Charles wants to provide for ... A young son’s education

Q I earn $87,000, my wife $57,000. I am 49, she is 42. We have a mortgage of $160,000 on our home, which is worth about $500,000. My super is at $260,000, my wife’s $87,000. I salary sacrifice $10,000 a year to my super. I intend to retire when I turn 60. Should I pay off the home loan first or concentrate on boosting my super? I intend to use part of my super to fund my six-year-old son’s uni education.

I also have a line of credit with the home loan from which I have used $28,000 to invest in shares. We pour all spare cash into the redraw facility. Should we look to buy an investment property, perhaps in an area with a good high school for our boy to enrol in, in five years’ time.

A I’m impressed you’re employing some clever tactics to help maximise your savings. Your use of salary sacrificing into super is very effective, reducing the tax rate on most of the contributed amount from 37% to 15%. Your wife could consider employing the same strategy to a lesser extent, as she is on a lower marginal tax rate to begin with.

At this time I’m not that excited about you buying an investment property but not violently against it either. I worry you are only 10 or 15 years away from retirement, so you would have little time to pay off the loan. Even if you did, investment properties currently offer a low yield and carry high expenses, so are often not ideal investments in retirement. You may be far better off sticking to your plan of salary sacrificing and paying off your mortgage. Every dollar into the mortgage is effectively earning you around 6% tax free and pretty much risk free.

It’s great you’re already thinking about how to fund your son’s university fees. Education is one of the very best investment choices we can make and arguably offers one of the highest rates of return. As your son won’t start for the next 12-15 years, the best way you can help fund this future liability is to maximise your wealth heading into retirement. I’d suggest you continue salary sacrificing, paying down your mortgage and, once this is achieved, then making some non-super investments.

However, if you want to separate out his account, I like simply using a low-fee managed share fund, or simply buying a few quality shares for him. As I am always saying, with very long-term money, don’t leave it in the bank – buy the bank by owning bank shares.

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