Finance Property, investment and income: Setting up your super ahead of retirement

Property, investment and income: Setting up your super ahead of retirement

Within super you can choose an investment option, or options, that you are comfortable with. Photo: TND
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Question 1. I am 64 now and retiring at 67. I have an investment property with $300,000 equity. What will be the best option – either keep the property through retirement, or sell it now and top up my super?

To make that decision there are a number of factors that need to be taken into account.

Cashflow, tax and capital gains
Is the property positively or negatively geared? That is, does the income from the rental exceed your loan repayments, and if it does, would this still be the case if interest rates rise by a few percentage points.

In retirement you want a positive cash flow, so to replace your salary/wages. In fact, this is exactly what super is designed to do.

If the property isn’t going to provide you a decent income that exceeds your interest and other property outgoings (maintenance etc.), then it may be best that it’s sold, unless you have a specific reason for holding it.

Unless you can draw enough income from your super, there may be a time when the property has to be sold to fund your retirement lifestyle.

Has the property gone up in value since you have held it?

If you have made some significant capital gains, you may want to sell it when your other taxable income is low, such as after you have retired, to ensure any capital gains tax is minimalised.

Or if you could possibly make pre-tax (concessional) contributions to super in the same year as you sell your property, also to reduce any capital gains.

If your super balance is under $500,000 the amount of concessional contributions you can make increases carry-forward provisions, but best seek advice over this.

As you are over the age of 60, and once you commence a pension with your super, there are two very attractive benefits:

  • All earnings within the fund are tax free
  • All income payments and withdrawals from super are received tax free.

Diversification and risk
Within super you can choose an investment option, or options, that you are comfortable with, and generally these options are diversified across many different assets, i.e. Australian and international shares, fixed interest, cash, and possibly some alternative style assets such as private equity, unlisted infrastructure and commercial property.

With one investment property your risk and return is more amplified.

If the property does really well then you could beat the return from super, but conversely, if property has a downturn that is a lot of money tied up in one investment.

Level of simplicity
Some people love to manage property and it’s a hobby or pastime in retirement.

For others, they have no interest in dealing with tenants and property maintenance and prefer to outsource all investment decisions. This is entirely your personal choice.

Overall circumstances and goals
The decision whether to retain an investment property or place the net proceeds in super should not be made in isolation.

What other financial means and assets do you have? Is the purpose of the investment to provide retirement income, or to leave the property to your kids, or some other purpose?

As you approach retirement and have some big financial decisions to make, now may be an ideal time to seek personalised financial advice.

Question 2. I am 57 and working part-time. I have no debt at all, 425K in super, shares. I’m hoping to retire and draw down my super to live on at 60, or buy a house to rent out then retire to that. Is this sensible? My health is a struggle with my eyesight going.

This will depend on whether you currently own a home and what income you need to live on in retirement.

If you currently don’t own a home, then having one in retirement does provide security and alleviates the need to pay rent – unfortunately the largest group experiencing poverty is older Australians who rent.

However, if you want more than a basic income in retirement, i.e. something higher than the age pension, you will need some super to draw down upon.

It might be worth seeking some personalised advice to take you through the options.

As an aside, regarding your comment about your eyesight, age pensioners who are permanently blind are exempt from the income and assets test.

Question 3. I am retiring and considering maximising my super balance and drawing down the required 4 per cent. However, I will continue to receive income from other investments which I may want to put into superannuation. Can I start to withdraw the 4 per cent but still put other income into super?

The short answer is yes.

You will need a pension/super income stream account to start drawing down from your super, and you can keep your existing super accumulation account to make further contributions back into super.

Therefore, you may want to retain, say, $10,000 in your regular accumulation account to keep it open and transfer the rest to an income stream.

With the work test now being abolished for after-tax (non-concessional) contributions, you can continue to contribute back into super until you attain age 75 subject to your total super balance being under $1.7 million.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings