REVISE RETIREMENT PLANS
I'm 53, working part-time and earning $33,000 while my partner (49) is earning $90,000. I want to retire in about four to five years, my partner maybe a year or so later. We own our home and two investment properties: one apartment in the inner city worth $430,000, and one house in the suburbs worth $450,000. We owe $270,000, paying interest only, and they just cover themselves with rent. We have an offset account and put any extra money into the loan. I have $180,000 in super that I can access in two years for a "transition to retirement" if it's worthwhile to do so, and my partner has $42,000. I guess we'd be considered moderate risk takers. I'd appreciate your opinion on where we should focus next. E.A.
I wouldn't be in any hurry to retire. A big problem today is that people don't realise how long they are likely to live and how much they will need to live a comfortable retirement. Don't forget that the "preservation age" is being phased up for people born after 1960, so your partner will be unable to access super benefits until age 58 if born in the 12 months to June 30, 1963, or 59 if born in the subsequent 12 months.
An Association of Super Funds study estimates that a retired couple can have a "modest" lifestyle on $31,760 a year and a "comfortable" one on $55,213.
Let's say you hope to retire at 55, with your partner at 51, and adopt a "comfortable" lifestyle, spending $55,213 in 2012 dollars. You can expect to go through about $1.55 million during your partner's 35-year average life expectancy, assuming she is a she, less if he is a he, since men have lower life expectancies. If she falls within the 50 per cent of people who live longer than the average, you will need more.
Your rents are probably covering both interest and capital, so you should be able to save a fair bit. Plan to retire with no debt and preferably $1.5 million in total assets, super and non-super, excluding your home.
DECLARE AN INTEREST
My mother died and left about $200,000 in an investment to me and my two brothers. We haven't been able to access this money fully because it was frozen during the global financial crisis. We have been able to withdraw some every few months, however. It has now been released to a bank account and has been earning interest. Who, if anyone, pays tax on this interest? Do we have to declare this income and is it divided by three? Also, we have $120,000 to invest. We own our home (worth $730,000), an investment unit (worth $320,000-$350,000) and are one-third owners in land that cost about $420,000 and is now worth less than $300,000. We have no debts, two young children, and earn about $160,000 between us, plus $18,000 in rent. What would be a good strategy? A.G.
Your mother appears to have invested in a mortgage fund that was frozen in 2008. If it remained in her name to 2012, then it would be regarded as part of her estate. A deceased estate is taxed at personal rates for three sets of June 30 deadlines, after which it is taxed at the top tax rate of 45 per cent.
It is more likely the account was transferred into the joint names of the three brothers, in which case you are each responsible for declaring one-third of the income.
You don't mention any super benefits, and if you don't have any, put your $120,000 into a super account.
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.