I am a 45-year-old nurse earning about $120,000 a year, with living expenses of $27,000 and superannuation of about $213,000. I used to salary sacrifice to the maximum but stopped in the past three years, since I filed for bankruptcy in February 2019, due to a disastrous property investment in the mining town of Newman, Western Australia. I will be discharged from bankruptcy in February 2022. After discharge at age 46, I plan to buy a house for about $650,000 with a $140,000 cash deposit. I wonder if I should continue to salary sacrifice to the maximum of $27,500 a year, or should I focus on fully paying off my mortgage? I plan to pay it off in 6.5 years, earning about $150,000 from July 2022 onwards. I am single and have no children. After I pay off my mortgage at age 53, I can finally stop working night shifts and my income will come down to $95,000 a year. I plan to retire at age 60 – when I’m still healthy. L.L.
I always set two main goals for retirement: to stop working with a fully paid-off house and enough money in super to produce the tax-free income you need for living expenses. It is hard when starting from scratch – and not always possible.
At the end of the day, if both goals cannot be achieved, there is always the safety net of the age pension. So, that’s why I suggest giving priority to paying off your mortgage before salary sacrificing to top up your employer’s 10 per cent super contributions.
That’s sad news about your bankruptcy.
I am aware that house prices in mining towns peaked in 2011-12 during the mining boom. An ABC news report indicates Pilbara median house prices later fell more than 80 per cent when the boom soured.
It is a good lesson that buying an investment property in a boom can be risky, even though prices in Newman have since turned up.
I am aged 46, earning $190,000 a year and my wife, 47, is working four days a week and earning $120,000. We are both relatively healthy and have two children aged 11 and 9, due to go to private high schools at a cost of $40,000 a year each in 2023 and 2025, respectively. We own our home valued at $2.4 million and have $955,000 in joint investments, plus $556,000 in my super and $358,000 in my wife’s super. We also have an investment unit valued at $450,000 with a mortgage of $400,000. Our combined monthly income is $17,000. Our monthly expenses are $10,000 (excluding private school fees). We would like to maintain this lifestyle, or close to it, for the rest of our lives, adjusted for future inflation. We have both earned relatively high incomes for most of our working lives and have a relatively modest but comfortable lifestyle, prioritising the needs of our children. We both would like to retire at age 50. Are we on track? P. L.
If you retire at 50, your wife would have a statistical life expectancy of some 37 years and, as always, I add five years to that, assuming she is healthy and will live longer than the average.
If you then plan to spend $120,000 a year, indexed to 3 per cent for inflation, you could expect to go through savings of about $2.7 million. On top of that, you would spend about $500,000 on school fees, plus significantly more on sports plus any private tuition and then tertiary education.
I suspect you should plan on working until your children finish their education – possibly longer – while maximising your super contributions.
I purchased a unit in 2001 for $432,000 and moved out in 2007. It has been fully renovated with a new kitchen, bathroom, flooring, laundry and garage door. The total cost was $33,105 and other costs include stamp duty is $29,191. Over the years, I have claimed all council rates etc. I would like to sell the unit this year. The agent estimates it will fetch as much as $1.2 million. What is the best way to calculate the Capital Gains Tax (CGT)? M.W.
Step 1: Hire a good accountant.
Step 2: Give them the original sale contract for the property, as well as receipts for all your renovations, plus tax returns to show what you have claimed. This allows the accountant to determine your “cost base” and also how much, if any, could have been claimed, but wasn’t.
Let’s say you have spent $500,000 up to now and that your selling costs come to, say, $30,000, including agent’s commission.
If you sell for $1.2 million, your capital gain would be $670,000, half of which, or $335,000, would be added to your assessable income.
It doesn’t sound as though the property is held in joint names, so assuming no other income in 2021-22, the CGT would be about $128,000. Ouch!
- 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.
Article Source: www.brisbanetimes.com.au
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