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A 66-year-old investor sold a long-held property for $1.2 million and is weighing a $390,000 non-concessional superannuation contribution against a guaranteed short-term deposit. Financial advice favors contributing to super because market declines create cheaper buying opportunities, while placing the remaining funds in a short-term term deposit could provide a guaranteed return and hedge market risk. Long-term fixed-interest investment is not recommended.
I am 66 and recently sold an investment property I owned for 42 years for $1.2 million, intending to invest the proceeds elsewhere for a better return.
I want to make a $390,000 non-concessional contribution to my super, but my balance has gone backwards in the first few months of this financial year, and I’m concerned about the economic outlook. I could instead earn a guaranteed 5 per cent plus in a short-term deposit. Should I do that for now and then contribute the $390,000 to super before the end of the financial year?
Your question is whether markets will keep falling, such that you would be better off adding to super next year, rather than today. Short-term calls are always tough. The fact that your super 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’s a good thing. Your question really, though, is whether markets will keep falling, such that you would be better off adding to super in June next year rather than today. That is unknowable. Statistically, it is more probable that markets will be higher in the future than they are today.
I would also observe the proposition that “there’s just a lot going on right now in the world” will never go away. The fact that your super has gone down in the past few months is more of an argument to add funds than to pause.
Given you have $1.2 million of sale proceeds and only $390,000 is going into superannuation, perhaps the money not going to super could be placed in a term deposit so you get the guaranteed return outcome, whilst the super addition is invested in accordance with your chosen risk-based investment option. This would hedge your bets. Note, I wouldn’t suggest leaving the non-super money in fixed interest long term.
Once inflation and tax are accounted for, your money will be barely treading water, defeating the logic of exiting your investment property. Finally, if you haven’t already looked into it, I’d be exploring whether you can access the downsizer provisions to get an additional $300,000 into super. If you lived in that property for even a brief period, it may be possible. Can you explain what an annuity is?
A friend has recently retired and her financial planner put some of her money into a lifetime annuity. What does this mean? Annuities provide a fixed interest rate, with either a fixed term, most commonly between 1 and 10 years, or, as your friend has, 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 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 you living an extended life. They certainly provide an extra incentive to stay healthy! You wouldn’t 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. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday.
Superannuation Term Deposits Investment Strategy Retirement Planning Property Sale
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