Question 1

Hello, I need some advice regarding my finances. I migrated late to Australia and because of this I am afraid my circumstances at retirement will not be good financially.

I have two mortgages; one is my residence valued at $600,000, owing $410,000, and an investment property valued at $600,000, owing $435,000.

I have recently purchased another property worth $580,000, owing $580,000.

My super balance to date is $203,000.

I am the sole earner as my wife has health issues and is not able to work. She has no super or earnings.

I am 56 and not sure how I can plan for my retirement. Any help would be wonderful for me. Thank you.

Hello,

First, the good news.

You might like

Just In

New $25m Indigenous school after old site demolished for South Road

Just In

New judge at SA Employment Tribunal

You already have some equity (home value less the loan balance) built up in your properties. There’s nearly $200,000 in your home residence and $165,000 in one investment property. That you also have more than $200,000 in super after being a late migrant to Australia is also a solid start.

You potentially have another decade or so of work still ahead of you, in which time your finances should continue to strengthen.

On top of this, Australia has a good safety net in the age pension when reach age 67.

You might like

Just In

New $25m Indigenous school after old site demolished for South Road

Just In

New judge at SA Employment Tribunal

All in all, you are making some good progress.

However, yes, you would benefit from some personal financial advice.

You are taking on a lot of debt. Especially since you’ve taken on another investment property, where you are borrowing 100 per cent of the purchase price. This is a high-risk strategy. It may work out fine, but you need to know about the risks and be prepared to accept them. If not, you need to change your investment plan.

What would happen if there was a temporary break in your income? Say you became sick or injured, or you lost your job and there was a short period where you were in between jobs. You need to ensure you have adequate insurances to help mitigate this.

How secure are your tenants? Would you still be able to repay all loans if one of your rentals was vacant for some time? Have you also factored in potential interest rate rises? While this is unlikely in the short term, who knows over the medium to long term.

Hopefully you have built up a cash buffer in a high-yield savings account to cover short-term expenses and hiccups.

Ideally, you would look at diversifying your investments away from just property. Currently you are very exposed to just one asset class. If property prices were to fall, this could have a very negative impact on your retirement plans. Have you considered shares, managed fund or Exchange Traded Funds (ETF’s)?

As well as addressing items listed above, insurance, investments and super, a financial adviser can help you define some long-term retirement goals and put a plan together to meet those goals.

I wrote a previous article on what to look for when choosing a financial adviser.

Question 2

I am soon to turn 75 and I know I have 28 days from my birthday to stop my salary sacrifice concessional contributions to super. 

As I am working, like many others beyond 75, I would like to continue to salary sacrifice. Is there any way I can do this? 

It seems vastly unfair to stop this benefit for people who have hit the milestone of 75. Have representations been made to the Australian government to continue salary sacrifice for those still working beyond 75? Thanks

Hello,

Correct. Once 75 or over (and after allowing for the 28-day grace period you mentioned), you cannot make voluntary contributions to super. Either salary sacrifice or after tax non-concessional contributions.

However, it’s important to point out that employer mandated contributions (such as superannuation guarantee contributions) are still accepted; this was changed only a few years ago.

You have used the word “fair” in your question. Whether it is fair or not depends on your perspective.

As I have said many times, superannuation tax settings are very generous. It’s in everyone’s own interest to make the most of them, as you are trying to do.

As super is so generous, the rules must be balanced with the objective of super.

This was legislated only last year. It is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.

That is where the debate is. Is it equitable and sustainable that those over 75 get tax breaks by salary sacrificing to super?

Craig Sankey is a licensed financial adviser and head of Technical Services and 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.