Chris asks about a ... Retirement recipe

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Q We are 53 and 55 and self-employed in a small business, with no dependent children. We draw a wage of $90,000 for me and $15,000 for my wife – after expenses there is isn’t a great deal of disposable income left. We have in super $100,000 for me and $65,000 for my wife. We have $150,000 in an offset account against a mortgage of $368,000 on our house, currently worth $420,000. We pay in $1230 a fortnight, which is $100 more than required.

We’d like to retire in about 10 years. We wonder what else we could be doing for our retirement, particularly with the offset account. Is it better to leave the money there or are there better ways to use it? We have considered another property for tax benefits and also salary sacrificing into super given we are self-employed. We’re open to any other ideas.

A Congratulations on building up what sounds like a successful business. It’s fantastic you and your wife are able to draw incomes from the business and with any luck you’ll be able to sell it leading into retirement to help fund your lifestyle. I’d really start to focus on increasing your superannuation balance in the next 10 years. Super and the possible sale of your business will be two pillars of financing your retirement.

Offset accounts can be a very effective place to save money, particularly if they are 100% offset and are fee free. In effect, your offset account is probably “earning” you around 6%pa with little risk and no tax, so you’ll struggle to find a better alternative. This close to retirement, I’d think about leaving the money in the offset account and paying off the loan entirely once the offset account covers the loan.

You’ve worked hard to build up your savings and super, so I wouldn’t suggest taking any additional risks at this point. Investment properties can be appealing but aren’t necessarily the best asset in retirement. Investment properties’ yields are currently well below bank rates in most areas of the property market and carry with them a range of costs including strata fees, insurance and rates, not to mention acquisition costs.

I’d think about spending the next 10 years focusing on paying off your mortgage through putting your savings into your offset account, building up your super balance and building your business. It’s a relatively safe and proven way to increase your savings before you retire.

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