Switch to super pensions by age 65
Take advantage of your fund's tax benefits before it's too late, writes George Cochrane.
Take advantage of your fund's tax benefits before it's too late, writes George Cochrane. MY WIFE and I will turn 60 in October. We have been retired for 18 months. I have drawn down (almost to the non-taxable limit) on one of our two major superannuation funds. We have $360,000 in six-month term deposits that mature in May 2012 and will earn 3.1 per cent. There is $72,000 in the super fund we raided and $740,000 in the other. Both of these funds are in a balanced/growth area. There is about $50,000 in another three funds that do not mature until 2016. We have also been advised by an accountant that a self-managed super fund would be our best option. We intended to reinvest the $360,000 in six- to 12-month term deposits, drawing living expenses as required. What guidance can you give? R.M.If you've never run your own portfolio before, think twice before setting up an SMSF they are not necessarily easy and foolproof. I suggest you spend the time between now and age 65 putting as much of your non-super money as possible into super but be wary of the investment caps. Plan to end up at age 65 (when no further contributions can be made) with close to 100 per cent of your income from super pensions so that it will be untaxed and require no tax return.I like to keep up to 65 per cent in equities, depending on the state of the sharemarket. If you want a term deposit-style investment for the rest of your super savings, consider the Melbourne-based Defence Force Credit Union, which offers a fixed 6 per cent for 12 months in its Retirement Savings Account term-deposit option, available as either accumulation or pension funds. See defcredit.com.au. Also, the Melbourne-based Police Credit Union is similarly offering 6.1 per cent for 12 months or 6.25 per cent for 24 months. See policecredit.com.au.Lessons to be learntI'M TRYING to create a future wealth account for my 14-year-old son. I put his pocket money of $25 a fortnight into an E*Trade account, which I hold in trust in his name. He has his own tax file number. His current portfolio has 1260 Argo Investments shares (ARG), with slightly more than $500 in cash. He wanted some QR National shares but the prospectus was out of his cash range. He is still keen to get some. He could also afford Telstra. ShouldI just continue adding to the ARG shares, or look at something such as QRN or TLS? G.R.It sounds as if your son is getting an excellent lesson. One thing that becomes apparent is that we learn from our mistakes. With a total portfolio value of about $7000, your son is limited in his choices but if you let him invest, say, $2000 at a time, in a share of his choice, while giving him all the positives and negatives, he will learn from his decisions.For example, Telstra is paying a whopping 9.4 per cent fully franked yield but can it keep paying a 28? dividend in the future, given all that is happening in the telecom sector? As for QRN, what is it that the overseas investors knew that local investors did not know or were not told, or both, for it to have risen more than 30 per cent, as it has, and can it go higher? I suspect it can and its first dividend of 3.7? is expected to be paid this September.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.