Retired farmers taking stock

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

QUESTION: We recently sold our farm to a residential developer for almost
$9 million.

We’ve worked hard all our lives, and we’ve always saved and paid cash for items.

We’re in our late 60s and have no experience with the stockmarket, and are not interested in it.

We have two married children and have cleared their mortgages and credit card debts. But what else should we do with our money, apart from enjoy it? Katrina

 

ANSWER: You and your husband are financially sorted — congratulations!

The only potential downside of coming into that much money is that your kids, and your kids’ partners (and even their ex-partners) may be eyeing off the loot. I’ve seen such situations tear families apart.

So, now you’ve paid off their debts, it’s time to start a new family tradition: giving.

The easiest way to do this is to set up a private ancillary fund (PAF), which is a charitable trust.

It’s a great way to support causes your family believes in. A good estate lawyer will be able to advise you on this and help you structure a trust that suits your specific circumstances.

 

RETIREMENT LOOKS ROSY

Q: My husband and I are in our early 40s. He’s on $190,000 and I’m planning to start my own careers consultancy soon, after looking after the kids for some years.

We took some bad financial advice about 10 years ago.

We now have a rental property in Melbourne (worth $1 million, owing $520,000) and one in Tweed Heads (worth $350,000, owing $385,000!).

We currently rent, but want to buy a home. So should we sell the Melbourne property (which might be a nice retirement investment) or sell the Tweed Heads property (at a loss)? The idea of not having enough for retirement really scares me. Karen

 

A: If you don’t retire in style, there’s something seriously wrong. On the money you’re pulling in, you should be picking the lobster out of your teeth with gold toothpicks!

So you got stitched up by a financial adviser (and in the process broke one of my cardinal rules — never invest north of the Tweed River), but that’s done and dusted. Let’s focus on the future.

If I were you I’d sell both properties, which will raise about $400,000. I’d put that towards buying your own (modest) home. If you take out a $300,000 mortgage you should be able to knock it over in four years tops. Simple. You then have 20 years to save for a (very) comfortable retirement.

Here’s how. Your husband should put the full $30,000 into his super as a before-tax contribution so that he reduces his tax bill (he’s paying about $55,000 a year to the taxman). If that’s the only savings you make (it won’t be), you’ll have about $1 million by retirement age.

With you both working, and debt free, you should be well on your way to retiring with at least $2 million.

 

INDEX FUND A LONG-TERM DEAL

Q: I’m new to investing and recently purchased shares in IOZ at $23.90 a share on advice from a friend. The price has fallen and the projected trend, according to some financial websites, is for it to drop a further 8 per cent over the next 30 days. Is this the right time to sell, or should I hold? James

A: At first glance I thought you were talking about some tin-pot mining company. Doesn’t “IOZ” stand for the International Orwellian Zulu Corporation?

Then I realised IOZ is actually a highly sensible, ultra-low cost exchange- traded index fund. So your mate tried to do the right thing — it was a fantastic recommendation.

Buying into an index fund that tracks the market (in this case the ASX 200) is one of the best ways to capture the long, upward compounding climb of the market, but it’s not for short-term trading. So hold on to it. Then again, if you get stressed out about market ups and downs, maybe you should keep your money in the bank.

 

PLAY TO YOUR STRENGTHS

Q: I am desperate for some sound advice.

I am a single 52-year-old woman with no children. I have been in the same job for 20 years, earning $54,000 a year. I have a $203,000 mortgage, a $17,000 car loan and a $2000 credit card debt. In a nutshell, I am not coping with my debt.

I work hard in a professional job that is demanding. I have a boss who is undermining, controlling and never has a kind word to say, eroding my confidence and self-esteem. Life is miserable and I am fearful. Any advice would be appreciated. Mary

A: Look, I’m a finance guy not a shrink, so let me stick to the money advice. You’ve told me what you can’t do — now let me tell you what you could do.

You’re bringing home about $3700 a month after tax, or $2500 a month after you’ve paid your home loan.

So your first step is to save $2000 into a Mojo account (high-interest online account). Second, focus on knocking out your credit card. Third, when you can afford it, sell your car, pay out your car loan, and buy something cheaper. That’s probably a year’s worth of work right there!

Jobwise, it sounds like you’re in a tough place. I want you to buy the book StrengthsFinder 2.0 by Tom Rath. It has a handy online test that will help you identify your strengths and show you how you can put them to best use in a new, uplifting career.

Originally published as Retired farmers taking stock