Ask Paul: Do we sell our investment properties to fund our retirement?


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Q. I am 64, my wife is 63 and we intend to retire in two years. We own our house and have two investment properties yielding $750 a week.

We have combined super of $630,000 and do not have any outstanding debts. We have $50,000 in shares and $50,000 in savings.

We are both employed and our combined income is $160,000 before tax. We salary sacrifice $15,000 each into our super.

Ask Paul: Should we sell investment properties to fund retirement?

Can we afford to retire comfortably? Or should we sell our investment properties, the current value being $1.5 million, to fund our retirement?

A. Hi, Rodney. To start with I can say things are looking good for you financially. Congratulations on building up a portfolio of assets that look likely to give you a financially secure retirement.

The one thing you don't mention is how much you would want to spend each year in retirement. That really is critical information. But no drama. I'll reverse-engineer your situation and we can look at what lifestyle your assets can support.

First, you have two properties yielding, I presume after costs, $750 a week. Then you have super of $630,000. Add two years of contributions totalling $60,000, and let's assume the fund earns a pretty conservative 5% and you would have about $750,000 at retirement.

If it's invested in a balanced fund, history says that if you take out 4% to 5% a year your money will last you many decades. So let's assume you take $30,000pa out of super. Then you have $100,000 in savings and shares. Let's also draw down from that at around 4%, so $4000 a year.

So it looks to me as though you could spend $73,000 or so a year, linked to inflation, for decades. And this is the big question: is $73,000 enough?

If so, you could choose to keep your properties. But with a yield of 2.6%, I wonder about keeping them both. Here you will need expert, personal advice from a fee-charging professional adviser. But I know I would be very interested in selling one property and having both of you make a large after-tax contribution to super. I suspect you may be able to put in up to $600,000 between you.

This would greatly add to the amount available to support your living costs. This is a complex area, and there may be CGT on your property and so on, so I strongly recommend you talk to your accountant or an adviser before doing anything.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
August 21, 2019 8.23pm

If you can't live on $73k p.a. (tax free, essentially, being over 60), then there's something very wrong.

Ray Hernando
May 21, 2020 3.13pm

Hi, Is it true that if I sell my investment properties once I have retired, I don't need to pay any capital gains on the properties?

Jorah Mormonte
November 14, 2020 4.51pm

Hi Ray. That is incorrect. If you retired and then sold the properties you would be liable for capital gains tax like usual - the only difference being that your marginal tax rate would be lower than if you were working full time. To my knowledge, the only time you can avoid capital gains tax on a property that isn't your PPOR is if you in fact investing in the property from within an SMSF (self-managed super fund). The more usual option, as mentioned in the article, is to minimise capital gains tax by making large tax-deductible contributions to super. There are complex rules around how much you can put in and when but this would likely occur pre-retirement.

Christian James
May 4, 2021 2.25pm

My plan is to sell my PPR put the money into super at retirement and then move into our smaller investment property. They are both in the same suburb so it will only mean moving a couple of streets over. If 10-15 years after that, maybe one of us is dead, if you sell the former investment property is it now CGT free as its our PPR. Or is there still some portion due because of its former life as an IP

Peter Col
May 21, 2022 2.58pm

YEs - still some portion due because of its former life as an IP

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