Q. We are about to inherit about $450K and would like some advice on how to invest it.  My husband is 63 in September and is still working full time.  I am 58 in July.  I work on contract basis and have worked 4 months this financial year.  We don’t plan to retire until the end 2017 age 66. We both salary sacrifice into Superannuation the maximum.

A. Given your age, I would strongly encourage you to use Superannuation as your primary retirement savings structure into the future.  Tax on earnings in accumulation mode is 15%. Tax in Pension mode 0%. Income received from 55 to 60 attracts a 15% tax rebate.  Beyond tax age 60 its tax free. So from a tax planning perspective investing via Super makes sense.

There are limits on contribution so maximize these first before considering alternative investment options outside of Superannuation.  Personal contributions are limited to $150,000 per person per financial year. Or $450,000 every 3 years if under 65.  I note you are maximizing Employer Contributions.  The limits for this financial year are $25,000 for those under 60 and $35,000 for those 60 and over. Note from 1 July 2014 this year, the cap for those 50 and over will rise to $35,000.

Often people argue that they should invest outside the Superannuation system as they won’t pay income tax because of low taxable income or as a result of Tax Offsets like the Senior and Pensioners Tax Offset (SAPTO)

I would argue that your circumstances may change and you are better to be in a position to know you will pay no income tax using Allocated Pensions. In the future you may receive a windfall or return to work.  Use the Super system to your advantage whilst you can.  When you are older, you may not be eligible to get the funds into Super. For example if you are over 65 and not working, you are ineligible to make contributions to Superannuation.

If your circumstances change, you can always move it out of an Allocated Pension or Super fund as your circumstances dictate.

When it comes to Superannuation, take advantage of the generous tax concession “use it or  lose it”.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.