Se­cure your own fu­ture first

Wal­ter wants to help his daugh­ters but ...

Money Magazine Australia - - ASK PAUL -

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.

ASK PAUL

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