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Ask Paul: Where should I invest $1 million for adult kids?

ask paul clitheroe $1 million

Q. I am 60 years old and have just retired, although I may do consulting in the future to supplement our lifestyle.

We would like to have at least $75,000pa to live on.

My (second) wife and I own our $1 million home outright (joint tenants) and I have $667,000 in super while my wife has $25,000 in super.

We also own an investment property (joint tenants) worth $640,000 ($330,000 owing), which is rented for $650 a week.

We are a “blended” family with two adult children each.

In my sole name I have $1 million in a term deposit at 2.75% interest that is the part proceeds from the sale of the house that I owned before meeting my second wife.

For estate planning reasons I would like my son and daughter to be the beneficiaries of this money. Can you advise me on the best place to invest this money, and should I set up a discretionary trust with my children as the beneficiaries? – James

A. Interesting question, James. I would argue that the first issue is to ensure you have the $75,000 a year you need.

Your investment property is returning about $33,000 a year, so I would guess about $25,000 after expenses. Your joint super should comfortably be able to pay you a pension of 4%, so about $28,000. That would give you about $61,000 a year.

You could dial up the super pension to, say, 6% to get you to around $75,000 but you should have a long life in front of you and I would want you to seek professional advice to be comfortable your fund can sustain a pension at that level.

Your fund may be able to help you here. Naturally, any consulting income may fill this gap.

With your kids and estate, I really want you to see a solicitor and an investment professional.

My suspicion is you need testamentary trusts for your kids.

Equally, you may need the income from the $1 million for the kids to supplement your income, with the kids getting the capital.

In the long run, I can’t see a term deposit being the best investment option, so this is where the adviser steps in.

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Ask Paul your money question.

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  1. I am dissapointed that most of your advice is to see an advisor.I live remote and cant access advisors and subscribe to your magazine for a better idea where to invest.
    Regards
    Geoff

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