Australia - Advice on Super, house purchase and shares

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Topic Author
AMereMortal
Posts: 4
Joined: Mon Jun 07, 2021 8:47 am

Australia - Advice on Super, house purchase and shares

Post by AMereMortal »

Hi,
I'm new so please go easy on me! :happy

My situation.
In Melbourne Australia.
I am 62 yrs old.
I am renting but have flatmates helping with the rent which is going well and I would like to continue to rent and have it offset by the flatmates. I end up paying around $80 a week for the rent which is $480 per week before being offset by the 2 renters.
I live very leanly and am not a big spender at all. I live a very simple life with no toys or expensive addictions or hobbies (Anymore!)
1.5 yrs post divorce.
Financials all settled.

I have a Transition To Retirement account with Russell Investments. (https://russellinvestments.com/au/solut ... t/overview)
with $452,000. I draw out 25,000 each year. (Compulsary). If my maths is right I make about 8% from my Super per annum.

I currently also have $575,000 in a 3 month term deposit with National Australia Bank earning very little interest and I want to do something with it.

I also have a small IT biz returning approx $15,000 clear each year.

I am thinking of shares. I would like to be able to access the money also if further down the track I want to purchase a house.

Any advise on best way to use this money or any other suggestions/strategies greatly appreciated.

Thank you
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andrew99999
Posts: 1021
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australia - Advice on Super, house purchase and shares

Post by andrew99999 »

Welcome to the forum.

Almost no accommodation costs and a 15k/yr income is a great answer to the challenges of early retirement.

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Once you cease gainful employment (which can be starting a second job then quitting if it came to that), or once you reach 65, you can access your super as a lump sum tax-free, and you can convert up to 1.6m into an account-based pension to draw down an income from, which means no tax on earnings - as opposed to TTR which is taxed at 15% on earnings.

So for any money that you won't need until you either cease gainful employment or reach 65, you should consider getting into super. Once you can access it, you can pull any lump sum needed, which removes the restriction of using it for a house.

You can put in up to 100k/yr (rising to 110 next financial year, I believe), so you should be able to get as much as you want into super.

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As to your asset allocation, it depends if you have a timeframe for buying a house and how much you expect it to cost you. honestly, I would consider buying a house costing enough assets to maximise the pension at age 67. in any case, this is the question that needs to be answered first because you should not be investing money that you will need within 5 years, which is exactly at pension age.
Topic Author
AMereMortal
Posts: 4
Joined: Mon Jun 07, 2021 8:47 am

Re: Australia - Advice on Super, house purchase and shares

Post by AMereMortal »

Thanks Andrew. Very clear and helpful. Greatly appreciated
Topic Author
AMereMortal
Posts: 4
Joined: Mon Jun 07, 2021 8:47 am

Re: Australia - Advice on Super, house purchase and shares

Post by AMereMortal »

I will add my reasons for not being in a hurry to buy a home again vs investing in shares for example...

I was woken up a little by listening to an audiobook Rich Dad Poor Dad. I'm sure most of you have heard about it. He speaks about assets and liabilities and how a home can be a liability whereas I always thought of it as an asset.

So my thinking is why buy a house, pay all that stamp duty and then all the additional costs of maintaining a home etc etc when I could save those costs and maybe put my money into shares and as much as I am legally allowed to put into my Super.
I could then rent a house which I am doing now and have one or two flatmates to help cover the rent.
And live off some of the interest from my Super as well as my small business.
The money I have not put into the house could earn say 8 to 10% interest without a lot of the other costs.
In other words use my money as an asset rather than a liability.

I understand that I actually could buy a house, have a couple of flatmates and do similar but then I would have to dislose the flatmates as income whereas when doing it to help cover my rent I don't have to declare it. Also I don't make any profit on the house until I sell it which is not the way to go really for me, then of course there are all the selling costs too.

Also on the matter of super vs TTR.
I wasn't aware that I pay 15%. The super fund suggested I move to a TTR fund so I naturally thought more benefits for me. Should I move back to a normal Super fund then do you think?

Any thoughts on this greatly appreciated.
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andrew99999
Posts: 1021
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australia - Advice on Super, house purchase and shares

Post by andrew99999 »

Well, a home is a bit of a grey area when it comes to assets and liabilities. While it doesn't produce income (and even has expenses), in Australia is CGT free. Additionally, it is exempt from the pension assets test.

However, if you are happy to continue in your current situation of paying $80 a week for housing, then doing that while investing sounds like a great option. Although the question is still — how long can you do that for? Investing in shares for under 5 years isn't recommended because if there was a market crash after three years that took another six years to recover (this is not at all unusual for the stock market), then by the time you need it, you will either be selling at a loss or need to wait for years for it to recover. In that time, you would be getting less or no pension due to your assets being invested rather than being in a home that is CGT exempt.

It's a tough decision on what to do for sure. I know what you're trying to achieve, but an ideal plan doesn't immediately jump out at me. However, if you could potentially delay buying the house for several years longer and live with the lower pension payments, then I think investing in shares would be a more viable option. Maybe worth trying to check what the difference in pension payments would be. Also worth noting that you would not likely be in 100% shares at your stage of life, and with something more balanced like a 60/40 portfolio, and taking into account inflation, you might end up with a real return closer to 3-4% p.a. Certainly not insignificant, but not the 8-10% nominal return that 100% stocks have given.

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Regarding your super, if you are eligible to convert to an account-based pension where the money is in a zero tax environment, I would much prefer that, so definitely something to look into.
Topic Author
AMereMortal
Posts: 4
Joined: Mon Jun 07, 2021 8:47 am

Re: Australia - Advice on Super, house purchase and shares

Post by AMereMortal »

Thanks again Andrew. Awesome advice and great Forum. Appreciated.
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