Ask Noel

Ask Noel

Sydney Morning Herald

Wednesday November 28, 2007

Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities.

I'm 23, live at home and have saved $41,000 since I graduated from university. I have the money in an online savings account paying 6 per cent interest a year. My goal is to save $160,000 over the next five years so I would then earn $800 a month interest, which should cover my living expenses. Any advice about what I could do with my money would be appreciated.

Your goal is commendable but you should understand that inflation erodes the purchasing power of money on deposit and tax can take a big chunk of your earnings. For a period such as five years, I suggest you are better contributing your spare cash to a quality Australian share trust. The income will be franked so it will be lightly taxed and each year your capital should grow and with it the income that it pays. Of course you should be prepared to hang in there when the market has one of its inevitable slumps.

I am 66 and will work full-time until April, when I plan to work 20 hours a week. I have $100,000 in super, a mortgage of $177,000 and I am a participant in the Pensioner Bonus Scheme - five years, due April 2009. I have no other assets. I plan to put my super into the home loan to reduce the repayments and apply the repayment savings to super. I will apply for the pension when I retire full-time and take out a line of credit-redraw against the home loan to supplement the pension. Is there a better plan?

Your best strategy depends on your taxable income. If it is well over $30,000 a year, you are better off to salary sacrifice it down to $28,000 so you can maximise your contributions to super. This is highly effective, even if it means reducing your home-loan repayments. It is also worthwhile making an undeducted contribution of $1000 to enable you to qualify for the full superannuation co-contribution.

My term-allocated pension has $218,000 invested in a conservative growth fund. The fund is to continue for another 15 years, when I will be 87. At present, my monthly pension is drawn from the conservative fund. Would it be wiser to draw from the other investments? They are earning a much higher rate but I understand they are subject to wider fluctuations and may fall in the future, in which case I will lose more.

If you have a 15-year time frame in mind, you need a fair proportion of your portfolio in growth and I agree that you should draw from the conservative fund. Make sure you keep at least four years planned expenditure in the conservative area to protect against market downturns.

I am 50 and earn $36,000 a year. To be eligible for the super co-contribution scheme, am I better off to make personal super contributions after tax, or before tax in the form of salary sacrifice?

To get the maximum co-contribution, you cannot be earning any more than $28,000 a year. If you can afford it, salary sacrifice your salary down to $28,000 but also be aware you need to make a separate undeducted contribution of $1000 to be eligible for the $1500 co-contribution.

This article is general in nature. Readers should always seek further advice before making financial decisions.

I have $16,000 owing on three credit cards and an overdue amount on my bank overdraft of $1190. My weekly salary is $540 after tax. What is the best way to pay off these debts?

Pour all your resources into paying off the smallest debt. When that is out of the way, use the payments no longer needed for it to attack the next smallest debt. If you keep doing this, you will soon be back on track.

Write to Ask Noel, Money, GPO Box 2571, Qld 4000, or visit moneymanager.smh.com.au/sitewide/askanexpert.html.