Questions of the Week
I am 62 years old and have placed my super into a cash account as i have lost around $70.000. due to the way the market has reacted.Can i draw the money and use it ,and if i can do i pay tax on the amount withdrawn.Rgds Norm
The preservation age (the age at which you can access your superannuation in some form) for someone born before 1st July 1960 is 55 years if age. Whether you can access that money in the form of a lump sum or via a pension (up to a maximum of 10% in some cases) depends on whether you have satisfied a "condition of release". Check out these video#06 and video#07 for more details. You could actually watch the whole superannuation series and you may also be interested in the Retirement Planning series and Investment Options series. For those over 60 years of age, generally funds drawn from superannuation is tax free but this is dependent on whether the drawings are from a taxed or untaxed super fund.
Posted by Norm (30 Oct 2011, 12:56 PM)
Hello,I have a question about retirement.I have the property I am living in paid off ($400k), I will retire in 1 year. My daughter is planning to buy an investment property ($300k).She want to put my name in the property, but only 5%, she owns 95%. My questions are:1. In the future is it easier to transfer the property to me?2. Is there any other positive reason for doing so?3. And how will this affect my retirement payment?4. If my daughter buys the property on her own (without having my name on the property), what are the differences to having my name on for 5%?Thank you very much for the help!Regards,Mark
I suspect that the 5% interest proposed is all about providing the lender with security that if your daughter cannot pay that you will be oligated to. It is effectively being the "guarantor" of the loan and is not a wise option. I go into more detail in Your Money Your LIfe Podcast 031 starting about 10 minutes into the podcast.
Posted by Mark (29 Sep 2011, 03:52 PM)
Hello I was about to retire by downsizing my large house and contributing to my super fund which had a value of $250,000. I would have ended up with $500,00. It all went pear shape when my super took a plunge to $150,000 and I could not sell my house for the amount I wanted. I am now sitting and waiting (will have to work until I am 70) to be able to retire as a self funded retiree. I am salary sacrificing 700 a week. Fired my adviser and have $100 in shares and $100 in Term deposit. I am afaid to take a risk and lose any more money. Am temped to borrow and buy an investment property. How can I retire on $500,00 to get some retirement life before I get too old. I am 62 years old. Thank you Mary (not real name)
That's a comprehensive question Mary (not real name). To break your question down you need to understand:
- How much you will net by downsizing your home - this strategy is often not as effective as first thought - particularly if you are staying in the same suburb.
- Add your downsize profit to the $200k you have already saved.
- Work out how long it will take to accumulate the remaining amount to achieve your desired $500,000 retirement capital (not forgetting inflation).
Whilst you can borrow to invest in property (and do it within your super fund) I would be cautious about taking on debt at this stage of your life and concentrating your investment risk in a single asset.
Another way to structure your life is to scale back from full time work to part time work or perhaps take 8 or 12 weeks leave each year instead of 4 weeks. This enables you to continue to travel and enjoy yourself without depleting your retirement savings by fully retiring.
You should also put a long term investment plan in place that can see you through your pre-retirement to retirement. It is well researched that chopping and changing strategies has significant negative impacts on your overall outcome.
Remember that this is general advice as I don't know your full details. I can provide personal advice if you wish (gavinmartin@cornerstonewealth.com.au)
Posted by Mary (not real name) (15 Nov 2010, 08:44 AM)
What are your thoughts regarding purchasing a city apartment with a 12 month rental guarantee supplied by the builder?
Rental guarantees are generally used to provide greater certainty to investors. The issue is if a guarantee is required it suggests the property cannot "stand on its own two feet" as a sound investment. Apart from indicating the property may not be able to be rented out successfully at the going rate for the type of property, the other common practice is the requirement to use a particular property manager. This means that a 6% rental guarantee can be eaten away by high property management costs. Assuming a 25% management cost, the 6% rental guarantee quickly reduces to 4.75% and that is usually before other fixed costs like body corporate fees, rates etc. The other way rental guarantees are provided for by the seller is to factor the expected cost into the sale price. Check the fine print but generally it is best to steer clear.
Posted by JOE & NELLA (17 Nov 2009, 05:13 PM)
I heard on the news of a new scheme, whereby if I was to give my Super Funds (at retirement) to the Govt., they would add an extra payment to my pension, for the rest of my life. Do you know anything about this or where to get further details?
The plan is being examined as part of the Henry tax review and basically involves retirees paying a lump sum to the Government in return for a guaranteed income stream for the remainder of their lives. From the limited information available through the press, it seems that this plan would be for those with limited super funds, and the income generated would be used to ‘top-up’ the age pension that they receive from Centrelink. The idea sounds similar to lifetime annuity products which have been very popular in years gone by but are now less favoured due to changes in Centrelink rules and many years of low interest rates. The advantage of such products is that it removes investment risk from the retiree, as they will receive the same amount of income regardless of movement in the market. It also removes longevity risk, which is the risk that the retiree might outlive their superannuation savings. The downside is that the level of income that they offer is likely to be less than that available from market linked products. At this stage, there have been no formal announcements or detailed information available however we consider it odd that the Government would provide such a product, rather than professional fund management firms. Some basic details are available on The Age website.
Posted by Bernie Dixon (01 Oct 2009, 10:51 PM)
I have some cash at hand with no debt, where is the best place to invest at the moment?
The answer to this depends on your particular needs. Is the money set aside for a specific purpose and/or will you require access to it in the short, medium or long term? Short term investments generally need to be accessible and cash or term deposits are often appropriate. Equities (owning a part of a company) are suitable for longer term investments, and due to deep lows experienced over recent times they are currently considered to be good value. However, volatility is set to continue in this market.
The best approach is to diversify your investments across different types of assets, such as cash, fixed interest, equities and property. This way, when one type of asset is down, often another type of asset is up, which generally provides for more consistent and better long term returns. For those who have a higher tolerance to risk, the proportion of growth assets, such as equities and property, can be greater whereas those with a lower risk tolerance will have a higher proportion of cash and fixed interest.
When investing remember your first decision is to decide the structure to invest in and the second decision is what type of asset to invest in within that structure.
Posted by Pete (01 Oct 2009, 10:30 PM)
Is there any advantage to self-funding my superannuation.
Without making provision for your retirement, you may be reliant on the age pension to meet your retirement expenses. The annual age pension is just over $14,800 for singles and $24,700 for couples which many retirees find inadequate. Making contributions above the Superannuation Guarantee (which are compulsory contributions made by your employer) does not only increase the level of assets available at your retirement but can also provide benefits prior to retirement. Salary sacrificing to superannuation replaces your taxable income with superannuation contributions, providing a reduction in tax of up to 31.5%. Making an after tax contributions can also provide significant advantages. If you are eligible for the Government Co-contribution and make a superannuation contribution of $1,000, the Government will contribute up to $1,500 to your super fund (reducing to $1,000 from 1 July 2009). Further, if your partner earns less than $10,800, making a spouse contribution on their behalf will not only make them eligible for the Co-contribution, but will also provide you with a tax rebate of up to $540.
Posted by Sue (01 Oct 2009, 10:29 PM)
Is there anything I should do with my superannuation before I reach retirement age to increase my chances of receiving the aged pension?
If you have a younger spouse there may be the opportunity to hold assets within super in the name of the younger spouse to reduce assets tested by Centrelink. This may be acheived by:
a) splitting contributions to the younger spouse
b) contributing assets outside of super to the younger spouses super fund
c) completing a cash out recontribution strategy from the older spouse to the younger spouse.
This is beneficial because super is not counted by Centrelink for those under age pension age. It is also best to resist the temptation to withdraw your superannuation when you retire, rather, commence a pension from your fund. Centrelink have more generous rules for pension income under the Income Test.
Posted by Bernie (01 Oct 2009, 10:28 PM)
Do the changes in the budget mean that I have to wait until I am 67 before I can retire?
The Government is certainly encouraging people to remain in the workforce although there are a few options available for those wanting to retire earlier than 67. If you have built up assets in your superannuation fund, you can draw an income stream from your fund any time after preservation age (which is age 55 for those born before 1 July 1960, increasing to age 60 for those born after 30 June 1964), although depending on your circumstances, there can be restrictions on the amount you can draw on. You may also be able to access the Government’s unemployment benefit, NewStart Allowance, or if you are in poor health, you may be eligible for a Disability Support Pension.
Posted by Greg (01 Oct 2009, 10:27 PM)
When will the stock maket bottom out?
There is an old Chinese proverb that goes something like, “Making predictions is difficult, especially about the future”. No one can know when the market has bottomed out because the market needs to have risen before the bottom can be identified. The market is currently cheap relative to the where it was 12 months ago but we don’t know whether it will fall further. Is it a good time to invest? Yes, if you have the cash it is an ideal time to invest (you are effectively buying on special) but don’t use debt, don’t over commit yourself or your family and consider using Dollar Cost Averaging into the market to reduce your risk.
Posted by Steve (01 Oct 2009, 10:27 PM)
Should I make a contribution to superannuation in order to obtain the Government Co-contribution in light of changes announced in the budget?
Definitely! If you make a contribution of $1,000 before 30 June 09 and your income is below $30,342, the Government will make a contribution of $1,500 to your superannuation. After 30 June, you will receive a Government Co-contribution of $1,000 which is still very attractive. If effectively provides a return of 100% on your money! The other good news is that the reduction in the co-contribution is temporary. From 2012/13 the maximum Co-contribution is expected to increase to $1,250 and return to $1,500 from 2014/15.
Posted by Sam (01 Oct 2009, 10:26 PM)
Is it better to receive annual or monthly Child Care benefits?
It depends! Theoretically it is better to receive the money as soon as possible. However if you are not particularly disciplined, choosing an annual payment can be an effective way to save. Sure you miss out on some interest that you could have earned throughout the year but if the decision is do a receive the money throughout the year and risk spending it versus receiving it annually and saving it then an annual payment is to your advantage.
Posted by Martha (01 Oct 2009, 10:26 PM)
How do I apply for the bonuses that are part of the $42 billion Federal Government stimulus package?
Most people won’t have to do anything to receive the proposed payments. Although if you haven't lodged your 2007/2008 financial year tax return then get it done before 30 June 2009 as eligibility is based on the 2007/2008 financial year. The ATO website has more information on the Tax Bonus Payment and the Centrelink website has more information about the Other Bonus Payments.
Posted by Ben (01 Oct 2009, 10:26 PM)
Do you think interest rates are going to go up? Should I fix the interest rate on my mortgage?
There's an old Chinese proverb that says "It is difficult to make predictions, especially about the future." The proverb highlights the fact that we can't consistently predict the future, including the direction of interest rates. The decision about whether you should fix your interest rate is all about reducing risk. It is not about trying to predict whether rates are going to rise or fall because, as we have already stated, no one can consistently predict interest rate movements over the medium to long term. If you can comfortably afford your current mortgage payments it would be prudent to fix them to reduce the risk that an interest rate increase pushes you into financial difficulty. If you fix your mortgage interest rate and then interest rates decrease you may feel as though you have made a bad decision, but a decision to fix your interest rate is not about trying to get the best deal, it is about reducing risk.
Posted by Patrick (01 Oct 2009, 10:25 PM)
How do I apply for the Government Co-contribution?
You don't actually apply for the Government Co-contribution. If you are eligible you just need to make a personal (non concessional) contribution to your super. Once your super fund has notified the Tax Office how much dough you put into your super fund during the year and you have notified the tax office how much you earnt by lodging your tax return, the Tax Office can then calculate your co-contribution and deposit it into your super account. Check out the Government Co-contribution video here
Should I make superannuation contributions before I repay my mortgage?
Great question Rachel but the answer to this is not so simple. Firstly, (and most importantly), is your home affordable for you over the long term? We consider an affordable home one that you can repay in 15 years. Assuming the answer is yes, making super contributions can be very tax effective for those on a higher marginal tax rate. It can also be effective for those on lower tax rates, who are eligible for the Government Co-contribution and the spouse contribution rebate. However, for the strategy of making super contributions before repaying your mortgage to be beneficial over the long term, the investment return generated by your super fund must be greater than the interest payable on your mortgage. Over the last 12 months where investments returns have often been low or negative, the strategy would have been ineffective however over the long term, some returns generated by super funds have been greater than average interest rates. Therefore, there is an increased element of risk to this strategy as the overall viability is dependant upon investment returns. For the risk averse, we would certainly recommend repaying the mortgage first but for those who have a higher tolerance to risk, we would recommend seeking advice as it depends on the individual's investment selection, their tax situation, their attitude to risk and their particular needs.
Posted by Rachel (13 Sep 2009, 11:31 PM)
The official RBA interest rate is 3%, banks are 5 - 5.9%, can we expect this sort of difference in rate margins to continue into the future, when official interest rates rise again and economies improve?
Since the onset of the global financial crisis, borrowers have had to pay larger margins above the RBA interest rate to reflect higher risks related to credit quality, duration of loans and market liquidity. As a result, the banks failed to pass on all of the RBA's official cash interest rate cuts.
However, the margin has not increased significantly, according to a recent paper published by the Reserve Bank of Australia. According to the report, margins have only increased by an average of 0.09% since before the onset of the global financial crisis.
The paper also reports that banks have enjoyed larger margins since 2004, well before the onset of the global financial crisis. Interest margins are a major source of bank profits and whilst we would expect that margins may reduce slightly as credit markets improve, we would not expect a significant reduction any time soon.
Posted by Bevan (08 Sep 2009, 05:10 PM)