Question 1: Dear Craig, I’m 59 and have recently bought a house with my partner (my share of the loan is about $350,000). I have two personal investment properties – one valued at $750,000 (I owe $280,000) with capital growth around 9 per cent and the other valued around $500,000 (I owe $297,000) with annual capital growth about 12.5 per cent. They are both only just positively geared. I also have $600,000 in an industry fund which has returned $80,000 this year so far alone!
The question is, I am now only working part time and am a bit concerned about paying the new mortgage. Should I sell the $750,000 apartment, pay off my share of the new home and invest the rest in industry super? Regards, Heather
It appears your investment properties and industry super fund have all been performing strongly, and you are in a relatively solid financial position. However, as ASIC likes to remind us: “Past performance is not a reliable indicator of future performance.” So, I would temper your expectation that those sorts of returns will continue over the long term.
If you are concerned about meeting your future loan repayments, or if you have a cash flow issue, then selling the apartment investment property, repaying the debt and keeping some of the leftover funds to meet future loan repayments sounds like an appropriate strategy.
I wouldn’t be putting all the leftover funds into super, as you have indicated your other investment property is also only just positively geared, and if there was an issue with your tenant at some point, or some unexpected expenses come in, you may again be left short.
However, certainly contributing some funds to super would be appropriate, given that you will be turning 60 soon, and all funds withdrawn from super after the age of 60 can be withdrawn tax free if you retire.
People who carry on working can access funds tax free once they turn 65.
If your apartment has achieved significant capital gains, then you should also consider any capital gains tax that may apply.
You could look to reduce the capital gains tax by making a personal tax-deductible contribution to super – and claiming a tax deduction on this amount – as part of your overall superannuation contribution.
There are caps and complexities when doing this, which I have covered in a previous article.
The above strategy does seem to meet your required goals, but I did also want to mention that there are other options available to you, namely holding onto your properties and commencing a transition to retirement pension from your super once you attain the age of 60.
Under this strategy you could draw between 2 per cent and 10 per cent of your super out each year, tax free, to meet any loan or cash flow requirements.
The potential issue with this strategy is that your portfolio will lack diversification and be overweight in property, which leaves you exposed to a potential downturn in the property market or if you struggle to find suitable tenants.
Given you have gone part time, have substantial assets and have some financial decisions to make, I suggest obtaining some personalised financial advice from a licensed financial adviser.
They will be able to help you set your future goals, including income requirements, and model which scenario would best suit you given your circumstances.
Question 2: As an over 60 year old, does taking the 4 per cent super pension affect the JobSeeker (Newstart) payment?
The JobSeeker payment is assessed under both an ‘Asset’ and ‘Income’ test.
Unlike the age pension asset test which gradually ‘tapers’ down, if you go over the asset test with JobSeeker then you lose access to the entire payment.
The income test under JobSeeker does taper down, so the extent to which you go over the limit will then determine how much JobSeeker payment you receive.
If you are under the age pension age, then your superannuation does not count under the asset or income test.
However, if you convert your super to a pension, then this amount will come under the asset test, and the account balance will be deemed under the income test regardless of how much actual income you draw.
How much JobSeeker you receive will depend on your overall situation, not just on how much super you have.
If you are single and a home owner, you can have a total of $270,500 in assets before you lose access to the Jobseeker payment, or $487,000 in assets if you are a non-home owner (figures as at July 2021).
Instead of converting your entire super balance to a pension, you could look at converting only a portion of your super to a pension to ensure you stay under the asset test cut-off level.
One more thing to bear in mind. Do you already have access to your super? Generally speaking, you cannot access super until:
- You turn 65 (even if you haven’t retired)
- Have terminated an employment arrangement since turning age 60
- Have declared yourself ‘permanently retired’ after reaching preservation age.
You need to be careful if you intend on relying on the last bullet point, as you cannot ethically sign a declaration to inform your super fund that you are ‘permanently retired’ while also telling Centrelink that you are looking for a job to claim JobSeeker.
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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