Is it a good plan to sell rental properties?

I am single and will turn 60 at the end of this year. Having no dependents, I intend to sell my three investment properties (all mortgage-free and subject to capital gains tax) in the next five to 10 years and place the proceeds into my super account, which now totals almost $600,000. The first property was bought in 1998 at $141,500, the second in 2000 at $95,000 and the third in 2005 at $180,000. All are in the eastern suburbs of Melbourne. Two of the properties are worth $270,000 each; the third is about $540,000. The total net rental income from the three properties is $32,700 a year. First of all, is this the right path to take for a worry-free retirement? If so, when is the best time to sell them considering the tax implications and the $450,000 limit for three years? I have already made a $150,000 non-concessional contribution in June this year. I also have another $270,000 in shares and cash and a state-indexed pension of $19,000 a year. I intend to work part-time to 65, salary-sacrificing most of my salary of $20,000 and am in general good health. P.W.
Nanjing Night Net

I would want to know a lot more about the state of the properties and how much, if any, capital input will be required in coming years. Assuming all are in good nick, and you can live on your current income of about $60,000, then I would question why you might want to sell any and incur a hefty CGT bill which would result in you having less to invest. I’m generally reluctant to sell unencumbered, good-quality properties in a good location, since they provide what is basically an inflation-indexed income. Also, you have enough in cash and shares to provide liquidity.

You also have a choice of transferring your shares into a self-managed super fund since you obviously have experience in running share and property portfolios, after taking CGT liabilities into account and offsetting them with concessional contributions.

If, after you have thought it through and possibly sought professional advice, you still want to sell, you might explore selling your two lower-priced properties. If you sell one late this financial year and one early in 2014-15, you can make a $150,000 non-concessional contribution in 2013-14 and $450,000 in 2014-15, while using the $35,000 concessional caps twice in order to offset CGT.

Depending on how the dates fall, you might be able to top up the first $450,000 in the third year of its particular term, then place another $450,000 in 2017-18, thus placing the entire amount in super.

The government has changed the policy regarding salary sacrifice to super for seniors. I understand anyone aged 60 or more on July 1 this year can make contributions up to $35,000 including employer’s contribution. Having turned 60 this month, am I eligible for salary sacrificing up to $35,000 including employer’s 9.25 per cent contribution? B.T.

Quite right. Anyone who is 60 or over at the end of this financial year i.e. June 30, 2014, can claim a concessional cap of $35,000. Otherwise, its $25,000.

I will retire soon, or within the next three years and am currently 61, receiving a Victorian Emergency Services pension of $51,480 a year. I could live on that. I will soon have $400,000 in savings, $265,000 of it in NAB iSaver. If I work longer the savings will increase. What to do with this $400,000? Options are: 1. Place the $265,000 into my Unisuper fund so I have $400,000 there and draw a pension where I can control the investment mix. Given I am conservative, will I get much more than term-deposit rates? 2. Use Challenger annuities, I have no control over the investment mix and can’t access my capital but am attracted to this. 3. Use term deposits, but income is taxed and rates are currently not good, so no tax. Somewhat attractive currently! 4. Buy a rental place. Not attractive as I do not really want the hassles. 5. Buy blue-chip Australian shares, but I see these as high risk. I can’t see super remaining tax-free in the long term but, if I have to go into aged care, I need to consider my mix of income and assets. A.P.

I suggest a mix of 1 and 2 above, assuming you are a member of the Unisuper accumulation fund and not the defined benefits fund, which has been found to be underfunded. Use the Socially Responsible Balanced fund, which appears to have been doing well in recent times.

Contribute the entire $400,000, always keeping an eye on the contribution caps, since you can always later take money out of super if needed. Then, in retirement, roll $300,000 into a mix of term annuities so that each matures in a different year.

If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered.

Help lines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.

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