Home' API Magazine : August 2014 Contents 30
API AUGUST 2014
AUGUST 2014 API
rebate until she reaches 60, leaving the
tax payable on the withdrawals as fairly
Therefore maximising contributions to
super between now and retirement would
be a worthwhile goal.
Before we look at selling Research,
let’s look at your existing mortgage
repayments. You’re paying $11,688 per
annum for your existing home loan, which
is great as it’s well and truly more than
the minimum repayment required.
The interest for a $57,000 mortgage at
five per cent is approximately $2850 per
annum, which means you‘re paying down
more than $8800 of principal per annum.
Ensure all of your spare savings are sitting
in a 100 per cent offset account linked to
this home loan, which will save you even
At this rate, you’ll have the home loan
paid off within five years without using
your excess cash flow.
By contributing your excess cash
flow to debt reduction, you’re likely to
have this loan paid off in two years,
leaving you with approximately $35,000
including excess cash flow and home
loan repayments to put toward your
Possibly, then, the best option for you
would be to increase your contributions to
superannuation via salary sacrifice.
This involves giving up some of your
pre-tax salary and in this case placing
that money into your super fund in the
form of pre-tax dollars.
When combined with your employer
contributions (known as concessional
contributions), there’s a maximum limit
of $35,000 you’ll be able to contribute
starting next financial year.
That means based on today’s salaries
and 9.25 per cent super guarantee,
Geoff could salary sacrifice $27,508 into
super and Suzy could contribute $22,698
These contributions will be taxed at 15
per cent by the super fund – $50,206 @
15 per cent = $7530 – leaving you with
net contributions to super of $42,676.
However, given the tax advantages of
salary sacrificing, we calculate these
contributions will cost you approximately
$30,000 after tax dollars.
That’s more than $250,000 in
contributions to super that could be
achieved, and given the tax advantageous
nature of this arrangement it may
be worth discussing commencing
such a strategy even earlier with a
Also, when Geoff turns 55, consideration
should be given to the commencement
of a transition to retirement strategy,
which could lead to some significant tax
savings both inside and outside of the
Assuming Research is currently worth
$975,000 , which is on the lower end of
your estimate, it’s been growing at 3.67
per cent since you purchased it.
If it continues to grow at this rate,
when you sell in 2020 it will be worth
$1.21 million. Factor in $30,000 of selling
costs and your net from the sale will be
$1.18 million. The net proceeds from
Research will clear the $410,000 Hawthorn
debt and $470,000 Torquay debt, give
you the $100,000 required for Torquay
and Hawthorn renovations plus leave
you $200,000 left over to go into your
This could be placed as a non-
concessional contribution to
superannuation to take further advantage
of the tax advantages outlined earlier.
Assuming a five per cent net return on
your superannuation, at retirement your
super accumulation would be more than
$900,000 and with the additional $200,000
non-concessional contribution, would
leave you with around $1.1 million to
Retiring with a super balance of more
than $1 million should mean you could
achieve your goals of a passive income of
$50,000 to $60,000 comfortably.
If your money is returning five per cent
then your goals will be met and if we add
in a cheap rent for Hawthorn of $10,000
per annum from your kids then there’s
your $60,000 income.
A five per cent return is conservative. If
you were to get a very realistic eight to 10
per cent return on your super investment
then you’re suddenly getting $80,000 to
$100,000 per annum.
Add in market rent for Hawthorn at $500
per week ($26,000 per annum) and you’ll
be producing $106,000 to $126,000 of
income per annum.
I think you’ve both set yourselves up
well for retirement and you’re so close to
having that golden Torquay sand between
As I’m not a financial planner, I’d
recommend you speak to someone to
make sure the plan is sound and ensure
your super is invested wisely. API
> Use your head and not your heart
when buying. Close to the CBD and
lifestyle locations don’t always make
the best investments. Focus on what
will be in demand in the future.
> Buy more and better performing
properties outside of Victoria to avoid
land tax and create diversity.
> Do a good course and read books on
how to invest successfully.
> Consider setting up a Self-Managed
Superannuation Fund and using that
to buy property.
> Give serious thought to Suzy
remaining in the workforce for another
six years for income purposes.
> Maximise super contributions
between now and retirement, and
look at salary sacrificing as a way to
increase super contributions.
> Park spare money in an offset account
against the home loan to save more
money for retirement.
Experts’ suggestions in a nutshell
The advice contained in this article is general advice only. The contents have
been prepared without taking account of the reader’s objectives, financial
situation or needs. Because of that the reader should, before acting on the
advice, consider the appropriateness of the advice having regard to the
reader’s objectives, financial situation and needs. We recommend readers
speak with a professional qualified financial adviser before making any
æI think you’ve both set yourselves up well for retirement
and you’re so close to having that golden Torquay sand
between your toes.Æ Damien Roylance
ROADMAP TO WEALTH // GEOFF & SUZY ELLINGSEN
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