Ask Paul: Sell properties to fund retirement or keep them as rentals?

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Q. We plan to retire at age 60 using rental income and super-allocated pensions. We own three investment property rentals in joint names that were purchased in the 1990s - so their capital gains are four times the original purchase price.

Is it better to sell and pay capital gains to realise the assets and put more into super, or hold them as investments? What are the rules for contributions to super from asset sales? If we sell one, is there any way to minimise the capital gains? Alternatively, do we just stay as we are and collect rent?

It's tricky and I'm sure there are other people who are looking at this situation. What's the best way to fund our retirement? - Maree

paul clitheroe

Maree, you have nailed this with the words "It's tricky". For me to give you a good answer, I would need a vast amount of detail.

Your income, managing capital gains liabilities, your ability to put money into super. There is a very long list! I can make a few broad comments.

I can understand why you would like to sell a property and diversify away from your four properties and build your superannuation. The decision here can only be made in a planning session with your tax adviser or a professional adviser.

I agree with the principle of spreading risk, but the tax cost is a key part of this decision.

As I've answered previously, super is a terrific asset for retirees. In my opinion with a good low-cost super fund, excellent global diversification and significant tax advantages, super really is a super asset for retirees.

I'd love you to have more money there, but you need detailed, fully informed, technical advice to make progress. I'd start with a chat to your tax adviser.

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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.