I AM 40 years old and employed in IT, earning $71,000. I have $4275 in savings with a credit union and $5000 in a term deposit. I have $70,000 in Colonial First State Super. I bought the family home, 1960s style, in the Blue Mountains area in 2004, which has been rented for $420 a week since 2008. The loan on this house is $147,000. At this stage in my life, I wish to know if I should sell the house before the six years finish and capital gains kicks in and so eliminate the loan. And how much extra should I be contributing to my super to ensure I receive an adequate pension when I retire at 65? B.M.
When deciding whether to sell your property, you need to look at all the factors that determine whether it is what you want to do and whether that is in your best interest. If you keep it, the rent alone will pay off the mortgage in about 10 years.
Will the 1960s house require a major refurbishment and can you afford it? Can you live in it long enough to recommence another six-year period of exemption from capital gains tax - there is no minimum period in law - or would you not want to?
Could you use the proceeds from the sale of the current property as a deposit, then pay off the new mortgage before retirement without crippling your lifestyle? Your decision should be more lifestyle-driven rather than tax-driven.
Regarding retirement, as a rule of thumb, if a person can save 15 per cent of their annual income from the time they start work, they should be able to retire with a decent income.
Some argue 18 per cent. A healthy target is about 75 per cent of final pre-retirement salary.
Right now, your employer will be contributing the compulsory 9 per cent of salary into your super fund. If you can top that up with a further 6 per cent - that is, salary sacrifice $4200 a year or $80 a week - you'll be meeting that 15 per cent target.
If you can make that $100 a week, then your super fund will be receiving nearly 16.5 per cent of salary in total. You can't have too much in savings when you come to retire!
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.