Can I retire early and bring up the kids too?

Q I am 53 years old, married with a three year old and my wife expecting another baby this month. I work for the Public Service and plan to retire in seven years, at age 60. My current accessible income is $78,000 and includes two casual jobs on the weekend. My wife's income is $34,000; she is 35 years old. I have two rental properties in my name worth around $900,000 plus my jointly owned home. My public service super fund has $95,000 and another super fund with Vic super has around $30,000. I owe $263,000 on one of the rental properties and $178,000 on my home and have savings of $84,000 in an offset account.

I am hoping to pay off the mortgage in the next three years and only owe the debt on the rental property by the time I retire. In the next few months I plan to start a share investment trust in my wife's name for my children's education or higher education and plan to do this with some international index funds with an initial contribution of $5000 and then $300 per month.

That's entertainment:  Children, they are expensive.
That's entertainment: Children, they are expensive. 

When I retire, I would be able to draw a defined pension of approximately $30,000 which, plus rents from both properties and my two casual jobs, should give an income of $70,000, enough to pay for the children's education, bills and so on, and my wife should be working too. Or 1. should we sell one of the rental properties and make a non-concessional contribution into my Vic super fund and then draw a pension, or can I make a concessional contribution after 60? Or 2.

Can I contribute the sale proceeds from the rental property into my wife's super fund, so I can claim a part pension and the Commonwealth Seniors Health Card? Or 3. Keep both rental properties in my name and pass them onto my kids when we pass away. What is the best strategy to save on capital gains, minimise tax and maximise income when I retire? F. W.

Your main objectives are going to be (1) aiming to retire debt free and (2) obtaining an adequate long-term income in retirement. Your gross income of $78,000 allows for an after-tax income of around $60,000 and I expect your wife will be temporarily ceasing work to have the baby.

After allowing for your offset account, you owe some $94,000 on your home and to pay this off over three years, assuming a mortgage rate of around 6pc, requires payments of $34,320pa or some 57 per cent of your income. It's a tall order and probably takes priority over any other investments. If you can sell one of your investment properties and clear that mortgage and also put money towards the home, you can aim for an unencumbered home and an investment property by age 60.


I doubt that you will be able to retire early and still bring up two young children, so I suggest you heed the Treasurer's advice and plan to keep working.

You can make any type of contribution until age 65, after which you need to have worked 40 hours in 30 days to make further contributions. So, as soon as you are debt free, start salary sacrificing and "splitting", that is to say transferring those concessional contributions into your wife's super fund as a strategy for reducing your assets for when you reach Age Pension age, currently 68 or 68.5, depending on your birthday.

Q I turn 72 this year and my partner is now 64. We have inherited $1.1 million worth of shares that have now been transferred to us from the estate. As yet this transfer has not triggered a Capital Gains Tax event. If we sold them or transferred them into a SMSF it would trigger a CGT event.

We have been told we should start an SMSF but I can't see the logic. As a couple we can earn, tax free, $58,000 per year I believe. The shares are returning this amount of money each year. Why would we go to the trouble and expense of setting up a SMSF, paying the associated fees, the advisor's fees and have the worry of expensive fines and legal/tax risks if we make a mistake when we don't get any tax relief. As the shares were purchased some time ago with a purchase base of $450,000 the capital gains tax on $650,000 (divided by half as over a year old) could be $100,000.

I have $130,000 in super in an industry fund's transition to retirement scheme, in which I have selected my own asset spread and believe the return is not too bad, and am not sure that an advisor could do much better. My partner has $100,000 in super, which she is about to transfer into a TTR scheme. You read all the time to start a SMSF if you have over $200,000 to invest. But is this so general that in some cases it is just plain wrong or am I just plan wrong and totally missing the point? J. B.

A You are quite right in that (a) you appear to have enough to live on without changing a thing and (b) you should always do that with which you are most comfortable and allows you to enjoy an untroubled night's sleep. There are no rights or wrongs in such personal decisions, only consequences. In this case, if you had to choose between buying shares using $1.1m in cash either personally or through a super fund, you would be mathematically better off in the super fund which is untaxed when paying a pension, thus allowing the fund to reclaim all those unused franking credits.

However, in your situation, with a gross capital gain of $650,000, you would need to get a good idea of exactly what CGT you would be up for before selling, should you ever do so. For example, if the shares have been inherited jointly, and not to just one of you, this would halve any eventual CGT bill if and when shares are sold.

If keeping the portfolio, as you intend to, you should be ready to ride the ups and downs of the sharemarket. Also, I suggest a visit to a stockbroker every year to fine tune your portfolio. It's not a good idea to put stocks into your bottom drawer and forget about them.

If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered. Help lines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.