I love your articles. They are clear and concise. I have just been to see a couple of financial advisors. Being a woman in my late 50s, I need to invest my inheritance and savings to earn my own living. I am aware that I can deposit into super and start drawing a pension in a couple of years. One issue that I am torn on is that one advisor says to start a self-managed super fund, especially if I want to invest in any property, and others say that most people offload investment properties as they age and invest only in the sharemarket. At my age, what kind of investing would secure my future if I have around $1.5m to invest? Is it better to invest in a property outside of super? It is difficult to know which advice is more sage. Secondly, it is very difficult to find an advisor who has experience in property and in sharemarket funds. Are there independent advisors who advise on both?
Thanks for those comments.
Generally opening an SMSF would be appropriate if most of the below were satisfied:
- You are wanting and prepared to take an active interest in investing funds (in conjunction with an adviser);
- You are comfortable in taking on the duties of a trustee;
- You can see some fee and tax advantages. Given your balance, this may well be the case.
- You have a preference to invest in direct property
If wanting a loan to part purchase an investment property then it’s generally best done outside super due to lending restrictions and tax considerations. However, if purchasing it direct then property is a viable investment within SMSF.
You are correct in that as people age, they don’t want the hassle of an investment property. And if the funds are in a SMSF sometimes they are forced to sell once they convert the fund from ‘accumulation’ to ‘pension’ phase as the rent is not enough on its own to meet the minimum drawdown requirements.
When looking at direct shares or property you should be prepared to invest for seven years or longer. Not that you must in many instances, as returns over those periods will quite often be good. However, if there is a downturn that affects shares, property, or both, you need to be able to stay the course until markets recover.
There is certainly a wide range of advisers to choose from. Many will offer a free or discounted first-off meeting to ensure you are the right fit for each other. It’s important you feel comfortable with their approach, fee structure and investment philosophy before signing up with one.
The government’s Moneysmart website lets you search for advisers in your area, provides tips on finding an adviser and gives a list of their qualifications and experience.
I’m on a full pension and own my home. I do not have a partner. My sister is at risk of becoming homeless as she faces increases in her rent. If I take a reverse mortgage against my home and buy a unit for her, how will this affect my pension? I would borrow the full amount of the investment property and her rent would cover interest-only repayments.
You would need to be very careful in this situation.
Your home is asset-test exempt. If you took out a reverse mortgage against it and purchased an investment property, then this would be asset tested.
It would be the full value of the investment property that would be assessed, you cannot subtract the value of the reverse mortgage. This is because your reverse mortgage is secured against your principal home which is an exempt asset.
This would probably have a significant impact on your age pension.
Rent paid to you by your sister would also be counted under the income test. Note there is no Centrelink requirement that you have to rent it out at market rates.
When obtaining a reverse mortgage there are limits on how much can be borrowed so you may find you won’t be able to draw a large enough lump sum to buy an investment property.
All in all, this does not sound like a reasonable approach. You may need to explore other avenues such as having her live with yourself, or, contributing to her rent so it is affordable. If you wanted to do the latter, you could do this by looking at the government’s reverse mortgage scheme, entitled Home Equity Access Scheme. They would pay regular fortnightly payments on top of your age pension.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services