YOUR QUESTIONS

I am 54 years old, earning $90,000 a year and have $74,000 in super to which I do not contribute. I own, in my name, a positive-geared pre-1985 property worth $550,000, renting for $415 a week, while my wife (62) and I jointly own a positively geared property worth $600,000 and renting for $450 a week. We also live in our home worth $350,000 and have a $780,000 line of credit portfolio loan with a debt of $500,000 at 6.62 per cent plus $10,000 in the bank. Surety on the LOC is both the $600,000 property and our home. My wife has $12,000 in super and her only income is her 50 per cent of the rents received. I now have to pay tax in quarterly instalments and a good portion of the income is paid in taxes. I am willing to work to 65 but wouldn't mind retiring earlier if able. Should I be looking at further negative gearing to offset the positively geared property or is salary sacrificing to super better? T.P.

If you want to retire at age 65, you have some 11 years to set yourself up for a period of 20 years or so in retirement. You don't mention how much you are spending but your total assets come to $746,000, and I estimate your net combined income comes to about $79,000 after tax, but before any loan capital repayments.

Let's say you live on about $50,000 a year net of tax and want to spend that in retirement, then you would need roughly $900,000 in savings, from which you need to withdraw $50,000 a year free of tax, so you have a fair bit of saving to do.

I don't think this is a time in your life to have a large debt. You might consider selling the post-'85 property, clearing your loan and placing as much as possible into super, using the deductible or concessional contributions cap of $25,000 in your case (via salary sacrifice if an employee), plus a $3000 spouse contribution. Any excess money should be placed as a non-concessional contribution. If you can do that for 11 years, you should have a reasonably comfortable retirement with, if you're lucky, not too many assets to access a part-age pension.

FIXED-INTEREST FUTURE UNCERTAIN

I am 52 and looking at options for retirement planning. Our house is paid off but needs a rebuild. The land value is about $800,000. I earn $120,000-$130,000 a year. My partner is 55, earns less than $5000 a year and has virtually no super. I have $75,000 in my fund's conservative option, and am salary sacrificing $50,000 into it a year. We have $10,000 cash savings. I feel I am not making the most of my opportunities and have been considering either: remortgaging to rebuild our residence, or remortgaging to purchase an investment property. I'd also like to look at options to use my partner's low income to offset mine. B.M.

If you feel you want to stay in your home, then I suggest renovation rather than looking elsewhere or buying an investment property. You can get an awful lot of renovation for the cost of moving houses. Just budget to ensure any loans are paid off by age 65 when, presumably, you want to retire.

Given that the government wants to bring in more tax money for itself by reducing your tax-deductible contributions to $25,000 a year from July 1 onwards, you need to aim to meet the cap each year between now and retirement, while budgeting tightly and placing any extra income into a non-concessional contribution.

The conservative option of most super funds tends to have about 70 per cent in cash and fixed-interest securities, and while the latter have been rising in price as long-term interest rates fall, I note that our 10-year government bond rates are now about 3 per cent, lower than the cash rate of 3.5 per cent. That leaves fixed-interest securities vulnerable to a sudden jump in rates and falls in the unit price of funds containing large amounts of fixed interest, although I don't think that will happen soon. The other 30 per cent of such funds will be mostly in equities and I feel that equity prices are in for some bad times ahead. I much prefer cash and term deposits for savings at present.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.