Opinion
I’ve just sold my farm. What’s the best way to park the money for a while?
Noel Whittaker
Money columnistI’ve just sold my farm and I will have a substantial amount that I need to park until I decide what to do with it. Given that banks are only guaranteed up to $250,000 per account, I’m confused about how best to handle the money. Any suggestions?
Australian banks are among the safest in the world.Credit: Karl Hilzinger
Most people spend their time worrying about things that are highly unlikely, while overlooking the things that could actually happen. Australian banks are among the safest in the world.
Their shares dominate the Australian Stock Exchange, and for a bank such as CBA or NAB to fail, its entire asset base would need to collapse. If that ever happened, the impact on the economy and everyone’s super would be enormous – because super funds are heavily invested in bank shares and the market index.
So don’t focus on unlikely disasters. Park the funds in banks you trust, and focus on a long-term investment strategy that makes your money work for you.
We run a self-managed super fund and are updating our estate plan. If one of us dies, do we have to wait for probate before the death benefit can be paid?
Generally, an SMSF can pay a death benefit without waiting for probate. Superannuation is usually separate from the deceased’s estate, so the fund’s trustees can distribute the benefit as soon as they have the necessary documentation in place. Superannuation law does not require the payment to be delayed until probate is granted.
That said, it’s essential to check the fund’s trust deed, as it sets out the rules for how and when benefits can be paid. Special care is needed if the deceased was the only member of the fund, because there may be additional steps or restrictions to follow before the payment can be made.
I retired two years ago and I am in pension mode. While I earn too much for the government pension, I’d like to clarify how my super pension works in practice.
I’m 64, drawing 4 per cent ($1500 a month) from a $470,000 pension account. Last year, my fund returned just over 9 per cent, which was higher than the 4 per cent I withdrew, so my balance increased. Next year, my minimum draw rises to 5 per cent.
Given markets are near record highs, I’m wondering how my balance can keep increasing. If the market returns 8 per cent to 9 per cent again, my balance should rise; but if markets flatten or fall, it will start to decline. Am I right in thinking that the likelihood of my $470,000 continuing to grow is low, since markets can’t keep breaking records forever? Or am I misunderstanding how it all works?
Your pension balance grows whenever your fund’s earnings exceed the amount you withdraw. If markets deliver 8 per cent to 9 per cent again, your balance should continue to rise slightly. But if returns fall below 5 per cent, your balance will slowly decline. This is normal, because drawdowns eventually eat into capital if earnings don’t keep up.
Markets fluctuate from year to year, but over the long term, they tend to rise steadily. That’s why your balance can grow in good years, even though there will be periods when it falls. The key is to focus on long-term performance rather than short-term peaks or dips.
How much super you need depends on a range of factors.
I will be turning 67 early next year and I plan to retire. How much should someone my age have in their superannuation fund?
There’s no single answer to the question of how much super you need to retire. It depends on whether you own your home, still have a mortgage, qualify for a full or part age pension, your health, your travel plans, your life expectancy – and above all, the return your super fund can achieve.
Start by working out how much money you’ll need to live on. The budget planner on the ASIC MoneySmart website is excellent – it’s full of prompts and lets you save your work, so you can come back and refine it later.
Then check your eligibility for the age pension. My website www.noelwhittaker.com.au has an age pension calculator and downloadable pension charts. This will show how much government support, if any, you might receive.
Once you know how much you expect to spend in retirement, the next step is to get professional advice to determine how much income you can generate and the lump sum you’ll need to support it. A good adviser can analyse your position, identify ways to strengthen it, and develop strategies to give you the best chance of a financially secure, stress-free retirement.
Noel Whittaker is author of Retirement Made Simple and other books on personal finance.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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