Downsizing for Retirement – Step 1. Spare Cash.


Firstly congratulations on the sale of your house and purchase of your “retirement” home, it’s great to see client’s plans taking shape.

As a couple you have already overcome what I see as the biggest challenge and that is taking the initiative to think about your lifestyle from here on.

Your question as to where the proceeds from your house can be parked pending the completion of your new property may seem a fairly simple one, but we still need to consider the same sort of issues as when we are investing for the longer term in the likes of Super etc.

1.  Time frame: clearly you have around 12 months only to invest, that should automatically tell us that we need a safer form of investing, in more conservative assets such as Cash or Term Deposits as normally you would not want to risk a market driven drop in capital value over such a short period of time.  That said, inflation will still have some impact by eroding the purchasing power of your capital, even over only 12 months.

2.  If there is any form of “progress payment” required under your contract to purchase, that may mean you have even a shorter time frame with some of the funds and this may eliminate some standard fixed term options for Term Deposits.  There should be no “penalty” if you need to break a fixed Term Deposit (despite a bank suggesting that to one of our clients the other day) but you may forgo all or some of the interest you could have received by sticking it out for the full term.

3.  There may be some scope to use a near identical structure to that used for your longer term investments, but we still need to be mindful of time frame and costs for the specific home purchase funds you are setting aside.  There may be a benefit in this approach by at least temporarily reducing your costs on other investments held through the same structure.

4.  If, as you have indicated, there is scope to have ownership and income of these investments directed to minimise taxation, then you certainly should take advantage of that option.

5.  Surplus cash above and beyond the full purchase costs and any additional “fit-out” costs you anticipate may be able to be invested for the longer term, prior to settlement and as such, the use of more Growth orientated Asset Classes such as Shares and Property could become a viable option for these specific funds.

Happy to discuss.

Cheers, and if you know of a family member or friend we can assist, please don’t hesitate to share with them.
Dave Dyson

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