Could you suggest how to invest $200,000 from a maturing term deposit? I am 65, debt-free and have $500,000 in accumulation super. Commentary online seems to favour super, but as the stock market is close to record levels, and I plan to retire in two years, is this advisable if the market falls significantly between now and then?
All going well, your superannuation savings have around a 30-year lifespan from this point. When you retire, it will switch from accumulation mode to pension mode. If you work with an advisor, there will likely be some changes to the investment allocation, but largely your retirement savings will continue on as they were.
The key change will be that now, rather than receiving contributions from your employer regularly, the fund will instead pay an income out to you.
Given this time frame, hopefully you can see that your concern around market volatility is unfounded. Investment markets do decline occasionally, and that is the price we must accept for the higher returns provided.
Significant falls are rare, and provided you don’t sell during these periods, they are of little consequence. I wouldn’t be at all concerned about markets being at record highs. Markets are at record highs an awful lot of the time.
And probably not all of your super savings are in stock and property markets (where volatility exists), anyhow. Most funds will have cash and bond holdings to smooth out the bumps.
It would be prudent within your super fund to ensure some portion is invested in low-risk assets. Check the investment options within your fund and consider placing a couple of years of retirement livings costs in a lower risk option.
This will provide you with a solution in the event your retirement coincided with a down market. Rather than sell your growth-oriented investments at depressed prices, you could live off the amount in the low-risk option instead.
I recently sold my home and will be living with my daughter for six months until my new home is ready. I live on an age pension. Will my pension be hurt by the money sitting in my bank account from the property sale until I’m able to pay for the new home? Will I have to pay tax?
There may be an impact on your pension. Centrelink allows an exemption of up to 24 months under the asset test to cater for the transaction that you are undertaking. However, money in the bank will still be caught under the income test via a process known as deeming. Deeming is just a simplified way that Centrelink estimates how much income your investments generate.
It should be possible to generate bank interest at least equivalent to this deeming rate. Therefore, whilst your pension might get cut, the interest you earn on your money whilst you wait for your new home to be built should more than compensate.
As your regular income is reduced, keep some of the sale proceeds available in an everyday account so you have a comfortable cash cushion. Then put the remainder into an investment that pays interest each month. Ensure the investment is a straightforward bank deposit. You certainly don’t want anything with any sort of market volatility in this instance.
I don’t know the sums involved here, so difficult to comment on the tax question. Interest income is taxable, but you also have a fairly generous tax-free threshold.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast.
