What to do with $20,000 in savings as retirement beckons

Noel Whittaker advises what to do with annual savings as couple eyes retirement.

How to invest $20,000 each year

Sam and his wife both work full-time and hope to retire in three years. They are saving $20,000 each year and have asked finance guru Noel Whittaker how best to invest that money.

Q. Sam
My wife and I hope to retire in a few years. We are both aged 65, are paying off a mortgage and working full time. We manage to save a reasonable amount after household expenses and  wish to purchase shares as private income in our eventual retirements. Jointly, our superannuation is worth about $300,000 and is currently doing well in an industry super fund. So given that we will have about $20,000 to invest each year over the next three years, should we limit ourselves to Australian shares, or should we consider international stocks as well for higher growth?

A: Your super fund should have a good mix of local and international shares, therefore you can have international exposure inside your super fund without trying to pick stocks yourself.  The simple strategy may be for each of you to contribute $10,000 every year as a tax-deductible additional superannuation contribution. Just keep in mind that the limit is $25,000 a year for each of you, and this includes the employer compulsory contributions.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

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    COMMENTS

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    MICK
    22nd Jun 2018
    11:03am
    Your best move was having an Industry Superannuation Fund. These are the ones this government seek to stack with highly paid top end of town CEOs.
    You have made the right choice and from my limited understanding any money you pile in now will avoid taxation, apart from the mandatory 15%, and you will be able to draw this on retirement. This is a pretty good deal and one the top end of town has milked for decades until limits were imposed.
    Anonymous
    22nd Jun 2018
    1:26pm
    Choose a retail fund that provides great options in local and international shares
    Good retails funds provide excellent diversified options in international shares unlike the industry funds which have the stock standard options
    Old Geezer
    22nd Jun 2018
    1:42pm
    Keep clear of all super funds excepts an SMF where you control your money and don't get ripped off by not receiving your franking credits when you draw a pension from it.
    Rosret
    22nd Jun 2018
    12:42pm
    If they are still working I thought they could put $560K in their super fund?
    Rosret
    22nd Jun 2018
    12:47pm
    Also - they are paying off a mortgage at 65. Ouch. Surely it would be better to clear all their debts first. Even though loans are cheap these days super funds fluctuate considerably. At least paying down a loan is an assured move.
    sunnyOz
    22nd Jun 2018
    1:13pm
    Rosret - where did you get that figure from? TOTALLY incorrect! Concessions contributions ae capped to $25,000 per year (and this includes employer contributions). The cap for non-concessional contributions is $100,000 per financial year. If you are under age 65 you can bring forward up to 2 years non-concessional cap, allowing you to contribute up to $300,000 at a time, depending on your super balance.
    Old Geezer
    22nd Jun 2018
    1:43pm
    Don't put any more than you have to into super but invest it yourself without all the constraints of super and you will do a lot better even if you pay a bit more tax.
    Old Geezer
    22nd Jun 2018
    1:44pm
    You can actually put $400,000 into super but you have to do it right.
    MICK
    22nd Jun 2018
    2:08pm
    Agree Rosret. I'd be getting rid of the mortgage, putting a smaller amount aside earning bank interest and plonking the rest into super. There are advantages to this.
    Sundays
    22nd Jun 2018
    3:10pm
    Yes, pay off the house. They’re working now, but at their age no guarantee how long the jobs will last.
    Old Geezer
    22nd Jun 2018
    3:14pm
    There are now no advantages of super unless you have a taxable income outside super as well. If you pay no tax then is super is not for you.
    Anonymous
    22nd Jun 2018
    3:38pm
    Where did you get $400,000 from old geezer the taxation websight states $100,000 a year with no bring forward provisions after you reach 65 years of age.
    Old Geezer
    22nd Jun 2018
    3:50pm
    With some fancy accounting you can put in $100.000 for this year now plus $300,000 for the next 3 years.

    If you were born after 1952 your pension age is greater than 65 now too.
    Anonymous
    22nd Jun 2018
    4:10pm
    Thanks for the reply Old Geezer, although and I quote from the ATO S Web sight as I have an interest in this and it states:
    Individuals 65 years old or older on 1 July you can't excess the bring forward provision Your non-concessional cap is limited to $100,000 in 2017/18 financial year.
    Old Geezer
    22nd Jun 2018
    9:15pm
    Robbo they are both still working so meet the work test so they can contribute until they are 75 if they keep working.
    Rosret
    24th Jun 2018
    9:07am
    My mistake Sunny oZ the limit has changed recently however OG has a finger on the pulse and its still possible to make bulk investments into super.
    My comment was ended with a question mark by the way - it wasn't a statement. I am not an accountant.
    Old Geezer
    22nd Jun 2018
    1:41pm
    Their best move would be to pay off that mortgage as it is costing them after tax dollars to pay the interest. They can then borrow against the house and all interest will be tax deductable.
    Anonymous
    22nd Jun 2018
    2:27pm
    I would retire at 67 and make sure I still get the Blue Pension Card; never aspired to be working till stand still just to be a SFR. In my circle of friends I would really stand out as a silver spoon bloke, they are all on a part pension like me.
    Anonymous
    22nd Jun 2018
    6:58pm
    fully agree, pay off your mortgage first and use that as collateral if needed.
    Rae
    23rd Jun 2018
    10:03am
    Yes OG and making sure they set up a LOC and credit card before they retire is good as well. The interest is deductible as you say for any approved investment.
    Rosret
    24th Jun 2018
    8:58am
    What is a LOC Rae?
    KB
    22nd Jun 2018
    1:53pm
    They would be better off paying their mortgage and being free of debt. Start afresh with savings,
    Anonymous
    22nd Jun 2018
    4:45pm
    You need to absolutely debt free when you retire.
    Anonymous
    22nd Jun 2018
    4:48pm
    Unless you know exactly what you are doing with a SMSF I would not contemplate doing it at all. Also you need to have a decent amount of money to make it worthwhile due to the running costs.

    Personally I am happier with an industry super fund...I do not have the stress of doing it myself and am happy with the return. I do not need to make a pile of money at my age for someone else to benefit from.
    cupoftea
    22nd Jun 2018
    5:06pm
    The first thing I would do and have done it pay off your mortgage first its greatnot paying 300-400-500 in rent or morgage
    Rae
    23rd Jun 2018
    9:58am
    I'd wait a while and see what the indexes do over the next two quarters. Only unhedged shares put anything on last quarter. The ASX id falling and bond prices also look to be collapsing.
    There could be some cheaper prices coming through.

    A retail fund outside of super isn't a bad idea. That way you avoid some of the rules and regulations.

    Perhaps use that $60 000 to build up a savings fund that you control not a fund manager. It also adds interest in retirement to be investing.

    You can also pull it out quickly if needed which is not possible within a super fund not in pension mode.
    Rosret
    24th Jun 2018
    9:03am
    Rae the superfunds are controlled by hedge funds and people who manipulate the market. They go up they go down. They average about 5% p.a. compound.


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