BANK IT SAFELY
I am a single mother, 40, with two children (girls both 12) attending high school. I work full-time (earning $70,000) and am renting a property for $530 per week.
I have a lump sum of $90,000 from a divorce settlement. I have $45,000 invested in my superannuation, with additional death and disability provisions within my superannuation. I live and work in north-western Sydney and I'd prefer to stay in this area. How can I best manage my finances so as to maintain a reasonable lifestyle while still making adequate provision for retirement?
You're doing it tough and you'll probably have to leave your super to grow with just the compulsory employer contributions until your daughters start earning and paying rent. The biggest expense is your rent. Is there any way this can be reduced? Do you have a best friend in a similar situation who would be willing to share a house with you? Also, is it possible to undertake self-education in order to move up to higher-paying positions?
I wouldn't suggest looking to buy a house now as prices are likely to drift down, so invest your $90,000 safely in bank term deposits and don't touch it.
WORK HOUSE HARDER
I am 52 and my partner is 57.
I work full-time and earn about $86,000 a year and plan to continue working for a number of years. My partner works part-time and earns $15,000 a year. We own an investment property interstate - valued at about $1.7 million - which we are renting out. If the property were sold, there would be some capital gains tax liability. The annual net income from the investment property is $30,000. We have about $340,000 in superannuation between us. We also have $360,000 in savings in high-interest accounts. Our two children are at university and will remain financially dependent on us for another few years. What should we do to ensure that our finances are arranged to support us into our retirement? Should we consider selling the investment property? Should we establish a self-managed super fund (SMSF)?
Your major investment is your $1.7 million property earning a paltry 1.8 per cent net income. You don't mention the city, so all I can say is that, generally, I doubt residential property prices are going to do much for some years. Australian house prices as a whole remain absurdly high compared to other parts of the world and it is a moot point whether we can maintain such heights in the face of the monstrous economic problems the world is facing at the moment.
One option is to sell the property and put as much as possible into a super fund while retaining enough aside to allow you to buy a home in which to retire at some stage in the future. If you want to set up a SMSF, you first need to judge whether you have the time and the experience to run a portfolio. We frequently see criticism of managed funds being unable to match an index, but most of these are run by experienced professionals backed by teams of analysts, and if they can't achieve that goal then you can rest assured the majority of SMSFs are also unlikely to do it.
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.
Frequently Asked Questions about this Article…
How should I invest a $90,000 divorce settlement while renting in north‑west Sydney?
The article recommends keeping that $90,000 safe in bank term deposits and not touching it for now. It also suggests not rushing into a home purchase because prices may drift down, and to focus on reducing your major ongoing cost (rent) and improving your income where possible.
Is now a good time to buy a house in Sydney if I want to stay in the area?
According to the article, now is not the best time to buy: house prices are very high and are likely to drift down, so the advice given is to hold off and keep your lump sum in safe term deposits instead of using it to buy property immediately.
What practical ways can I reduce rent pressure to improve my finances?
The article suggests exploring options like sharing a house with a friend in a similar situation to cut your $530 per week rent, and also considering upskilling or self‑education to move into higher‑paying roles so rent becomes more manageable.
Should I rely on compulsory employer contributions for my superannuation or make extra payments now?
For the single parent case in the article, the writer expects you may need to leave your super to grow on compulsory employer contributions until your daughters start contributing themselves. The immediate recommendation was to preserve the separate $90,000 in safe deposits rather than boosting super right now.
Our investment property is worth about $1.7m but only returns low net income — should we sell it?
The article highlights that a $1.7m residential property producing a paltry net yield (about 1.8%) is a major concern and suggests one option is to sell it, put as much as possible into superannuation, and keep enough aside to buy a home for retirement later.
Is a self‑managed super fund (SMSF) a good idea for managing our retirement savings?
The article advises you should honestly assess whether you have the time and experience to run an SMSF. It also notes that managed funds are run by experienced professionals and research teams, so many SMSFs are unlikely to outperform standard indexed or managed options.
How can we arrange savings, super and property to support retirement when we’re still working?
Based on the article’s guidance, consider your goals and options: continue working if possible, evaluate selling low‑yield property to boost super, keep a portion of savings for a future retirement home, and weigh professional advice on investment allocation rather than relying solely on the current property’s low income.
Where can I get help or raise a complaint about financial services?
The article lists helpful contacts: the Financial Ombudsman at 1300 780 808, and the pensions line at 13 23 00 for pension‑related enquiries.
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