Question 1

I am 63 and work full time and earn $95,000 and my wife earns $20,000. I have $160,000 super and my wife has $20,000. We have a small mortgage of $150,000. Our house is valued at $1 million.
We are asset rich and cash poor. Is our best option for retirement to pay out our mortgage upon retirement and look at a reverse mortgage, or are there better options? We do not have private health insurance and wife is a type 2 diabetic.

The longer you and your wife can keep working the better off financially you be.

I know that sounds obvious, but it is the single best strategy because it has the following advantages:

• Your employer contributes more into super from SG payments
• You delay drawing down on your funds so in effect they don’t have to last as long
• You give your balance additional time to “compound”. Your super earns additional interest on a high balance before you start drawing down on it.

At a minimum, if you can, keep working until a least age pension age (67). Even a bit longer if possible. The government is trying to encourage older Australians to stay in the workforce and as part of that encouragement there is a “work bonus” where some of your employment income does not get counted under the age pension income test.

If you have your current mortgage payments under control, then yes, look to pay it out completely with your super at retirement.

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While you are working, try to save more into super until you do retire. For yourself, look at making salary sacrifice contribution into your super. Not only will this build up your super, but it will also save you income tax.

Your wife should look to make a $1000 after tax non-concessional contribution to her super every year until she retires, she will then receive a $500 government co-contribution each year. That’s a 50 per cent government-guaranteed return.

If you can both make these extra contributions to super now, that will make a big difference in retirement. You will at least have some super to top up your age-pension payments.

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Once you are retired, if you find your age-pension payments and super top up are not enough, then yes, a reverse mortgage is an option worth exploring.

The government’s home equity access scheme provides reverse mortgages for those who own a property and have reached age-pension age. The maximum payment is 150 per cent of the age pension, less any age pension you are receiving. That means, if you are already receiving 100 per cent of the age pension, then you can also receive another 50 per cent as a reverse mortgage.

Question 2

I am a 69-year-old retiree with 96 per cent invested in conservative balanced and 4 per cent in international shares with Unisuper.

Could you please advise the best option of draw down of compulsory fortnightly payments?  I do not receive the pension.

When you have multiple investment options, you need to choose in which order you want to draw your regular pension payments from.

Depending on which super fund you are with, you will get quite a few options to choose from, such as:

• Priority/choice: You number each investment option in which order your payments come from
• Proportional or pro-rata: Funds are drawn down on the proportion to the balance held in each investment option. Or, some funds will let you choose a different proportional approach – highest balance first, lowest balance first
• Default: This can differ from fund to fund so you would need to read the fund’s guide on this.

I note that UniSuper’s default approach is to take the funds from the most conservative option first until that has been exhausted, then the next conservative option etc.

The problem with this approach is that, depending on how much you are drawing down, your portfolio becomes more aggressive over time. You could then be left with just international shares.

Now is probably a good time to review which investment option(s) best suit your objectives and how much risk/return you are comfortable with. UniSuper offers personal advice on its investment options at no additional fees to their existing members.

Once you are comfortable with the investment selection, I would look at drawing down the funds on a pro-rata basis so your portfolio roughly stays within the same asset allocation. This is often the best approach for members who won’t regularly review their portfolio and re-balance.

Question 3

Does the government guarantee cover two separate bank accounts in two separate banks if I (for example) divided $500,000 into two term deposits of $250,000 with each account being in different banks?

The scheme is technically called the Financial Claims Scheme. It came off the back of the 2008 global financial crisis, when people were worried banks may go under.

To counter this fear, and to stop a run on banks, the Australian government guarantees deposits of up to $250,000 per account holder per authorised deposit-taking institution (this includes banks, building societies and credit unions).

So yes, if you had $250,000 at two different banks, then all of it would be covered by a government guarantee.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.