Natalie is very happy with her new kitchen and bathroom but what else does she need to consider? At retirement her savings don’t match the retirement lifestyle she wants. Thankfully, her home is not considered an asset by Centrelink so she may be eligible to receive the full Age Pension. While she's invested in their home and increased its value, that investment is only useful to them if she sells.
By transferring into super, Natalie is invested in assets and shares which can mean better returns than interest from a bank account. By salary sacrificing she also enjoys additional tax benefits - she pays only 15 per cent contribution tax rather than being taxed at her marginal tax rate. On the downside, she can't access her money until she retires.
Investing in a managed fund can mean better returns than interest from a bank account and potentially have lower fees than an investment bond. Also, unlike super, Natalie can access her money at any time, giving her flexibility to cover unforeseen expenses. On the downside, she misses out on the tax advantages of super because on withdrawal she'll pay her marginal tax rate.
Natalie is faced with some exciting options now she's paid off her mortgage. While it's tempting to spend that extra income now, Natalie would find she would be unable to fund her retirement in line with her expectations. A lifestyle purchase like a boat could even reduce her Centrelink entitlements!
Investing to increase the value of her home might seem like a good idea, but since she wants to stay in her home, the value is locked up. Investing in an investment bond, managed fund or in super would allow Natalie continue to grow her wealth for retirement. But each of those investment options comes with its own advantages and disadvantages.
