Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. firstname.lastname@example.org
I am 36 and my husband is 41. Our house is worth $700,000 and we owe $180,000 on it. I have $75,000 in super and my husband has $50,000. Our combined income is $140,000. Our retirement goal is to have a property in Melbourne and an apartment in London. Would you recommend we use our equity to invest in property or shares, or should we concentrate on reducing our mortgage and paying more into our super? If you recommend reducing our mortgage, at what point should we start looking to invest?
It's great to see you have such concrete goals. If we assume you'll downsize and use the proceeds of your home to buy the Melbourne property, at some stage we're left with the challenges of finding funds to buy the London apartment and build a portfolio that will keep you when you retire. You have huge equity in your house and I'm not keen on putting too much into super because of your young ages. Take advice about using a home-equity loan to invest in good-quality share trusts. They should perform well for you over the next 20 to 30 years.
My husband is 61 and retired. I plan to retire when I reach 60 this year. We live in an apartment worth $1.7 million with an outstanding loan of $350,000. Our combined super is $1.2 million. Do we have to draw on our super to pay off the loan so we qualify for the aged pension when we turn 65?
Your assets are at a level where you're almost over the threshold for pension eligibility; therefore, I certainly agree you should use $350,000 of your superannuation to pay off the home loan. Just keep in mind that you are four years off pension age and even when you make the withdrawal from super, it is possible that good returns over the next four years will push you back over the asset-test threshold. That's a good problem to have because it puts you in the top 1 per cent of Australians in a financial sense.
My husband and I have an income of $170,000. We are 34 and 30, with our first child due this year. We owe $50,000 on our home, which is worth $420,000. We would like to buy and move into another house in the next year and keep our home as an investment. We should be able to earn $600 a week in rent on this property. We plan to have two children and send them to boarding school for at least their last three years. Are we on the right track with our investments?
The only problem with this strategy is that you will be paying tax on the rent while being stuck with a large non-deductible debt on your own residence. A better strategy might be to sell your home - free of capital gains tax - to minimise any borrowings for the new home. You could then borrow 100 per cent of the purchase price of another investment property and the entire interest would be tax deductible. When considering where to invest, don't overlook shares, which will give you a more diversified portfolio.
I am 87 and married, with $250,000 in super, $200,000 in shares and $500,000 in an online account. The account pays compound interest, which I think gives a better return than term deposits. Would you recommend more lucrative investments that are just as safe? I am a conservative investor and wish to make provisions for possibly moving to a nursing home in future or leaving money to my children and grandchildren.
You need to watch the market because occasionally online accounts are better, and sometimes term deposits can give you a higher rate. Compounding interest is simply reinvesting the interest payments. This can be applied to term deposits or online accounts. All investments carry a component of risk, even the "safe" ones, so be sure to understand them fully before making any changes. Keeping in mind the potential bond payable to enter aged care, you seem to have a healthy mix of assets for your age and risk profile.