We need help with retirement planning and investing $50K

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Q. Husband and self over 50.sold home have $50,000 leftover. We have $250,00 new mortgage with $30,000 in offset acct.
We’re currently spending offset money improving house to use for selling when retire. have no superannuation (self employed).
We have no great aspirations when retire, family around just want to live & pay bills no liabilities except mortgage & business vehicle.

How can we use $50,000 wisely now. My Husband is able to do all renovations to home himself…..current value of home approx $500,000. thanks

Josie’s answer: Assuming I am interpreting your question right, your main question is that you have $50,000 sitting in a savings account. On top of this, you have $30,000 in an offset account which effectively means you are paying interest on $220,000, rather than $250,000.

My initial thoughts include:

• Why haven’t you topped up the offset account by $50,000? If you do this, your bank will be charging interest on $180,000 ($250K - $30K - $50K). I particularly like this strategy because the interest on the home that you are living in is not tax deductible. Also, you are paying in ‘after tax dollars’, i.e. your net pay.
• If you invest the $50K you need to think about your time frame and what you have to do with the funds e.g. term deposit, managed funds. Investment markets are quite volatile at the present time, and if you do decide to deposit the funds into the offset account, you will be achieving a guaranteed after tax return of between 8-9%, in other words the interest rate that your financial institution is currently charging you. This is much better than say a term deposit paying 8% as you need to declare the income and then pay tax at your marginal rate of tax. I am assuming you earn more than $11K per year.
• I am concerned that have accumulated very little superannuation, but this is typical many small business owners (their business is their superannuation). You and your husband are permitted to contribute up to $100K each to superannuation and it is fully tax deductible. Furthermore, when you turn 60 years of age, all income and drawings will be tax free. I appreciate you probably don’t have a spare $100K each lying around, but you should not ignore the tax benefits associated with superannuation.
• If you have assets attached to your business, you may be eligible to qualify for small business capital gains tax concessions when you eventually retire. You will need to speak to your accountant.

Another strategy that people between 55 and 60 years of age are embracing is ‘transition to retirement’. Basically, you salary sacrifice your income and contribute to super (you will pay tax at 15%) and you can supplement your income by actually drawing from your super fund.

This strategy is an amazing way to save lots of tax (assuming your tax rate is 30%+ which applies to those earning more than $30K for 2007/08). Also perfect those that want to reduce their work hours, but can’t or don’t want to reduce their income.

You mention your income needs are low. I highly recommend that you source a retirement calculator on the internet – go to http://www.fido.gov.au/calculators and have a play with their retirement calculator.

You need to think about how much you need to live on in retirement and the calculator which give you an estimate of how much you will need to save.

The above points are just to get you thinking about different issues.You would benefit from a visit to a financial planner, but up to you if you want to pay for the service. Just ask upfront what the charge will be and then make a call whether you will research yourself or use the services of a professional to point you in the right direction.

I wish you and your family all the best for the future and happy money organisation. Josie K

Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs.

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