My wife and I (both early 50’s) have $350K in combined super, own our house mortgage-free and have a holiday house we rarely use, worth about $650k. Should we sell the holiday home and use the proceeds to top up super and invest the balance elsewhere? We’d like to help our son buy a house in the next 5-10 years but also retire/semi-retire at around 60 years old.
Steven, Batemans Bay, NSW
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Thank you for your enquiry about planning for your retirement and helping out your son.
One of the biggest challenges you and all of us face is “ how much will we need to retire on”, and not to forget about the latter years when aged care costs are required.
Another less talked about topic is the fact that Australians tend to underestimate how much they will spend when fulltime work has stopped (retirement) and underestimate how long they will live.
Consider that Females have a life expectancy of 89 and 87 for Men and this number rises to 93 if your still together as a couple. Clearly, the latter has some advantages.
I also believe that together you need to try and estimate how much you wish to provide as financial support to your son. I appreciate it is a way off so I will discuss a scenario that you may find useful that we have used in the past.
Assuming you are planning to stay in your current home until retirement, selling the holiday house has advantages.
If you are both working then you will have the opportunity to ensure most of the $650,000 surplus from the property sale can find its way into the Superannuation system even if it’s over 3 to 4 yrs. as non-concessional contributions( after-tax)
The annual non-concessional cap is currently $100,000 per person. Alternatively, you could consider what’s called the Bring Forward rule of $300,000 for each of you if you’re under 65. Then you cannot contribute any further non-concessional contributions for another 3 years.
If you decide to sell the holiday house, however, ensure you have an accountant calculate if you are liable for any Capital gains tax (CGT). CGT This may apply if you purchased the property after 29th Sep 1985.
You could also consider renting the property and investing the surplus rent into your Super either as concessional or non-concessional top-ups.
If you did decide to sell and channel the funds to Superannuation, then with some growth over the next 5 + years and ongoing contributions you may end up with approx. $1,100,000 combined by the time you are 60. If your portfolio then generated 4 % income, then you could spend interest of $44,000 p.a. ignoring any fluctuations of the account balances. Detailed modelling would of course show your projected spending, income and assets over the next 20 years. So, it’s a good idea to have a realistic budget in mind for the future years.
If you have ceased full-time work and have turned 60 then you could commence an Allocated Pension (income stream) and lump sum withdrawals, are tax-free. So, if you are thinking of helping your son with property purchase, consider the deposit required if it’s a house worth $500,000. Then 10 % is $50,000 can be drawn your super if and when required. The advantage is the funds are invested and have a chance of earning more than bank interest. The banks like to see a saving pattern so whatever you do needs to not interfere with the application process.
The information supplied, is of a general nature only and does not constitute personal advice.
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