Noel Whittaker to the rescue

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Every year, respected retirement income specialist Noel Whittaker assists dozens and dozens of YourLifeChoices members with their problems and queries, members such as Lorraine, Kevin and Jim*, who sought help with their retirement plans, home sale and investment ideas for grandchildren.

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Q. Lorraine*

I’m 64 and have been working full time for the past 16 years. I own my home and car, and I have no debts. I have about $250,000 in super and if I leave work I will get long service leave, etc, adding round $30,000. My mum is 92, so I will eventually inherit half her property, which has a median price of about $1 million.

I’m so scared of leaving work, but my brother never got a retirement, and I’m weighing up spending time with grandchildren and enjoying life, compared to sitting in this office day in and day out. Do you think I would manage? By the way, I love your book.

A. From the information provided, it would appear that you will qualify for the Age Pension at age 66. That’s just two years away. If you qualified for the Age Pension today, and we assume your assessable assets are $300,000, you would be tested under the assets test and qualify for a pension of around $933 a fortnight or $24,000 a year. Once you retire from your job, you will be eligible to access your superannuation, so it’s just a matter of doing the sums to confirm that you can live quite happily on the $280,000 you will have when you finish work until you qualify for a pension or receive a bequest from your mother’s estate.

Obviously you will need to draw on capital, but that should not be a problem in your present circumstances. My advice is to follow your dream and stop work.

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Q. Kevin*

If we sold our home and decided to stay ‘liquid’ and place the funds from the sale into a managed fund, then our assets increase. We would then reduce our part Age Pension and, of course, need to pay rent. We would need a return of better than six per cent per annum to offset the rent and the reduced pension of about $7000 per annum combined. What would you advise?

A. If you are assessed under the assets test, there are different rules for homeowners as opposed to non-homeowners. However, if you are assessed under the income test, there is no difference in Centrelink treatment.

The only practical way to achieve an income of six per cent per annum is to buy high-yielding Australian shares that are 100 per cent franked, or simply buy an index fund such as VAS, which is paying a running yield of four per cent plus franking.

However, you must keep in mind that you should not invest in shares unless you have at least a five-year timeframe in mind to enable you to ride out the inevitable market fluctuations.

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Q. Jim*

My wife’s parents want to set up an investment for our two-year-old daughter with the hope of it being a worthwhile sum when she turns 21.

They are self-funded retirees and receive only the most basic Commonwealth and state assistance, such as free public transport and healthcare cards.

The sum they are looking to deposit is in the order of $10,000 to $15,000.

I have requested that they do nothing until we can be sure they will not be adversely affected, and my wife and I have an understanding as to how we would set up the investment.

In a nutshell, I’m concerned about gifting from their perspective and any other tax implications we need to look into to ensure all is above board.

With regards to the investment, my preference would be a direct investment to a managed fund with a reputable fund manager, avoiding the use of a financial planner and paying commissions as this will be a set-and-forget type arrangement other than at tax time when I would imagine we would have to report income (your help with regard to tax reporting would also be appreciated).

Any guidance you can provide would be greatly appreciated, as it will assist me in asking the right questions and providing the right information to the fund manager when the time comes to make the investment (as I’m certain it’s not as straightforward as I’m suggesting).

A. There is no gift duty in Australia – the only time that gifting may adversely affect the giver is if they are receiving a whole or part Age Pension. This would not appear to be the case here but, even if it was, they could make two gifts of $10,000 each over two successive years without penalty.

The main issue is children’s tax, which cuts in at the top marginal rate once ‘unearned’ income exceeds $416 a year. This can be easily avoided by investing in an insurance bond about which I have written often over the years. Because the tax is paid by the fund at a flat rate of 30 per cent per annum, there is never anything to declare on anybody’s tax return unless the bond is cashed in before 10 years have passed.

At any stage, the bond can be transferred free of capital gains tax to the grandchildren.

I suggest you talk to a good financial adviser to try to achieve an outcome that suits both your goals and your risk profile.

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.

*Not their real names.

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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Written by Noel Whittaker

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