Paul Clitheroe answers your questions about super

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My son has a disability and may not work, should I top up his super?

My 20-year-old son has just been diagnosed with a disability and may not work in the future.

Should we put $20 or more a week into his super fund for his retirement age?

ask paul clitheroe answers five questions about superannuation

He's currently with REST. - Chelle

That is really upsetting news, Chelle. My very best wishes to your son for his future. Where he is a lucky young man is the obvious support and love he has from you and your family.

Yes, you can add to his super and that would be of practical support in the years to come. A bit of a bonus here is the low-income super tax offset (LISTO).

If your son is earning under $37,000, which sounds most likely, then the ATO will automatically add 15% of whatever you put into the fund each year.

So, if you were doing $20 a week, or $1040 a year, the ATO would add $156 a year.

Do this each year and with compound returns inside the super fund the money would become very meaningful in decades to come.

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I have $500k in super, should I give $200k to my kids?

Dear Paul,

I am living with my daughter and her husband. I have $500,000 in super but no other assets.

I live a comfortable life and have just started receiving the age pension.

I have two children living independently.

Can I give $100,000 to my children to help them now rather than wait until I die? - Bernadette

I like your attitude, Bernadette. Giving money early to the kids is a very personal issue and can have all sorts of family complexity.

The personal issues I will leave to you.

But the absolute rule number one is to ensure you are financially secure. This means thinking through health issues, what happens if you need to go to an aged care service in time to come, with high upfront costs and so on.

It also needs a good think about how much you may need over the aged pension to live well.

Once you have thought over these quite complex issues and are certain that you will be as secure as you can be, then giving money to your kids may make sense, but it is critical we consider the impact on your pension.

Under the "deprivation" rules, when it comes to impacting your pension, you are only allowed to give away $10,000 a year, up to a limit of $30,000 over five years. So, if you give away $100,000, in the first year the pension calculation will still assume you have $90,000 when it comes to calculating your pension.

I would suggest you talk to Centrelink about the impact on your pension. It makes quite a difference whether you are a homeowner, single or joint pensioner and so on.

But I really wonder if, after ensuring you are financially secure, you would not be better to gift $10,000 a year to the kids until you reach the $30,000 limit after three years. At this stage you could reassess your situation.

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Ask Paul: I'm 62, should I cash out all my super to pay off the house?

Dear Paul,

I'll be 63 this year and likely to continue to work until who knows when.

But I'm looking at moving interstate to live with my partner, who has his own properties. We do not plan on amalgamating our finances.

I'm considering using my super to pay off my $120,000 mortgage, which will leave me with no super, but I would use rent from the property and contribute towards my super with work I hope to gain in my new state.

Is it wise? It would be a weight off my mind having the mortgage paid off.

Thanks for any advice in advance. I used to watch you on TV back in the day. - Glenda

TV was certainly back in the day for me, Glenda. I hosted the Money TV show throughout its lifetime from 1993 to about 2002.

That was really good fun. It was basically just the four big TV channels back then and we used to get a huge audience at 8pm on a Wednesday.

Money was not spoken about much back then and I think the TV show did help by giving a big boost to people's knowledge. Its success also led to far more coverage of money issues, which is terrific.

We are ageing along similar lines. I'm 66 this year, with adult kids and grandkids - it's all quite amazing.

I'd better get back to your question. Here we might have to have a bit of a squabble. I don't want you to pull money out of super to pay off your mortgage. I hope your mortgage is costing you under 3%, and maybe closer to 2.5%.

Your rent will cover this easily and the fact that you have interest payments means it comes off the mortgage interest you receive for tax purposes. So the actual after-tax cost of your mortgage is very low.

Then we turn to your super. Make sure you are in a large, well-managed, solidly performing super fund with low fees. I would expect your average returns over the past decade to be over 8%pa.

Let's think about this.

Do you want to have $120,000 in super with the potential to earn really good returns or pay down your mortgage, which effectively means that you are earning, after the tax benefit, barely 2%.

If super plods along at its historic average, you are likely to be throwing away some 6% a year, or over $6000 of your hard-earned money.

Look, I get the peace of mind argument about paying off your mortgage, but I can't have you throwing away "free" money without you and I having a debate. The sleep-at-night test is critical, but personally I would lose sleep at night knowing I was chucking money out the window.

Your call, but I know what I would do in your shoes. And that would not be paying off the mortgage. That can be done at any time in the future.

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We have $550k in an SMSF making just $23 a month

My husband and I are retired and still have two adult children at home. We have $550,000 in self-managed super, which is just sitting in our Commonwealth Bank account, on which we received a return of $23.37 for January 2021.

We also have $235,000 in cash that we are using for income at the moment, but we are going through it.

We also have a unit on the coast. It cost $330,000 and is returning about $1500 a month, but we still have rates and body corporate fees of $10,000 for the year to take out. We just don't know what to do with our money. - Karen

My inbuilt alarm has just started ringing, Karen. I'm glad you got in touch. $23.37 for the month on $550,000 is indeed alarming!

Cash is a funny thing. It is without doubt one of our safest assets in the short term, but one of our worst in the long term.

As you know, in a decade or so if it is left there and you only spend the miserly interest, you will still have $550,000. Its buying power, though, will be terribly damaged, even with inflation at a couple of percent. Compound this annually and you have lost about 25% of the money's buying power.

And then you have another $235,000 that is supporting your spending needs.

Stay in this position and I imagine with low returns on cash and your spending from your cash savings at the qualifying age you will deplete assets to the point where you will get a part pension and eventually the full pension. This is a valuable safety net.

Your investment situation is just too important to your future to have me dithering around with it in a few hundred words.

So, while I like to answer readers as well as I can, I really want you to go and see a fee-charging, independent adviser.

Your friends or super fund may have recommendations. Or call the Financial Planning Association and go and see a certified financial planner (CFP) - there will be one not too far from you. Don't hesitate to have an introductory chat with a few because you need to be comfortable.

My general view about my money is that the good old third-third-third approach is a pretty good start: a third in property, a third in shares and a third in cash and fixed interest is really not that bad.

A good adviser will give you personalised recommendations. That, of course, will include your coastal property, which I hope is benefitting from the boom in regional areas.

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I used all my super to pay off debt - was this a mistake?

Dear Paul,

I am a 63-year-old female, no partner or children, and I recently gave up my position as a Registered Nurse due to COVID-19. I officially retired and took all my superannuation and paid off my mortgage and credit loans.

Was this the right or wrong decision? As I'm a worrier, it's a relief not to have debt and now ownership of both properties. 

I have $70,000 left to invest and use wisely 

My asset are a home in Sydney worth $1.5 million and a $400,000 rural property in northern NSW that doesn't give an income. 

Should I renovate my Sydney home and rent it out and live a modest life in rural NSW, or invest my $70,0000 somewhere else? - Michele

Goodness Michele, you have made some really big decisions in a short period of time. I have to say that I would have preferred to answer your question about leaving money in super before you took it out!

You will get varying opinions here, but the technical answer in my opinion is that super would probably have delivered better returns than the interest on your home mortgage. A decent super fund has averaged around 7 to 9% a year over the last few decades, and your mortgage was likely to have been around 3%.

So personally, I would have left that money in super. Your credit loans were, I suspect, above 7 to 9%, so using super to pay out these makes sense.

But you are not me and I am not you. And you have given the best reason to take money out of super to pay off debt when you say "it is a relief not to have debt". Peace of mind is critical.

This is what I call the "sleep at night test". Frankly, paying off high interest personal debt or a loan on a quality property can never be that bad an idea.

My question now is what are you living on? You have retired before you qualify for an aged pension, so I presume you are using your savings. You have a very personal decision to make, which is really where do you want to live?

Obviously, renting your Sydney home would bring in buckets of money. You could live a modest rural lifestyle on that. Or you could use your savings, live in your home and await pension age.

With no dependents, once you took an aged pension, you could take the Government reverse mortgage option on your property and improve your lifestyle. Equally, you could sell and buy a smaller Sydney home, freeing up money for your lifestyle.

The key issue is you have solid assets. How you use them depends entirely on how and where you want to live. You need to work out your life plan, then the most effective use of assets and a potential future pension to support your lifestyle.

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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 email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.