Secure your own future first
Walter wants to help his daughters but ...
QI am 62 and my wife is 57. This is our current position: home worth probably $1.4 million (nil mortgage); investment property No. 1 valued at about $580,000 (nil mortgage); investment property No. 2 worth about $490,000 ($410,000 mortgage with $242,000 in an offset account); shares worth about $30,000; and super (combined) $275,000.
I work part time now and my gross salary is $45,000-$50,000pa. My wife, still full time, earns $50,000-$60,000pa gross. We have both been increasing our salary sacrifice amounts every year.
Both investment properties are rented out and combined gross rent amounts to $38,000-$40,000 a year.
However, we intend to give away both these properties, in the future, to each of our two daughters, aged 28 and 22, who do not have homes of their own and are renting.
Should we reduce our investment loan of $410,000 by paying it down with the offset amount of $242,000? Is there anything we need to do to improve our current position? What should we do when one of us retires shortly? We would most likely downsize our home as the present one is simply too big for the two of us.
You are younger than me, Walter, (I turned 63 in July) but we are in the same situation, starting to wind down work and wondering how to help our kids without impoverishing ourselves.
There are two parts to this answer. I am pretty confident about the first part, so let’s tackle that first.
At ages 62 and 57, anything you earn above $18,201, where tax cuts in, and certainly above $37,000, where tax becomes 34.5% including Medicare, should be salary sacrificed into super providing you don’t put in more than $25,000pa each.
You pay only 15% on money going in, and at retirement or a retirement event, which I would like you to talk to your fund or adviser about. From what you have told me, at retirement you should be able to take money out as a lump sum, or pension, tax free. After that I would add to your offset account.
But I am concerned about the second part, gifting a property to each daughter. I appreciate that you may free capital by downsizing but there is a lot of competition for appropriate downsizer property, so do your research on how much you would free up. Without the two properties, I am really fretful about how you would survive. You may have defined benefit pensions from work but it does not look like it.
An aged pension may be in your minds but if you “deprive” yourself of assets in order to qualify for a pension, this will be a major problem in actually obtaining a pension. If this is your intention, you must seek professional advice before you do anything.
It is critical that we “pre-retirees” ensure we are financially secure before we help family members. I can only give you general guidance in a short column and I really feel you need a few hours with a professional fee-charging adviser.