Elizabeth is ... On the right track

Q My husband is 60, earns $46,000 and salary sacrifices 57% into a streamline allocated pension. He has $242,000 in super. I’m 58, earn $23,000 and salary sacrifice $509 a fortnight into a unit investment in Forster worth $165,000 ($180 a week rent). We still owe $42,000 on the loan. I have $43,000 in my super. We put $500 a fortnight into a savings account.

Would we be better off paying more off our investment loan rather than paying more money into super, as my husband’s is still below what it was in December 2007. We hope to retire in five years. Will we be financially sound enough? How can we work out what income we will have?

A It’s clear you’re making a concerted effort to build up your superannuation and savings leading into retirement. Although the GFC was a setback for the retirement savings of many Australians, I’m glad you’ve continued to save and solidify your financial future.

Determining how much income you require in retirement can be a challenge. The Association of Superannuation Funds of Australia (ASFA) retirement standard figures for September 2012 suggest a couple will need $32,511pa for a modest lifestyle and $56,236pa for a comfortable lifestyle, assuming you have no debt and own your home.

You can have a look at the assumptions on their website www.superannuation.asn.au/resources/retirement-standard.

The next stop is to go to the government’s excellent MoneySmart website. Yes, I am biased as I chair (pro bono) the Financial Literacy Board, which is heavily involved in the website. But we taxpayers pay for it, it is unbiased as it has nothing to sell, and it has an excellent budget planner and retirement planner.

I’d like you to do a budget for retirement. It seems to me that you save a lot out of your income, and I suspect your retirement needs may be more modest than many. This is a good thing as lower spending needs lower capital when you stop. Let’s now look at super versus your investment loan.

I suspect your rent more than covers the loan repayment, so additional repayments are not terribly valuable. But if it is negatively geared so that expenses, including interest, are higher than the income, you get a tax deduction. But your tax rate is not high. Personally, I’d stick pretty much to what you are doing.

There is an argument that you could add your monthly savings of $500 a fortnight to super as an after-tax contribution. The logic here is that super pays a maximum of 15% on earnings and I suspect your tax rate is not much higher than that.

So it seems we are splitting hairs here. I reckon you are doing the key things – namely saving like crazy and planning for the future.

Naturally you can seek advice – your super fund may be able to help, or an adviser – but my advice is to do your retirement budget first, look at the retirement calculators on the MoneySmart website, and I think you will have a good feel for the future.

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