Consider the need to downsize
Compromise is sometimes needed to make retirement dreams come true, writes George Cochrane.
Compromise is sometimes needed to make retirement dreams come true, writes George Cochrane. MY WIFE and I immigrated to Australia from Britain in 2007 and moved our British super funds over when we arrived. I am 48 and currently have $215,000 in my super account and earn a base annual salary of $135,000, with my employer paying the standard 9 per cent super contribution. My wife is 47 and has $85,350 in her super account but only works intermittently in part-time roles so is unlikely to earn any significant amount in the future. When I reach 60, I will receive a British civil service pension of about $17,700 a year index-linked, a lump sum payment of $53,000 in today's money plus a British state pension of about $8000 annually from age 66. We own our home worth $1 million with a mortgage of $300,000, which will be paid off by the time I turn 60. There are no children and I am relatively conservative, having my super invested in an Australian shares index tracker. Ideally, I would like to retire by 65 and have a pension income of about 67 per cent of my current salary if at all possible. Am I being realistic? E.O.Two-thirds of your current salary comes to $90,000 so, if inflation averages 3 per cent a year over the next 17 years, you hope to retire on about $150,000 in 2028 dollars. If your three British pensions grow at the same rate of inflation, they should contribute about $55,000 annually in 2028-29 dollars, leaving you to source about $95,000 each year from your local super savings. Under British policy, your NIS pensions are not indexed, which means their purchasing power will roughly halve in 15 years at current inflation rates.When you retire at 65, your wife will be 64 with a life expectancy of 23 years. To contribute income of $95,000, your super at the time will need to have risen to about $1.7 million to last the distance.Given that you already have combined super savings of about $300,0000, you will need to sacrifice about 25 per cent of salary 14 percentage points over and above your employer's 9 per cent, to reach that target. That's a fairly tough call and if you can't meet it, you'll need to downsize either the house or your retirement plans.Term deposits the safest betI AM an 82-year-old, self-funded retiree. I sold a unit that I purchased in 1992, which incurred capital gains tax. I deposited the remaining money in term deposits. I will need a portion of this money to live on. Can the proceeds be invested in any other way to minimise my tax? V.D.The most common ways to reduce a tax bill are to make a concessional super contribution, which is not available in your case because of age, or to invest the money in shares offering franked dividends. The success of the latter depends on whether this current rise in the sharemarket is not a trap for optimists and I've got my doubts there.There are still some agricultural schemes around offering large deductions but I've never recommended them in the past and can't see any point in changing my opinion.All too often, investors in such products have claimed a deduction but lost their capital. They would have been better off paying the tax and retaining post-tax capital.Given your age and the current situation, term deposits are your safest option, with extra tax an unwelcome burden. Remember that the government guarantee on deposits drops to $250,000 a person per institution from February 1, next year.However, for term deposits in existence at September 10, 2011, the $1 million cap will apply until the maturity date for those that mature after February 1 but before December 31, 2012, and the same date for term deposits that mature on or after this date.Healthcare card thresholds upYOU recently mentioned that the low-income healthcare card has an expiry date and when applying to retain the card the thresholds increase. Centrelink has told me that your income must not exceed $8080 once you have been issued the card or you lose entitlement to use the card but when you reapply for the card after its expiry date, the threshold used to reissue the card goes back to $6528, not the $8080. Could you please clarify? K.C.The figures have been indexed up since September 20. When applying for the low-income healthcare card, your gross income is assessed for the previous eight weeks, up to the day you apply.To qualify, your income must now be below $3840 over eight weeks ($480 a week) if single or $6672 ($834 a week) if a couple. (Figures vary where children are present.) If you qualify, you will be entitled to the card from the date of issue to the date it expires or if you cease to be entitled.Once you have received a card, your weekly income during the entitlement period must not exceed $4800 over eight weeks ($600 a week) if single or $1042.50 ($834 a week) if a couple, again assuming no children.If your income does change, you are required to tell Centrelink, which will work out if you are still entitled to use the card. As long as you are below the $4800/$1042.50 thresholds, you remain eligible.Once issued, the card is valid for six months from the date you applied. As the expiry date approaches, you will receive a renewal claim form one month beforehand and each time you apply or renew your healthcare card, you will be required to requalify for the card with the $3840/$6672 thresholds.Don't forget that you, or someone you know, can enter an "intent to claim", which informs Centrelink you intend to apply for a payment or concession card within 14 days.If your application is approved, your payment or concession card could start from the day the intent to claim was registered.If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.