Investing or pay off the mortgage: a common dilemma – The Age

The challenge regarding the managed funds is what will happen if the market falls between now and your retirement?

If you are prepared to hold them for many years, which I would recommend if possible, a temporarily fall in the market should not be an issue.

However, if you intend to dispose of them in two years, and they are potentially volatile, you have to make a choice of redemption now with capital gains tax, or deferring disposal into the future.

Its really a matter of sitting down with your adviser and making some long-term plans.

I have made a personal contribution of $3000 into my super account before the end of the past financial year (before June 30, 2019). I am doing my tax return and have found that my taxable income is just about $18,500 (before deductions), which is very close to the tax-free threshold of $18,200. If I claim a tax deduction for a personal contribution, does it mean I would pay extra tax? Should I claim or not? If yes, how much should I claim?

From the information provided, you should be paying no tax for the past financial year.

If you claim a tax deduction you will lose 15 per cent in entry tax, but if you ask your fund to treat the $3000 as a non-concessional contribution, you may well be eligible for a $500 government co-contribution and incur no entry tax.

Your best course of action appears to treat it as a non-concessional contribution.

Are inheritances subject to the deeming rules?

Deeming rules apply to financial assets, such as cash in the bank, managed funds and shares.

If you receive an inheritance and it fell under the category of a financial asset, it would be subject to deeming.

If it was an asset such as real estate, it is not subject to deeming.

Keep in mind that deeming rates only affect pensioners assessed under the income test.

Im like many full retirees I own a house with no debt. I would like to rent it out for a while and do other things, but dont know what to do with the income, as I am fully retired so can make no further contributions to my super. Can I gear the house rental against a small share portfolio or re-gear the house using my existing draw-down facility? My home is worth $1.3 million and I have an unused drawdown of $150,000. I am aged 67 and have $200,000 in super. I also receive a defined-benefit Commonwealth Superannuation Scheme pension of $50,000 a year.

There is a golden rule that you should only borrow if you have to do so.

You are well set up for retirement now and borrowing, say, $100,000 to invest in a quality managed fund is not going to save you any tax, because the combination of the income at, say, 4.2 per cent from the fund plus franking credits, should exceed the interest payable on the loan.

Having said that, if you are prepared to stay the course with the managed funds for at least 10 years, it should turn out to be a good investment. Being secured against your house, you could never be subject to a margin call.

I think your decision will depend on your experience with shares and your risk profile.

If you do borrow, I would prefer you used an index fund in Australian shares which, by definition, cannot go broke.

Just keep in mind that you can only be absent from your house for up to six years to retain the capital gains tax exemption.

Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.

Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.

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Investing or pay off the mortgage: a common dilemma - The Age