QUESTION: I’m a 58-year-old IT worker retrenched 10 months ago. I’ve sent 150-plus unsuccessful job applications, so I feel I have no prospects of a job.
I have an investment property (generating $1300 a month), $78k in shares (generating $5000 a year in dividends), $120k in super and $4k in Mojo. My home is a one-bedroom unit ($260k, fully paid off).
I have no debt, but I’m struggling just to pay bills. Until better days — or retirement — do I sell my shares, use my super, or sell the property?
ANSWER: Use your Mojo — that’s exactly what it’s there for. However, it’s only going to last you a couple of months, so you need to change what you’re doing, and fast. Like a high school nerd trying to score a date to the dance, being rejected 150 times is God’s way of telling you that you need a new plan.
Luckily that plan is in a book: go to the local library and pick up a copy of What Color Is Your Parachute? It’ll show you better ways to land a position than using the cesspool that is seek.com.au. You’re in a good position in that you don’t have any debts or mortgage repayments, but you’ll need to keep working for at least the next 10 years — and when you land your next job (and you will), the bulk of your wage should go straight into super.
KISS PLAN FOR A RICHER FUTURE
Q: We have around $1.3 million in super, own our home, and an investment property which we rent out. We’re now looking for a financial adviser to take us into the retirement phase, and wonder how much we should be paying for this. We have been quoted $6000 for the setup, then ongoing annual fees of .99%. Does this sound reasonable to you?
A: No, it doesn’t. I really don’t like the 0.99% pricing — it feels a bit like you’re buying a set of steak knives. Case in point: my editor, who chooses the questions for me to answer, thought 0.99 per cent sounded “pretty good”. However, like most Aussies, he’s a little rusty on working out his percentages, so when I explained that it equates to a fee of $12,870 a year (and it grows along with your returns), he quickly recounted “oh, that’s way too much!”
The justification that you’ll hear from financial advisers is that you need to look at their fee as a ‘‘business decision’’: you pay 0.99% a year to have experts manage your biggest asset. There’s a fair point, especially if you’re prone to selling when the market crashes, as it inevitably does every decade or so. However, you’re probably smarter than that. (Stupid people don’t wind up with $1.3 million in the kit and two paid-off properties.)
So I’d rather see you pay $6000 for a full financial plan at the beginning of your retirement. That plan should include estate planning, cashflow forecasting and asset structuring (in particular, when you should sell your investment property). And it should also include recommendations on cash buffers and set-and-forget low-cost listed investment companies (LICs) like Argo or AFIC, and international exchange traded index funds (ETFs). Alternatively, you could choose to build your own portfolio and invest directly in shares either via an online or full service broker.
Either way, you’ve set yourself up for a comfortable retirement; the key now is to KISS (keep it simple stupid).
WIDOWED WRITER SEEKS OPPORTUNITIES
Q: My husband died a few months ago and I’m trying to work out how to look after myself and my three kids. I’m not currently working and I don’t want to return to the workforce, as I want to write.
What I’d like to is invest the life insurance ($800,000 after repaying debt, family holiday, etc) so we can live modestly (say, $50,000 p.a.) — while also maintaining, or hopefully increasing, the capital.
A: Pay out your debts, treat yourself and the kids to a holiday, put six-months living expenses in a high interest online account, and park the balance into a 12-month term deposit. Write till your heart’s content — and then return to paid employment in three months’ time (which will leave you with three months living expenses in your Mojo account, as a backup). You don’t have enough money to retire right now. If you invest $800,000 into a good quality share portfolio, you should be able to generate a 5 per cent return, which will give you $40,000 a year in income, plus you’ll also receive franking credits. I’d like you to continue working at least part-time: life is expensive, and meaningful work is good for the soul.
SCARED ABOUT MAKING THE SAME MISTAKES
Q: Help! We are in our late 30s with two kids under four. My husband is on $100k and I’m on $70k. The mortgage is $130k on a house valued at $500k. We have no savings and we have a couple of credit cards (though they’re paid off monthly).
Here’s our problem: we don’t fit in our house or our cars, so we need to upgrade. We could subdivide and build a two-bedroom house for $250k, but we’ve lost a lot on investment properties in the past ($100k+) and are scared we’ll make mistakes again.
A: You say that your problem is that you ‘‘don’t fit into your home’’, and you’ll need to upgrade soon. So that’s your major financial challenge now.
Subdividing and building a new investment property is lower down the list. If it were me, I’d make your kids share a room, and buckle down and pay off your mortgage in five years (but I’m a freak).