RETIREMENT LOOKS ROSY
I am 51, earning $145,000 and complete work with a government agency in 2017. I have $190,000 in shares, and investment properties in Sydney and Coffs Harbour currently valued at $700,000 and $340,000, generating gross income of $30,000 and $10,000 a year, respectively. Current mortgages are $270,000 and I pay $54,000 a year into them. I salary sacrifice $25,000 a year into super. Based on conservative returns, the share portfolio should pay off the remaining mortgage on retirement and leave at least $100,000. My annual pension is estimated to be $70,000 a year, with a lump sum of $200,000. I intend to relocate to my Coffs Harbour property and hold the Sydney property for additional income. As my lifestyle is quite simple, I believe the pension, property income and lack of debt should enable me to maintain a reasonable lifestyle. Am I being realistic? M.L.
It would have to be said that a government-guaranteed, CPI-linked lifetime super pension at roughly 130 per cent of the average wage is one of God's gifts to mankind. You are obviously planning to retire when you reach your preservation age of 56 or 57, depending on your birthday.
At that age, you are likely to have a long average life expectancy, about 26 years for a man, 29 to 30 for a woman. Luckily, the lifetime pension means you don't have to worry about having enough assets at retirement to finance all of your retirement. You should also have $45,000 to $50,000 in rent and dividends, assuming all loans are paid off. You don't mention where you are living now. I assume that is a paid-off property that can also be rented when you move north.
The 2.9 per cent gross rent currently being received on your Coffs Harbour property appears below market, unless you are using this as a part-time holiday rental. If not, you might want to compare this with the rents being received by similar properties in the area.
Keep making the maximum concessional contributions, but your super pension is almost certainly a "defined benefit" structure and the employer's "notional taxed contribution", or NTC, needs to be considered. (Employers' contributions to defined benefit schemes can vary from year to year and hence an NTC is calculated and measured against the concessional cap of $25,000 a year.) If greater than this cap then, as you would have been in the fund as of September 5, 2006, or May 12, 2009, your NTC will be your concessional cap and you will need to be wary of salary-sacrificed contributions. If you have any doubts, talk to your super fund.
Have your salary paid into a mortgage offset account and, given the drop in concessional caps this year, you should find spare after-tax money building up to save you even more interest.
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.