Financial advice before hitting 50
Iam a little unsure with the direction we should take in terms of our next investments. I am 48 and my wife is 47 with three teenagers still living at home. I earn $165,000 a year and my wife works casually. We have a mortgage and owe $110,000, a line of credit up to $235,000 and a main residence worth $1 million. We have an investment property in regional NSW worth $425,000 and owe $300,000. We purchased the property about 10 years ago and there has not been much capital gain. I am in a defined benefit super scheme with my employer and salary sacrifice the maximum $30,000 and am aware of the reduction to $25,000 from July 1. My wife contributes $25 a month to her super. We have shares valued at $25,000.
Although the median house price is $1 million in Sydney, should I invest in another property and sell the property in regional NSW? Do I contribute to my wife's superannuation to boost this as well? Anthony
Things are looking financially sound for your family. You have built a really solid base as you move towards the dreaded 50 years old. I am not too sure why so many people worry about turning 50. It must be a hang-up from the not-so-distant days when we blokes died, on average, at 54.
It is quite extraordinary that in just over 100 years life expectancy has jumped by 25 years. The good news is that for most of us turning 50 is simply a great excuse for a party, and I strongly recommend not missing that opportunity. My 50th went so well, and I managed to spread it out for most of the year, that I did a repeat for my 60th.
The media's moaning about “the problems of the ageing society” does cause me much mirth. The “problem” is wonderful for us humans – it means we are not dying as young. I am happy to celebrate that.
But as you and your wife's 50th looms, you are smart to look at your capital base today and to ponder what amount of money you need to live well in the future. Adding to the challenge is that we are also living better than ever. That is also terrific but, let's face it, our plans for overseas travel, eating out and so on require more money than camping locally and boiling beans.
As you have a defined benefit scheme, I think I can safely assume you have been in it for some time. Presumably this will be a multiple of your final salary. I don't think either of us can guess what this will be but I think it is safe to say that the payout will meet at least your basic living needs at around age 60-plus. You can't do any more there, and as your wife is likely to be a low-tax payer as a parttime worker, I don't think super is as effective for her, so I'd keep topping it up as you are now. If she was to go back to full-time work as the kids become adults, then I think super really comes into play for her. Now, though, I agree with building wealth elsewhere.
I appreciate your mortgage is small given the value of your house and your income but I would still plan to pay it off reasonably rapidly and certainly by 55.
Then we turn to the issue of shares or property. With a home and an investment property, it is hard for me not to recommend diversification and to even consider using that line of credit to build a nice portfolio of local or international shares. You have not mentioned shares, so they may not pass your personal “sleep-at-night” test, but I always start with spreading risk as people build wealth.
I am not much of a believer in the “property prices to crash” headline. Yes, in our major cities property is downright expensive on any global comparison. At some stage it will go backwards. But with powerful population growth I do believe in supply and demand, and if property is your thing it is hard for me to argue it will be worth less in, say, 20 years as you consider retirement or slowing down.
So providing you do not risk what you have achieved to date by overgearing, and buy a good property in a growth location and have a long-term view, while I am a little concerned about concentration risk I would not have a heart attack if you bought another property.
The critical issue is that you keep up what you have been doing. Top up your super, pay down your mortgage and make sensible decisions when it comes to borrowing to invest.
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Paul’s verdict: Don’t overgear and risk what you have already achieved Buy in a growth location and take a long-term view