Ask Paul: I just got divorced and I'm out of my depth
I am a 41-year-old recently divorced woman. I have returned home to Australia after living overseas for many years.
I have $50,000 to invest (50% of a retirement annuity received in the divorce settlement) and $50,000 in child support maintenance, of which I need to use $12,500pa for my children's expenses over the next four years.
- put $110,000 in an account (currently earning 7% pa), use the interest and $5000 of the capital for the maintenance each year, thus saving some of the capital;
- or do I invest the $50,000 into a super fund, which according to online compound interest calculators will give me roughly $193,500 at 7% interest (seems to be the average over the past decade) in 20 years (referring to the cover story in Money, June 2017, Why you only need $275,000 in super to retire);
- or do I have the opportunity to buy a small two-bedroom unit (great for me once the kids have left home) for $300,000?
I could put down a 20% deposit and rent it out for now to start paying off the mortgage until I can move in.
The property would be positively geared; however I will have no super and will probably only be in a position to start contributing to a super fund in 2023.
If I start contributing to a super fund in 2023 at $100 a week for my last 20 years of working, I would have $228,000 (if the online calculators are correct) plus a (hopefully paid for) home.
What should I do? I'm trying to avoid any more disastrous financial decisions and feeling completely out of my depth. - Whitney
Well, to start with, Whitney, you get bonus points for a very articulate description of your situation and the decisions you face.
About the only thing I do not understand is the 7% on funds in an account. About the best I can see is 3%, including a "new account bonus" for four months.
I find the "big picture" to be the place to start.
Owning a home to live in is, in my opinion, a cornerstone to future financial security, not to mention the emotional and lifestyle benefits of your own home.
Super is terrific, but in your case the money is locked away for some 20-plus years.
The property market has been going backwards for some years. You'd think that interest rate cuts and population growth, plus the fact that unemployment is low, would see property values stabilise and start to grow.
So I support your plan to buy a home, rent it for a while and move in when you can.
Super really is super. From your comments you will be in a position to add to super in a few years and you will have a couple of decades to do this and see it compound in value.
My vote is to go with the property strategy, but obviously I only have brief information on your situation, so it is critical you do your own research on the purchase and your capability to service the loan.