Savings strategy for baby boomer

I AM 53, single, earn $84,000 and have $145,000 in First State Super. I am trying to pay off my house mortgage of $85,000 while salary sacrificing $500 a fortnight into super. I envisage working until 63, possibly a few years after that, part-time. I am looking to grow my wealth as much as possible before I retire. I would like about $35,000 a year to live on in retirement. I am wondering what the best strategy is? L. F.

It will cost you about $477 a fortnight ($12,400 a year) to pay off your mortgage in 10 years, assuming an average interest rate of 8 per cent.

By adding $500 a fortnight ($13,000 annually) to your super, you can expect it to accumulate to about $550,000 by age 65, assuming the fund grows on average by 6 per cent a year and your salary and contributions rise 2 per cent annually.

If you plan to retire at 65 and spend $35,000 a year in 2021 dollars (about $26,000 in today's dollars at inflation averages of 3 per cent), then the money will last for your statistical life expectancy of 22 years.

Your mortgage and your super consists of about $31,000 of your $84,000 salary, leaving you about $36,000 after tax to live on, which doesn't give you much scope to buy a property and pay interest on a huge loan until retirement. If you find that you are not spending all your income, then you would do better to increase your salary sacrifice into super.

Four-way split for school fees

WE are saving for our son's high school fees. We have set up four options, each with about $5000. These are: a share portfolio with Colonial First State, half resources stocks and half geared shares a children's tax-free savings account with BankWest an education fund plan with LifePlan Australian Equity and a high-interest account with UBank. Our son just started primary school, which saves us about $1000 a month on childcare fees that we want to invest for his education. Currently, we split the $1000 equally between the above schemes. Would you consider this our best approach? We had heard gold would be a good option, would you agree? D. B.

Don't be confused about the BankWest product: it's "fee free" not "tax free"! (For other readers, a bonus rate of 10 per cent is paid when $25 to $250 a month is deposited and no withdrawals are made. After 12 months, everything over $1 in the Bonus Saver account will be swept into their linked Children's Savings Accounts.) I think you have a reasonable spread with your four options, all of which will hopefully earn some income and compound over time.

Gold would be a straight punt and, when measured in Australian dollars, is still below its February 2009 peak of about $1550 an ounce, so don't be overcome by its behaviour in US dollars. As long as the US dollar is sinking, and ours is rising, gold won't be such a flash investment for Australians.

Your geared share fund took a pounding through the GFC and is only just returning to show positive returns and, while your resources fund has earned 26 per cent over the past 12 months, it is still showing a loss over three years.

You need to be a little wary of this. I suspect commodity prices will face a rapid decline at some future stage.

So when the headlines get even bigger over the commodity boom, think about switching out of your resources fund, possibly in a year or two.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. All letters will be answered. Helplines: Bank Ombudsman 1300 780 808 Pensions 13 23 00.