VALUE PROPERTY FOR RETIREMENT
I am 60, working full time in a manual occupation and rapidly succumbing to its rigours. Domestically, I support a wife and have an encumbrance-free home. We have a debt-free investment property valued at $500,000, returning $500 a week. We have a professionally managed share portfolio that has vacillated for years and now stands at about $100,000. I have a defined-benefit super fund with $400,000 and an accumulation fund exceeding $50,000. I contribute to my wife's super fund, also a little more than $50,000. I also have a TTR (transition-to-retirement) pension being meted out at $1200 a month from a $180,000 base, which is fed back indirectly into my accumulation fund. Super inputs exceed the $25,000 cap, so I will have to cut back payments from now on. Assuming the above strategy is reasonable, what alterations would you suggest, assuming I will cease work in the next couple of years? Would it be prudent to dispense with the investment property before terminating employment and putting a once-only sum - $450,000 - into super? Is it "fudging" to opt out of the workforce before the three-year term expires? Would it be more beneficial to just retain the investment property to provide income? I won't be pursuing paid work after retirement and don't have enough nous to run an SMSF. B.H.
I don't like the idea of selling a fully paid-off property in a good neighbourhood and in good condition (so it isn't going to cost a fortune to renovate), as I see it basically as a CPI-linked annuity. Also, this is the first time in more than a decade I have seen an urban property earning a 5 per cent rental yield, which, as a rough rule of thumb, is the historical yield achieved when big city houses are not overpriced. Keep it long enough and you won't have to worry about CGT, your children will. Just don't expect much capital gain, if any, for a while.
If your TTR pension is designed purely to be recontributed as a non-concessional contribution to form a tax-free component within the fund, then you might as well take out the maximum 10 per cent allowed for a TTR fund, now that you are 60 and the pension payments are no longer taxed as income. Thus, for a fund with $180,000 as at July 1, you can take out $18,000 in 2012-13.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.