Ask Paul: I was medically retired from the police, how do I invest my $170k payout?

Dear Paul,

I am 53, married, with two young children. We own a home with a split mortgage (fixed and variable) of about $400,000.

Before the interest rate rises, the home would have been valued at around $2 million.

In February 2022, unfortunately, I had to be medically retired from the NSW Police Force after serving for 33 years. At that time I was diagnosed with PTSD and a severe depression disorder, meaning I could no longer perform my duties as a police officer.

Shortly after leaving the police force, I received a TPD payout of about $170,000, which was placed into my Aware super fund. (I am not pre-1988, when the Police Super Scheme was closed, or a member of the State Authorities Super Scheme).

I also receive an income protection payment of about $5500 a month net for seven years.

My wife works full time in a management role.

What would you advise me to do with that money now? I have been advised I can access some or all of the money, with tax implications.

Do we pay off one or both of the mortgages because of rising interest rates? Or leave it as it is in the super account, which is losing money every day? Or withdraw some of it and purchase an investment property?  

Thank you for your time. - Simon

I am sorry to hear about your medical retirement, Simon, but at the same time relieved that your financial situation is sound. Money is just money and far less important than your health. But money stress is debilitating.

With a large amount of equity in your home, your income protection insurance and your wife working full time, plus your super, it puts you in a really good position.

All balanced and growth-type super funds are having a tough year. But the short term is of little relevance to a long-term investment. If we look at the returns from balanced-type super funds over 30 years, we see an average of around 8%.

There are quite a number of periods when super funds went backwards during this time, but with a long-term investment we need to focus on long-term returns.

Most of our properties are also going backwards at the moment - some areas by 15%, I have read. But this will not worry many property owners (and will help first-time home buyers), as with population growth and inflation, property will continue to increase in value over the decades.

For sure, the interest rate on the variable part of your mortgage is going up. This is a personal choice. In the long run, all historical evidence is that your super will provide higher returns than the rate of interest on a mortgage.

But paying off the variable part of your mortgage is risk free. I imagine that after 33 years you have a substantial amount in super. The key for me would be the amount of tax you have to pay on taking out of super all or part of your TPD. If it was tax free, paying off part of your mortgage is not a bad idea at all.

You could also buy an investment property, but this option needs a lot of detailed thought. It depends on your views on debt, how much surplus income you have and your attitude to investment risk.

You have a few variables to contend with here. I'd suggest you have a good chat to your super fund and, if in any doubt, seek professional, fee-paid advice and get an independent opinion.

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