Source : the age
I’ve saved $60,000 and am able to add about $2000 a month to that. What should I be doing with it? I am single, 46, have a mortgage that is quite manageable and no firm retirement plans, though I do like to be flexible.
Thanks for your question. Given you have a mortgage, parking your savings in an offset account would certainly be one option worth considering.
Using your funds to top up your offset account can save you plenty of money in the long run.Credit: Simon Letch
The return here is effectively whatever the interest rate on your mortgage is, probably about 6.2 per cent at present. That’s better than the interest you’ll earn on any cash account, and the icing on the cake is that you don’t have to share any of that return with the tax man.
Note there is no value having more in your offset account than what is owing on your mortgage. Excess money in an offset account produces no return at all. After accounting for inflation, you would be going backwards.
Money held in offset is fully accessible, so this satisfies your flexibility requirement and ensures you have funds for emergencies.
However, $60,000 is likely more than you require for any short-term needs or unexpected expenses, so you could potentially be looking to establish an investment portfolio for some portion of this pool. Your ability to add regularly would enable dollar cost averaging, which is a great way to build wealth and give yourself options.
Such a portfolio would be outside the superannuation system and therefore accessible at all times, albeit capital gains tax would become due upon sale, assuming the investments increase in value. It could be used for all sorts of purposes such as travel, early retirement, study or a career change.
Finally, you might want to consider whether some of your savings capacity could be used to salary-sacrifice to superannuation. Money added to superannuation is inaccessible until you are at least 60 years old, so I couldn’t imagine you would want to send all of your savings here.
However, using some portion of your savings capacity for this purpose would help to provide you with long-term security and also provide some tax savings in the immediate term as money salary-sacrificed to superannuation is usually taxed at 15 per cent, which is likely to be lower than your personal marginal tax rate, typically 30 per cent or more.
I recently wrapped up my SMSF and transferred the funds to a new super fund via BPAY. However, the new fund has recorded it as a contribution rather than a rollover. Is this a problem, and if it is, what should I do about it?
Yes, this is a problem. Depending on your age and the amount involved, there could be issues here around superannuation being released before you reach preservation age, and also the amount transferred exceeding your contribution cap limits. You certainly want to get this addressed.
I would imagine your new fund has treated the money coming in as a contribution because the transfer occurred via BPAY. Typically, when a rollover is done it occurs via the SuperStream system. As part of that your accountant provides a rollover statement to the new super fund.
Contact the fund and let them know that it has been processed incorrectly. I’m sure between you, the fund and your SMSF’s accountant, there will be a way to rectify this problem, probably by having the funds reversed back out and then reprocessed following the correct procedure.
Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. 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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