Shares? Super? Property? What to do with your money in the early years
What sort of advice would you give for those of us in our early 20s who are at a crossroads about what to do with our wages and salaries in the early years. Shares? Investment property? Superannuation?
For starters, I recommend you begin a relationship with a good adviser at as early an age as possible. This will get you experience in a range of assets and strategies while you are young and maximise the effect of compounding.
For most people, a simple option is to make homeownership the first goal – once you have the mortgage under control you can consider borrowing against the home for investment in quality share trusts. I don’t recommend superannuation for young people because of lack of access for such a long time, but I certainly recommend you are well insured, and have wills.
There are different ways to start your nest egg, but finding a good adviser as soon as possible will help.Credit:Simon Letch
I’m in my early eighties and recently added a downsizer payment to my superannuation account, which is in pension mode. The sum in total is well under the $1.7 million threshold. Is the downsizer amount treated exactly as is the other money with regard to mandatory annual draw-downs and taxation after my death?
Just be aware that there is no $1.7 million limit on how much can be accumulated in pension mode – it’s the maximum that can be transferred to it. After you have made the transfer it’s fine if it goes above that. The downsizer contribution is a non-concessional contribution and as such would not have been added to your pension account – it should now sit in a separate accumulation account.
If you leave it there, which you are entitled to, you will pay 15 per cent tax on earnings within the fund, but there will be no mandatory drawdowns. If you decide to move it to pension mode it will become a tax-free fund with the required minimum drawdowns each year. The death tax applies only to the taxable component of your super left to a non-dependent. The whole of your downsizer payment would be non-taxable, but its earnings will form part of the taxable component.
We are now 70 and have a daughter who is 42 and has lived with a disability. She is in the NDIS scheme and on a disability pension. She has never been in a superannuation scheme and has next to no savings. She has a four-year-old daughter. We will leave her money in our will, which we need to rewrite, and she will inherit half of our house. Five years ago, we took money out of our super and bought her a little house under the government shared equity scheme.
How can we ensure that she does not lose her disability pension after we die? Do we leave instructions to pay off her $30,000 mortgage on her house as well as buy out the government share? Then should we set her up in a superannuation scheme? If we willed the majority of her inheritance into her super scheme and paid off her house, would that ensure that she would safely get her disability pension until she was 55 or older? If the executor just puts her inheritance in the bank she is at risk of being exploited by others. We investigated a trust, but it was far too expensive to run. Fortunately, she has an intelligent and caring brother, our executor, who would look after her needs.
Elder Lawyer Brian Herd tells me that this is a complex issue that cannot be adequately and confidently addressed without lots more information. However, in very general terms, one of the effective ways to protect a disabled person in respect to preserving their pension and protecting them against being exploited is the use of a Special Disability Trust. The parents can set this up now while they are alive or in their wills.
If set up properly, it can ensure she gets the financial benefits of the trust and can keep her disability pension. Make sure you take expert advice.
I am 66 years of age and receiving allocated pension from when I retired from paid employment. I’m selling my investment property and will be making a profit of around $100,000. If I deposit $50,000 into a super fund, which has a balance of $330,000, will I be liable to pay the capital gains tax?
If the property has been held for over a year you are entitled to the 50 per cent discount on CGT which means $50,000 of the $100,000 capital gain will be added to your taxable income in the year the sales contract was signed. You can reduce your taxable income by making a deductible concessional contribution to super, but these are limited to $27,500 a year which includes the employer contribution. However, as your superannuation balance is under $500,000, it may be possible to use the catch-up concessional contribution strategy which would allow you to increase the $27,500 due to contributions not made in full since 2018. Talk to your accountant.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [email protected]
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