Ask Paul: I'm living with a terminal illness, how can I prepare my finances?

Dear Paul,

We are in a mixed head space with what to do in order to get back into the property market. We have owned properties in the past, so don't qualify for any government handouts.

I am also living with a terminal illness, which eventually will see me unable to work one day. When that will be is anyone's guess. Currently, we are both working full time, earning $90,000 and $85,000.

We are tossing up whether to convert our current super fund balances to a self-managed super fund and purchase an investment property for future use, or throw our current savings at a primary place of residence. 

Current super fund balances combined are about $500,000 and current cash savings are around $130,000.

We have been saving like crazy since my diagnosis a few years ago in anticipation of me not being able to work one day. This is why I am reluctant to use the savings to throw at a property, knowing the safety net is then gone. 

The government doesn't see my terminal illness as one which prevents me from working, so doesn't give any benefits when you are no longer able to work.

The main reason for wanting to secure some sort of property is for my partner to have when he retires. Whether he chooses to live in it, or sell it and buy something else, is up to him ultimately.

I do like the idea of using the super funds (as I will never have access to the funds in my lifetime - something that should be addressed by the government) and there would be next to no mortgage on the property, so any income could go back into the current super funds, as this is where our insurances are.

We would also leave our current employer contributions going into our current super funds for insurance reasons also.

Please set us on the right path. - Ivan

Hmm. You have set me a complex challenge here, Ivan. Thank you for being so frank, because without this I would be stumbling around in the dark.

I am very sad to hear about your terminal diagnosis. What cheers me up a bit, and I am sure it cheers you up even more, is that you are still working and it sounds like you may be able to do so for some time and expect to live even after you are forced to stop work.

Your primary concern is security for your partner in the form of property ownership when he retires. From this, I am assuming that owning a home for you at this stage is not a big deal.

Where we are in strong agreement is that super is a really good asset. You could set up a DIY fund and buy an investment property. In time to come, at retirement or at a time when the rules around super change, such as reaching the right age, illness or a retirement even, your partner could take the property out of super and then live in it.

But it all sounds like a lot of cost and drama to set up a DIY fund and then buy a property to hold in the super fund. What I love about a good, low-cost super fund is the huge spread of risk across assets all over the planet.

Sure, if you pick the right property in the right location, it may or may not outperform your current super fund. Who knows? But owning one property is far more risky and far less liquid than the broad, global portfolio held by a good super fund.

I am left wondering if it would not be better to leave your super where it is. Once you are forced to stop work, I would think your super becomes available to you under the illness provisions. Do check this with your fund. Would that be a better time to take funds out of super and buy a property as your home?

My overall view here is that it may be better to leave your funds in super and keep growing them, as you plan to do, with your future employer contributions. After checking your fund's illness provisions, I would suggest that may be a better time to withdraw and buy a home.

Another option, of course, is to ensure your partner is nominated as your beneficiary with your super funds and the proceeds are available to him at a time in the future.

Most importantly of all, my very best wishes and hopes that you stay as well as possible for as long as possible.

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