Should I move my money into super?


Q I am 64 years old, earn $90,000 a year and salary sacrifice $2000 a month into super.  

I have $125,000 in an online bank account and also have shares to the value of $25,000.  Should I move my money from online banking into super or is it a case of getting on the train too late?

A You are at the perfect age to put money into super because you have no worries about lack of access.  Just keep in mind that once you reach 65 you will not be able to contribute unless you pass the work test – this involves working at least 40 hours in a year over 30 consecutive days.  The benefits of super are that earnings are taxed at just 15 per cent  and when you start the account-based pension the fund will be from a tax- free fund.

Q I am 67 and currently eligible for the CSHC.  I hold most of my money within a bank retirement savings account, pension mode, in a term deposit which matures in January 2015.  With interest rates at such a low level, my plan is to close the term deposit at maturity and move the funds into a superannuation accumulation account.

Considering the recent eligibility changes, I understand my CSHC should not be affected since I will not be establishing a new pension account, but keeping the money in accumulation mode.  I don’t intend to make regular withdrawals from this account but understand that I can withdraw any amount at any time if I need to.  I would appreciate your confirmation that my understanding of the rules is correct.  

A The technical team at OnePath advise that if you move your superannuation from pension phase to accumulation phase, it will not be assessable for the CSHC. For people over 60, lump sum withdrawals from super are not assessed as income, provided the withdrawal is from a taxed super fund. Note that the funds in pension phase would be exempt from earnings tax and CGT, however while they are in accumulation phase, tax of up to 15 per cent  may apply.

Q I am 63 and retired.  I have a mortgage of $1500 with a redraw of $146,000 available at 5.68 per cent; and my super fund consistently returns above 10 per cent a year tax free. I want to build a garage and do some landscaping which will cost $40,000.  Should I redraw on my mortgage or make a cash withdrawal from super to pay for it?  The increase in mortgage repayments can be covered within the pension I am receiving.

A  There is no easy answer, but my inclination is to leave your super intact, and draw down on your loan.  You have access to your super, so you could always make a withdrawal in the future to pay down the loan if circumstances warranted it.

Q  I am 50, retirement is looming, and I am concerned about retiring comfortably.  I am single, earn $65,000 a year, and my children still live at home.  I hold $125,000 in super, and in addition to employer contributions of 9.5 per cent, I salary sacrifice $85 each week.  I have a $240,000 mortgage on a home worth $450,000, but no other investments or savings.

Do you think I should sell my home, rent elsewhere, and invest the sale proceeds?  If so, what would be the best place to invest?

A  I’m not in favour of selling your home, because you’ll lose a hefty amount in transaction costs and will be faced with renting for the rest of your life.  I suggest you work as long as possible, while sacrificing as much as you can afford to super.  The purpose of doing this is to have enough money in super when you retire to pay the house off.  Try to work as long as you can because you will be ineligible for a pension until age 67.

Q  I am 26 and have $50,000 in savings earning 4 per cent interest.  My gross annual income is $85,000 and I have a HELP debt of $60,000 to which I make mandatory repayments of $350 a month.  I salary sacrifice 5 per cent of my income into super.  My partner has savings of $50,000, and we are looking at buying an investment property in Newcastle while we rent in Sydney.

I am keen to have a 20 per cent deposit to avoid mortgage insurance, but the lender we spoke to warned us about being too positively geared.  Surely we would want to avoid mortgage insurance over being positively geared?  Do you think my salary sacrifice payments would be better served making additional loan repayments?

A  I would be most concerned about a lender who is trying to dissuade you from having a positively geared property – it sounds like they’re trying to boost their own lending budget.  I also think that you are too young at age 26 to be salary sacrificing to super, as many rule changes are a certainty before you can access the money.  The key factor here is whether the property you intend to buy will rise in price while you are saving up 20 per cent deposit – obviously it would be pointless waiting if that waiting meant the increased price you would have to pay would be more than the mortgage insurance.  You are the only person who can decide whether a property is fairly priced and when is a good time to buy.

from The Sydney Morning Herald here: