Stockpiling for the future

SUZANNE LILLYMAN had wanted to be a marriage celebrant for years but it took a serious health scare to prompt her to do something about it.

Her position as a personal assistant to a senior executive was made redundant recently but Suzanne, 56, is hoping her services will soon be in demand.

"I have a few wedding bookings in coming months and I look forward to doing a lot more and eventually turn it into a full-time job," she says.

In the meantime, Suzanne is "temping" and looking for a full-time position as a personal assistant for a senior executive.

When she does regain employment, one of her aims is to continue to build her superannuation which is currently with an industry fund through salary sacrificing and personal contributions.

She is also wondering about the pros and cons of a transition to retirement pension.

"I bought a house last November so not having a job and having to pay the mortgage is a bit of a worry," she says.

Suzanne has previously owned two apartments but traded up to buy a small house in Sydney's inner west where she could keep a dog. "The thing about having health issues is it makes you think about what you want and what is important to you," she says.

While some overseas travel is on the agenda, she plans to continue a fairly quiet and inexpensive lifestyle with the ultimate goal to be financially secure in her later years.

SUZANNE HADDAN

BFG Financial Services

YOU need to set some measurable and realistic goals and a time frame. The first is when you plan to retire, which will determine when you must repay your home loan. The next is to determine the amount of money you will need to live comfortably in retirement.

Assuming $340 a week ($17,680 a year), $5000 a year for travel and a retirement age of 65, you would be OK if you could repay your home loan by retirement or have saved additional super to repay the home loan.

This is because you could fund your lifestyle through an age pension of about $15,000 a year and income from investments of $8000 a year. This would require about $160,000 in today's dollars in a balanced portfolio and to own your own home. If you pay $475 a week on your loan, by 65 the balance would be about $80,000 and your super should be about $244,000 in today's dollars.

At retirement the loan balance could be repaid from super, leaving $164,000 for retirement and you owning her own home.

(Assumptions: Loan rate 6 per cent investment real rate of return 5 per cent per annum).

MIKE INGHAM

Godfrey Pembroke Camberwell

THERE are three keys to financial security in retirement: maximise your super savings now stay in the workforce as long as possible and pay off the mortgage before retiring. Your main problem is inadequate super savings. Even if you earn $70,000 a year and work until 65, your super would be about $225,000. With the age pension, this would provide $40,000 a year until age 73 (in today's dollars). Hardly an acceptable outcome.

The key is to salary sacrifice (this is taxed at a maximum rate of 15 per cent instead of your marginal rate of 31.5 per cent). If you do this to the tune of $20,000 a year, it could grow to about $407,000 by retirement. When supplemented by the age pension, a super pension could provide you with an income of $40,000 until you are 84 years of age (today's dollars). A much better outcome.

Based on your current mortgage payments, it will take you at least 20 years to pay it off. In order to pay off your mortgage by age 65, you would need to increase your repayments by about $250 a week.

ERROL WOODBURY

Woodbury Financial Services

TRANSITION to retirement (TTR) is a great concept for people who either want to cut down working hours or for those wanting to continue working and building their nest egg. It works by moving your super into an account-based pension that pays an income while you also salary sacrifice. You can accumulate wealth faster and the tax benefits are generous. The disadvantages are not all the contributions will be accessible and you must avoid drawing down more income than you require. In your case, you may need to wait for a more regular, stable income before starting.

It wouldn't hurt to review your current super. Does your fund have flexible investment options? Are the fees competitive? Have the returns been solid and the risk acceptable? Do you have the anti-detriment and insurance option?

Finally, ensure you know exactly where you are invested and who is investing it. Are the assets listed or unlisted? Is there exposure to the subprime issues?

The financial crisis has highlighted many flaws. Now is the time to get good advice and get back on track.

FINANCIAL SNAPSHOT

SUZANNE LILLYMAN

Age: 56

Occupation: Personal assistant

Salary: $70,000 plus super (retrenched January 2009)

>ASSETS

Property: $557,000

Super: $120,000

Cash in the bank: $15,000

>LIABILITIES

Mortgage debts: $219,000

Credit card debts: $2400

>THE AVERAGE WEEK

After-tax income

Salary: was $888

Total: $888

Expenses

Home loan: $360

Living expenses: $300

Other: credit card $40

Total: $700

Insurance: no separate insurance