Finance Your Budget Ask the Expert: Managing property investments and dipping into super

Ask the Expert: Managing property investments and dipping into super

Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: Hi, thank you for your time. I am recently divorced and have bought a property. Lucky, I have worked casually for 30 years.

I am 56 and had to get a loan of $272,000 to buy a house. Can I draw on my super to pay off my loan and pay back into my super fund? Thanks

Once you reach your ‘preservation age’ you can draw down up to 10 per cent of your super balance per year, via a transition to retirement pension.

Your preservation age depends on your date of birth, as per the table below:

Source: ATO

Super is generally preserved, and access to your entire balance is only allowed in certain circumstances, such as one of the following:

  • Reaching your preservation age and permanently retiring from the workforce
  • Terminating an employment contract after age 60
  • Reaching age 65 (whether working or not).

Another important consideration is tax.

Depending on the components of your super account, you generally pay tax on lump sum withdrawals from super if you are under the age of 60  and drawing down more than $215,000 (2020-21) of your ‘taxable’ component.

Income drawdowns are also treated as taxable income if they came from the taxable component. However, once you reach 60 all super payments, either lump sums or income drawdowns, are received tax free.

If you can maintain your mortgage payments until at least age 60 before withdrawing from super to pay off debt, you could save a significant amount of tax.

Another option to consider would be to put money into super instead of repaying debt faster, as with low interest rates on home loans, you may achieve a superior return by making additional super contributions, especially if you consider pre-tax (salary sacrifice) contributions as this would provide you with a tax saving.

Once your loan is repaid, or at least manageable, you can top up your super by making additional contributions up until the age of 67.

After that age, you need to meet a work test to be eligible to continue contributing. You also need to be aware of annual contributions caps that apply when making contributions.

Your super fund or a financial adviser can provide you with further details and look at the specific numbers relevant to yourself.

Question: I have two mortgages on two apartments. Apartment 1 is rented out for $400 per week and the mortgage is $130 on a $140,000 loan at 2.97 per cent. 

Apartment 2 is where I live. I am paying $300 per week off a $400,000.00 loan at 2.97 per cent. 

I am single, 60 years old and still working 5 days per week with an income of $1100 per week as a practice nurse.

My super is approximately $150,000. I want to slow down working, maybe sell apartment one to pay off apartment two. What are your thoughts?

From your question, it’s unclear what Apartment 1 is currently valued at and therefore unclear what equity (value of apartment less loan) you currently have.

The bigger the equity, the more options are open to you.

Apartment 1 is positively geared and, as it is an investment, the interest on the loan and expenses should be able to be claimed as a deduction on your tax return.

Apartment 2 is your principle place of residence, and therefore the interest and expenses would not be tax-deductible. As a result, paying down this loan should be your priority.

Your current level of repayments seems very small on a loan of $400,000. Plugging those numbers into the Moneysmart mortgage calculator shows the loan would take over 48 years to repay.

At retirement, you could use all/some of your super to repay your loan tax free. However, this would then mean you would be totally reliant on the age pension for your retirement income.

Paying down non-deductible debt and building up your super should be priorities heading into retirement. Whether you should sell Apartment 1 comes down to the following:

  • How much equity you have and the likely sale price
  • How secure the rental is
  • The growth prospects of the apartment
  • Capital gains tax on the sale – if significant, you could consider selling it after going part time or in retirement when you are in a lower marginal tax rate
  • Your planned retirement age and what income you would like in retirement.

Currently you have the majority of your financial net worth in apartments, so ideally you could sell Apartment 1 to reduce debt and top up super to provide more diversification.

However, there are a number of unknowns that would impact on the ideal strategies.

You should seek personalised financial advice on your situation and where your apartments would fit into your long-term financial goals.

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. 

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