CANBERRA TIMES Q&A’s

Phil Thompson from Rise Financial wrote a weekly column in the Canberra Times from 2005 to 2013 providing answers to readers’ questions concerning subjects such as superannuation, insurance, investments, etc.

Provided below are a range of questions and answers printed in the Canberra Times newspaper, which will give you a feel for Phil’s approach to financial planning issues.

2013

29 May 2013 – Q1 – Can you please explain what I can expect a financial planner to do for me?

22 May 2013 – Q1 – Can you please explain the major changes to superannuation announced in last week’s Federal Budget?

15 May 2013 – Q1 – My wife and I are 40 years old with 3 children. We have tried to invest wisely over the years but are disappointed with the sharemarket drop over the last few years, even though it seems to be coming back up again. We have a few investments in place and feel they are now the wrong ones, but we are wary of selling as their value is lower than when we purchased. We are also redrawing too much off our home equity to fund living expenses and are going backwards rather than forwards. We feel we are in a position to do better. What can we do?

08 May 2013 – Q1 – You have referred to the ‘emotional roller coaster cycle of investing’ the past. With sharemarkets improving around the world, where do you think we now are on that cycle?

01 May 2013 – Q1 – My wife (57) and I (66) have recently sold a property. We will have around $200,000 in net sale proceeds to invest in super. My wife does not work but I work full-time still. Will putting this money into superannuation help reduce any Capital Gains Tax payable on the sale of the property?

24 April 2013 – Q1 – My husband and I are 40 and are looking to set up some investments. We estimate our home to be valued at $650,000 and we have a $200,000 mortgage. We both work in good jobs and have a savings capacity. Should we be looking to shares or an investment property to build our investment portfolio?

17 April 2013 – Q1 – Last week you wrote about the personal insurance cover people should consider. Do you have some information to give some reassurance that the insurance companies do actually pay legitimate insurance claims?

10 April 2013 – Q1 – I am considering taking out some personal insurance. Can you please explain the king of insurance cover I should be looking at?

03 April 2013 – Q2 – Is it possible to combine my wife’s superannuation fund into my super account? Her account balance is small so would it make sense to combine them to maximise growth and reduce fees?

03 April 2013 – Q1 – I am 38 years old and about to move to Hong Kong to work for 5 years at least. Are there any issues I should consider from a financial planning point of view?

27 March 2013 – Q1 – I am 65 and retired from work. What are the advantages and disadvantages of rolling over an existing allocated pension into a new allocated pension. Are there any tips or dangers in doing this?

20 March 2013 – Q1 – I have a small share holding valued at around $3,000. Should I add to these shares and build a share portfolio or should I sell these shares and put the money onto my mortgage?

13 March 2013 – Q1 – I am in a position now to really start making my money work well for me, but where do I start? Should I put more money into superannuation, buy shares, managed funds or get an investment property?

6 March 2013 – Q1 – I am looking to start a long term investment in a high growth share type portfolio. I would like to use borrowed money for the leverage and tax benefits and I have been told that I should use a “Margin Loan”. Is this correct, and if so, how does this work?

27 February 2013 – Q1 – Can you please explain in simple terms why we have a sharemarket at all?

20 February 2013 – Q1 – I have $70,000 in super and I currently work in the APS. I want to set up a self managed super fund (SMSF) with this money and with my $500 roughly after tax contribution fortnightly and an additional $500 per fortnight salary sacrifice. With this I want to purchase a property valued at around $450,000. As I need 20% deposit plus costs from my fund this purchase would be a few years away. I am 50 now so assuming I work to 65 I reckon I would be substantially better off at retirement by using my super plus the rent of say, $450 pw in today’s dollars to pay off this purchase while keeping about $10,000 in cash for unexpected expenses. I would be the trustee for the fund and would self manage which I am quite capable of and would be an expert by the time of setting up. This means my costs after set up would be the ATO’s fees plus the audit costs being around 1.2% of the value of the property when purchased. My latest projection if I stay in the PSSAP is $510,000. My conservative estimate of the property value at retirement and fully paid off would be $700,000 plus I would have the option of keeping the property and collecting the rent as a pension. I currently have a property portfolio of 4 investment properties so I understand this type of investment. What do you think?

13 February 2013 – Q1 – My daughter is saving money to build a deposit to buy her first home. Is a First Home Saver Account a good idea?

6 February 2013 – Q1 – I am 61, working, and salary sacrificing into superannuation to increase retirement savings. However the benefit of this strategy is reduced because my employer reduces the employer superannuation guarantee payment to 9% of my taxable salary, instead of 9% of my overall package. It still works out better for me but it seems like I am being taken advantage of by my employer as they now pay less overall. It this legal?

30 January 2013 – Q1 – I have received $50,000 as an inheritance from my grandfathers’ estate. As I am still young, have no kids, and do not want to buy a house for many years to come, and have no debt, I have decided that I want to purchase an investment and hold it for 10 years or more. However, I am not sure which is the best way to go. I do not want to put it into super. Can you please give me some ideas?

23 January 2013 – Q1 – With a new year here I feel as though I am in the same financial position as last year. Please give me some suggestions on how I can start to make a change for the better.

16 January 2013 – Q1 – With the holiday period over we are back to work and the reality of what we have spent during the festive season is here, which is a lot more than we had hoped. Consequently it feels like we start the new year on a negative note. Do you have any suggestions for how we can better prepare for the reality of December and January spending?

2012

19 December 2012 – Q1 – Another year has passed and we still do not have any clear plan for our financial future. What can we do to start taking some action in this area?

12 December 2012 – Q1 – Every Christmas seems to be a blow out in spending. Do you have any suggestions for making your money go further?

05 December 2012 – Q1 – Could you please explain the advantages of franking credits? I gather that, in preparing a tax return, they are added to total dividends and so would be taxed at one’s marginal rate before finally being deducted from the total assessed tax liability for the year. Is this correct and, if so, why do they provide the big tax advantage claimed for them?

28 November 2012 – Q1 – I am 54 years old, divorced, earning a reasonable income and just starting to rebuild my savings. Is retirement planning still useful for someone in my situation or have I left it too late?

21 November 2012 – Q1 – My husband and I have been very disciplined with our spending for many years to put as much as possible into paying down our mortgage, which is now around $154,000 and we have no other debts. But we are getting frustrated that we haven’t been able to afford to take our kids on an overseas holiday and they are growing up quickly. Should we just take the holiday now or should we wait until we have paid off our mortgage?

14 November 2012 – Q1 – I have just retired at age 60 and have $300,000 in superannuation. My intention is to invest in term deposits and live on the interest whilst preserving my capital. Does this sound like a good idea for someone my age?

07 November 2012 – Q1 – Following your column last week can you please clarify for me 1) Your reply suggests public service employers do not pay 9% SGC. Is this correct? 2) What is the similar salary cap for public servants where the employer contributes to AGEST?

31 October 2012 – Q2 – I am in the Public Service on a salary of $122,000 and contribute to the PSS. How much can I salary sacrifice to super and still be under the $25,000 concessional contribution limit?

31 October 2012 – Q1 – I have never borrowed money to buy personal items, except for a house, preferring to save the money first and then pay cash. Following this principal, I have now saved enough for a new car. However, I have noticed recently that many car dealerships are offering hire purchase rates of 1.0%, 0.5% and even 0%. Should I keep my money invested and take up one of these deals, or is there some catch? I have inquired about a cash discount, but they don’t seem to come anywhere near the savings that I would apparently get by taking advantage of these rates? Withheld, Canberra

24 October 2012 – Q1 – Having been invested in shares for many years I am now considering moving these funds into term deposits. Is this a good idea?

17 October 2012 – Q1 – We are considering purchasing into a retirement village but are concerned that the terms are heavily weighted towards the operator with entry fees of $10,200, ongoing fees and sharing any profits on sale of the property as an exit fee up to 38% of the sale price after 10 years? Does this seem like a good idea?

10 October 2012 – Q1 – With so much volatility in the sharemarket wouldn’t investing in term deposits with a guaranteed return on my money be a better place to invest?

3 October 2012 – Q1 – With the global financial crisis continuing I am worried about leaving my $100,000 in superannuation. This is all I have for retirement. Should I take it out?

26 September 2012 – Q2 – A noted financial commentator stated in an article recently that “after 60, the first $39,500 of indexed pension is tax-free, whether it is an unfunded employer benefit or a funded member-component pension.” This left me a little confused as I am a PSS retiree with a pension of $14,000 pa and COMSUPER requires me to pay $832 in tax each year on this pension. I am also in receipt of a CSS pension of $19,800 pa, on which I pay no tax. I am over the age of 60. Given that my total Commonwealth pensions are less than $34,000 pa how it be claimed that after 60 years of age, indexed PSS pension up to $39,500 pa is tax free?

26 September 2012 – Q1 – I am semi-retired but do some casual work, which I invoice monthly, and get the 9% super guarantee payment (SGP). Towards the end of May 2013, I will turn 70. I understand that 70 year olds cannot attract the SGP at present, but there is a legislative change which will allow the payments to continue after age 70, to take effect from 1 July 2013. My question is – does the current barrier to payment relate to the period in which income arose, or to the date on which it is paid? That is, if I defer putting in my May and June 2013 invoices until (say) mid June and later – so that the payments will be MADE on or after 1 July 2013 – could the SGP be made?

19 September 2012 – Q1 – As the Personnel Manager in a large business I am regularly approached by staff asking for a pay rise due to higher costs of living. Clearly some staff are feeling financially stressed but as a business, we have budgets and targets aswell. How can assist them?

12 September 2012 – Q1 – I am 62 years of age, retired and living off my CSS indexed pension of $40,000 and $175,000 in superannuation. My wife is 60 years of age with $120,000 in superannuation and will retire next year. We are about to receive a $100,000 inheritance. Should we put this money into superannuation or not?

05 September 2012 – Q1 – I am about to purchase a family home needing a mortgage of $400,000. I am concerned about interest rates rising too much meaning that I would find it hard to meet my mortgage repayments. Should I fix the interest rate or use a variable interest rate option?

29 August 2012 – Q1 – It is often said when it comes to investing that you should diversify. Does that really help during times of share market volatility like we are experiencing now?

22 August 2012 – Q1 – I am referring to a previous question asked where the writer asks if it is possible to avoid capital gains tax (CGT) if an investment property is rented out. Your answer was broadly yes by saying;

1. Offsetting gains with realising appropriate capital losses and

2. Selling an investment property in a financial year (generally just after retirement) where you can be considered substantially self-employed and therefore eligible to claim a tax deduction for a personal concessional contribution to superannuation.

Can you please clarify no. 2 a little further? Are you referring to the provisions for self employed and self managed superannuation funds? Is there a way where those not self employed can also utilise these provisions? P.A., Canberra

15 August 2012 – Q1 – I’ll be going overseas with work on a three year posting next year, and have recently bought our first home with a mortgage of $435,000. We plan to rent it out at $475 a week and engage a property manager. Could you please offer some advice on issues such as negative-gearing and what tax essentials we should be aware of?

8 August 2012 – Q1 – Who can you complain to if you feel your planner has done you a disservice and going to their complaints officer has come to nothing? What is the next step?

1 August 2012 – Q1 – Does a financial planner only look at providing advice on investments and superannuation?

25 July 2012 – Q1 – I am approaching retirement and would like to get some financial advice but I am concerned that a financial planner will try to get me into a self managed super fund or a managed fund, when I am happy with my current investments. I am in the public service and I salary sacrifice into an AGEST super plan. What do I do?

18 July 2012 – Q2 – Is it possible to avoid getting hit with Capital Gains Tax if I am to rent out my investment property? If so, how do I go about doing this?

18 July 2012 – Q1 – If an investment property is an ‘Off The Plan’ purchase due to be completed in the next financial year (ie – actually have tenants / income from the property next financial year) then am I still able to claim the Stamp Duty if I have paid it in this financial year? I would have thought not as the building is not yet completed and there are no tenants or income, so how can it be classified as an investment property?

11 July 2012 – Q1 – I am 63 years old and 8 years ago resigned from the Australian Public Service (APS). I currently receive about $31,000 from a CSS super pension. I took a ‘semiretirement’ job for which I got paid $29,000 last year. My partner and I have no mortgage and no debts. She currently works for the Australian Public Service. I decided early this year to sacrifice 100% of my salary into super in order to take advantage of the tax concessions. To my horror I discovered after some time that my employer does not pay any of the 9% super guarantee contribution (SGC) since they say my salary is in effect zero. Apparently there is nothing in our industry award compelling them to calculate SGC on an employees’ full salary before deducting any salary sacrifice amounts. Is this normal practice? My partner salary sacrifices $25,000 without any deductions from SGC while my son salary sacrifices to buy a car (ACT Public Service) and no change to SGC. Others I have spoken to say my employer should be paying me the SGC. What are your opinions on this subject? I may not be having any tax benefits if I am losing the 9% of my income?

4 July 2012 – Q1 – With another financial year over I have been organising my finances to do my taxes and realise how much money my husband and I have earned this year. However, we don’t seem to be getting ahead. What can we do to start capitalising on the good income we earn?

27 June 2012 – Q1 – Should I be looking to prepay my private health insurance before 30 June 2012? I earn around $100,000 pa and my wife earns around $50,000 pa and we are both age 52.

20 June 2012 – Q1 – You have mentioned before that a way to reduce your taxable income after you make a capital gain is to salary sacrifice into super. I am 51 years old, an employee and want to sell my investment property which is solely in my name. If I was to salary sacrifice into super, then how do I show that on my 2012 tax return? When will the 15% contribution tax be taken out?

13 June 2012 – Q1 – Do you have a list of financial strategies to consider implementing before the end of financial year?