Just throwing money away

QMy wife (68) and I (63) own a property in Brisbane valued at around $725,000. We have a neutrally geared investment property on the Sunshine Coast valued at around $650,000 with $215,000 left to pay on the mortgage. Our combined superannuation is $360,000. We both work full time – my wife’s income is $130,000 and mine is $72,000. We both salary sacrifice the maximum amount.

We’re looking at cutting back our hours and selling our rental property, then renovating our principal place of residence. Having read Money magazine (“Why you only need $275,000 in super to retire”, June, 2017) we would like to qualify for the age pension. Should we invest most of the money in our renovation, making the house better?

Hmmm. This is a challenging question, Jimmy. You have a home worth $725,000 and some $795,000 in super and equity in the investment property.

Technically, it sounds nice to spend some $500,000 on a huge renovation, leaving you with $275,000, but it is not that simple. The obvious question is, if you did this would your property be worth $1.25 million? If not, you are just throwing money away.

I guess you could buy a new home for $1.25 million but you will incur a heap of costs, such as agent fees, stamp duty and so on. My suspicion is that potentially throwing money away is no way to get an aged pension.

I really want you to see a fee-for-service financial adviser to run the numbers for you and in particular build you a “life model” showing how you want to live, the money needed each year to fund this and the best way of going about this.

My suspicion is that you may well start on a very small aged pension, which may grow over time. But this question is too important for a few words here. Please see an adviser.