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Q I retired at 55 in 2009, took $135,000 in lump sum and a $32,000 pa superannuation pension. Sadly, this lump sum is gone (some into shares and the rest to bad budgeting).
My husband is planning to retire next year after his 65th birthday. As we have a $450,000 mortgage on our home (worth $1.3 million) it seems sensible for him to take as much lump sum as he can and plough this into the mortgage. However, he is also keen to have a decent fortnightly pension. As well, our track record is not great when it comes to handling large amounts of money. I would be grateful for your advice on how best to access his pension when he retires.
A I think putting the lump sum into the mortgage is a good idea: that will earn you a capital-guaranteed 6 per cent a year (or whatever you are paying on the mortgage) with no fees and no risk. No other investment can match that. If possible, your husband should consider working past his 65th birthday, or you should consider some casual work. Both options will make your money last longer. You have a large equity in your home so you could downsize to release capital in years to come. The other option is to take the pension and use most of it to speed up your mortgage repayments. You need to be getting good advice, because a lump sum paid off the mortgage will be more flexible for aged-pension purposes than a private pension.
Q Can the estate pay any capital gains tax due on the sale of the deceased's property? I thought each beneficiary paid CGT on their share of the proceeds at their own personal tax rate. If the estate does pay the CGT, at what rate would it be set?
A Yes, subject to the provisions of the will, the estate can sell an asset, and if this happens the estate becomes liable for any capital gains tax that is payable. Just keep in mind that the capital gains tax will be coming out of the estate's proceeds, and could reduce the amount payable to other beneficiaries if there are any. Alternatively, the executor could transfer the assets in specie to the beneficiaries in which case they will inherit the capital gains liability of the deceased. This is why it is important to take expert advice prior to transfers being made because in some cases it will be more advantageous for the estate to pay the capital gains tax, and in other cases it will be better if the beneficiaries are liable for their own capital gains tax obligations.
Q If an SMSF in pension mode transfers an asset in specie to the member in pension mode as a withdrawal of capital, what are the capital gains issues? Is it distributed at original cost with the pensioner becoming responsible for all the capital gains, or does it get valued at the date of distribution with the pensioner adopting that valuation as his cost base?
A It gets taken out of the fund at market value and the recipient takes that market value as their cost base.
Q I am 21 and earn $42,000. I live at home but I'm planning to move into a unit soon. I have $17,000 in savings at 4 per cent interest, a reliable car, and no plans for any big holidays or purchases in the near future. Should I be looking at shares, investments, or other alternatives for my savings?
A Your best options will depend on your goals. For example, if you are considering buying a house within five years, you should think about the benefits of a First Home Saver Account. If this is not on the horizon, you could take advice about investing in quality share trusts, but you would need to have at least a five-year timeframe in view and be prepared to ride out the normal ups and downs of the share market.
Q My wife and I are in our mid 70s and have $350,000 in shares - $97,500 in my wife's name and the balance in my name. All the shares are in dividend-reinvestment plans. Our total taxable income, including the age pension, is $48,000, at a tax rate of 16.5 per cent. Should we sell some shares each year or opt out of dividend-reinvestment plans?
A If you are receiving the aged pension, I would have thought you would be paying very little tax, if any, thanks to the combination of the Senior Australian Pensioner Offset, and the franking credits from the shares. As you need to redeem investments to live on, I believe the best option would be to opt out of the dividend-reinvestment plans as this would give you maximum flexibility. If your situation changes, you could always go back into the market and buy shares.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: firstname.lastname@example.org.