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14 March, 2023
Higher interest rates: selling assets to cover your costs
First Financial Team
Rising interest rates continue to be a massive concern for many Australians.
This is not just for homeowners, but everyone affected by the resultant increase in cost of living.
As interest rates rise, it can become increasingly challenging to cover your monthly costs. One option that some people consider is selling off assets to keep paying the bills.
While this may provide a short-term solution, there are pros and cons to this approach, particularly when it comes to retirement planning.
The benefits of selling assets
Selling off your assets can get you a quick, much-needed cash injection, which can be useful to cover expenses or pay off debts. This can be particularly useful if you are facing high interest rates on loans or credit card balances. By selling off belongings, you can pay off these debts and potentially reduce your overall interest costs.
Selling assets can also help you simplify your life by downsizing to a smaller, less expensive home, reducing your ongoing expenses.
The disadvantages of selling assets
One significant disadvantage of selling off assets is that it can affect your long-term retirement planning.
This can be particularly challenging if you sell off assets that were meant to provide income in retirement, such as rental properties or dividend-paying stocks.
Another potential drawback of selling assets is the impact of capital gains tax. If you sell an asset for more than you paid it for, you will owe capital gains tax on the profit. Depending on the asset, the capital gains tax can be substantial, reducing the amount of cash you receive from the sale.
Mitigating the impact of selling assets
If you’ve had to sell off assets, there are ways to mitigate the impact. One way is to reinvest the proceeds in other assets that provide income. For example, if you sell a rental property, you could use the proceeds to purchase dividend-paying stocks or invest in a rental property trust. This can provide ongoing income to help supplement your retirement savings.
Another option is to consider downsizing your lifestyle. If you can reduce your ongoing expenses, you may be able to live on less money in retirement, reducing the impact of selling assets.
Considering selling off assets?
Make an informed decision.
Consider the pros and cons, including the impact of capital gains tax and the potential depletion of retirement savings.
With careful planning, you can make informed decisions that help you meet your current needs while also protecting your long-term financial security.
Contact our team of financial advisors today to discuss retirement planning and asset management.
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