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 question!
Firstly, congratulations on being in a position to make these decisions! No doubt you have worked hard to own 2 properties with no debt.
There are a lot of different things to think about here and I would suggest that you seek personal Financial Advice before making any decisions. Hopefully, I can help to highlight some things you may wish to consider. I do not have enough information to make a personal recommendation (which must be provided in the form of a Statement of Advice) so keep in mind, that my advice is only general in nature.
Property vs super vs invest outside super
From what you have explained, you have 4 main options:
- Retain the property and rent it out
- Sell the property and invest in super
- Sell the property and invest in something else
- Combo of 2&3
Here are some things to consider:
Have you clearly defined your objectives and priorities?
In order to plan the journey, you need to know the destination!
- Do you know how much income you will need in retirement?
- How much money do you want to give to your son and when?
- Is it more important to retire early or help your son?
- Are you prepared to work for longer if you can’t achieve your objectives or would you prefer to retire early and accept a lower income?
Are you on track?
- How are you tracking towards your objectives now?
- What if you become ill or injured and unable to work? Do you have insurance in place to cover such events? Could you live on one income or less?
Risk vs return
- Generally speaking, the greater the risk, the greater the potential return. But of course, many types of investments whether in property, super or something else can fall in value. You should consider the return you need to meet your objectives and how much risk you are willing to take.
- Property is often classified as a higher-risk asset class along with shares. Generally, you might expect shares and property to generate higher returns than defensive investments like cash and fixed interest over time. Having a large portion of your wealth in one asset class is a higher risk strategy because you may have a lot of eggs in that basket and you should consider whether you are comfortable with that. The alternative is to diversify and invest in different types of investments to spread the risk.
- A big factor to consider is your investment time frame. If the value of whatever asset you have drops, do you have time to wait for it to recover before you need to use the money? Keep in mind the market can take years to recover from a drop.
- Does your property provide a good long-term investment prospect if you keep it? It will depend on a number of factors including whether the rent is reliable and potential for growth in the area. You should speak with a real estate agent regarding this point.
- Are you comfortable to maintain a second property in the long run? Some people are, others are not. You should think about the ongoing maintenance and whether or not this is a concern for you.
- If you sell the property, you should also consider how you would manage the funds – you might manage the money yourself, leave this to your super fund or seek advice from a Financial Planner, Stock Broker or your bank.
Access to capital/income:
- If you sell your property and invest in super, you will not be able to access the funds until you have met a condition of release (likely to be at least age 60+)
- If you retain an investment property, you cannot sell the kitchen to raise some capital. Will you need to access the capital in retirement or before?
- What happens, if you need access funds because you become ill or injured? What happens if your plans simply change?
- You might consider a combination of super vs non-super investments to manage this risk.
- Income-tax (ongoing) - Income generated outside super (rental or investment income) is taxed at your marginal tax rate but income generated insider super is taxed at 15%. One may be more beneficial than the other.
- Capital gains tax (on sale of an asset) – Have you made a capital gain on your investment property? You should confirm the tax implications with an accountant.
So what should you do?
Well, it sounds like you have options and that’s a good position to be in! Honestly, I can’t comment on what you should do without finding out about your personal situation, goals and priorities. I would suggest that you seek personal advice from a Financial Planner (plenty of options on Adviser Ratings!).
Should you decide to go-it-alone, the government provides some helpful information on their MoneySmart website. You might start with the following:
- Find out if you are on track to meet your retirement goals and help your son and prioritise your goals. https://moneysmart.gov.au/grow-your-super/how-much-super-you-need
- Consider your investment timeframe and determine the level of risk you are comfortable with: https://moneysmart.gov.au/how-to-invest/develop-an-investing-plan
- Select the investment structure you prefer: super/non-super investments/property. Consider tax implications, access and maintenance.
Steven, you have some big decisions to make and I do hope this information is of some use to you.
All the best!
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.