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A 66-year-old reader who sold an investment property for $1.2 million asks whether to delay a $390,000 super contribution. The adviser says falling markets make buying cheaper and explains annuities.
A 66-year-old reader who recently sold an investment property owned for 42 years for $1.2 million is weighing whether to delay a $390,000 non-concessional super contribution.
The reader's super balance has gone backwards in the first few months of this financial year, and they are concerned about the economic outlook. They could instead earn a guaranteed 5 per cent plus in a short-term deposit. The reader asks whether to do that for now and then contribute the $390,000 to super before the end of the financial year.
Super Timing and Market Uncertainty
The question is whether markets will keep falling, such that it would be better to add to super next year rather than today. Short-term calls are always tough, according to the advice. The fact that the super balance has gone down in the past few months is more of an argument to add funds than to pause. When you add money to super, you are buying investments.
Markets pulling back a little just means you are buying at a cheaper price, so that is a good thing. The real question is whether markets will keep falling, such that adding to super in June next year would beat adding today. That is unknowable. Statistically, it is more probable that markets will be higher in the future than they are today.
The proposition that there is just a lot going on right now in the world will never go away. Given $1.2 million of sale proceeds and only $390,000 going into superannuation, perhaps the money not going to super could be placed in a term deposit for a guaranteed return outcome. The super addition would then be invested in accordance with the chosen risk-based investment option. This would hedge your bets.
However, leaving the non-super money in fixed interest long term is not suggested. Once inflation and tax are accounted for, the money will be barely treading water, defeating the logic of exiting the investment property. The reader should also explore whether they can access the downsizer provisions to get an additional $300,000 into super. If they lived in that property for even a brief period, it may be possible.
Lifetime Annuities and Retirement Income
A second question asks what an annuity is, after a friend recently retired and her financial planner put some of her money into a lifetime annuity. Annuities are to term deposits what a Swiss Army knife is to your kitchen paring knife. Annuities provide a fixed interest rate, with either a fixed term, most commonly between 1 and 10 years, or, as in the friend's case, they pay for as long as you live.
Where they step up from the more familiar term deposit is that you can customise them quite significantly. For instance, the income paid from an annuity can adjust with inflation. You can have them progressively return some or all of your original principal. Sometimes they are utilised to optimise for aged care-related costs, or to improve your Aged Pension entitlement.
Annuities can also be used within super, so income is tax-free in retirement. Annuities can be a great addition to a retirement income plan, particularly for someone who values certainty and worries about market volatility. Lifetime annuities act as a form of insurance against living an extended life. They certainly provide an extra incentive to stay healthy.
You would not typically put all of your retirement savings into an annuity because what you gain in certainty you lose in flexibility. But for a portion of your retirement savings, they can be quite valuable. Advice given in this article is general in nature and is not intended to influence readers' decisions about investing or financial products. Readers should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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smh:This story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
Investment Property Lifetime Annuity Term Deposit Retirement Income
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