-to-retirement pension (TTR). My income is quite low, so tax on the TTR is important and I need to calculate cash in hand. I don't know how the 15 per cent tax offset is calculated. Could you give me examples?

The taxable component of your pension income from your fund will be taxed at your marginal rate less a rebate of 15 per cent. For example, if you earned $38,000 a year and received $20,000 in taxable pension payments, the pension would be taxed at 32.5 per cent but the rebate of 15 per cent would reduce this to 17.5 per cent and tax payable on the transition to retirement pension would be $3500. Your adviser will be able to do exact figures for you.

I am 60 and about to retire with a defined benefit pension through the government. My wife, 57, will continue to work full time until the end of 2013 when she will retire. How can we minimise tax on interest from existing investments in term deposits, which are in both our names?

To minimise tax on the interest, hold the investments in the name of the lowest income earner if there is a difference in tax brackets. If you are both in the same tax bracket, then it doesn't matter whose name they are in. Just keep in mind that your defined benefit will have a taxable component even though it does enjoy a 10 per cent tax offset when age 60 is reached.

I'm 39, earning $100,000 a year. My wife is expecting our first child this year and has been unemployed for the past 12 months. She is 41. We have a $75,000 mortgage but no other debts. I salary sacrifice $420 a month into super, and my wife is going to put $50 monthly into her super to keep the account active and take advantage of the government co-contribution scheme. With the imminent new arrival in our lives, should we be making changes to what we do with our money?

Salary sacrifice is an effective strategy to reduce tax and build your superannuation for retirement, but this is the perfect time to be forming a relationship with an adviser. The purpose of this will be to reprioritise your goals and look at strategies to invest more money outside the super system. An option is to speed up repayments on your loan, and also look at conservative borrowing for quality share-based investments. Remember, the cost of raising children will come a lot sooner than access to your super.

I am 53, born early 1960, so can access my super at 55 if I "genuinely retire". I work part time but can't find the criteria for "being retired". Is it based on the number of hours worked as I don't wish to stop working completely?

The onus is on you to convince the trustee of your fund that you have retired - this is usually done by your signing a statement. However, once you have retired, you may well find that you are tired of doing nothing and can then return to the workforce. There needs to be a break between the date you state you are retiring, and the date that you resume duties. The other option is a transition to retirement pension.

You have often suggested 10-year tax effective bonds as the best savings for children and grandchildren. Could you advise which financial institutions deal in these bonds?

They are issued by most major fund managers. I suggest you talk to a good adviser who can help you decide what asset mix within the bond suits your goals and risk profile.

My husband and I have $50,000 remaining on our mortgage of a property worth $900,000. We have a negatively geared investment property worth $380,000 with a mortgage of $170,000. We are in our mid-40s with two young children, and only my husband is working. I am keen to upgrade and buy another house for about $1.4 million, but we have not been able to sell our house. Would it make sense to rent out our house for $850 a week, sell the other investment property and get a loan for a new house?

The problem with renting out your house is that you will be paying tax on the rents, and it's almost a certainty that its value will drop by 10 per cent when you take your furniture and other possessions out, and the tenants move in. You will also have the problem of maintaining the lawn and gardens. I believe a better option would be to drop the price and get rid of it. You would then be in a better position to strike a hard bargain with the seller of your new house.

With decades on your side, aim high

The explainer

I am 18, with $700 in my super fund. What should I do with my super to ensure I have lots of money by the time I retire in 40-odd years? My super gives the option of investing in bonds, shares, cash or a combination.

With more than 50 years of investing ahead of you, you should be going for growth. I would go for the high-growth option, which would give you a diversified portfolio of Australian and international shares and property.

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