Ask An Adviser - How Do I Shift From Wealth Accumulation To Investment Income?

Top answer provided by:

Michal Lancemore

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Hi Andrei,

Thanks for your question! There are a number of considerations when moving from wealth accumulation to generating the best income from the wealth you have accumulated. It requires strategic advice which can sometimes take years to action – this is where financial planners shine 😉.

Firstly, accumulating wealth is generally done whilst we are working and therefore focusing on growing capital – ‘collecting assets’, as I say. In retirement, converting that collection of assets to income generating is a priority given we are no longer employed with a consistent paycheck - we want to generate the greatest amount of income from the assets we have accumulated during our working life.

But it’s not necessarily going to be from the assets we have on hand. Therefore, restructuring is almost always on the cards when transitioning to retirement. 

In spite of constant changes, one of the best investment vehicles around is superannuation. I would always encourage my clients close to retirement to maximise the opportunity to move money into super as it provides so many benefits – liquidity, flexibility and accessibility to name a few.

For my clients, the idea of restructuring their asset base might be a topic we discuss several years out from their actual retirement date. We consider the following:

Debt – are you holding any debt? In the current climate, it makes sense to pay down debt given the relatively high interest rates and no guarantee on share market returns.

Property – are you holding investment property? What sort of yield is it generating? Most residential properties would yield 5% gross which is less than what you can generate from shares providing franked dividends. Commercial property on the other hand might provide a more generous yield and could potentially be an asset you continue to hold.

Timing/tax – do you intend to sell, not just one, but several assets to transition from wealth accumulation to generating higher income? If so, you need to consider the timing of each sale and the capital gain/loss that will arise. This might include selling assets over a number of financial years to maximise the benefit.

Assessable income – any gain from the sale of an asset will be added to your assessable income for the year, so do you stagger the sale of assets, use a loss to offset a gain, or even wait until after 1 July 2024 when Stage 3 taxes come in to reduce personal income tax? Can two tax free thresholds be utilised (i.e. you are in a couple)?

Superannuation – can you access any concessional or even unused caps? Accessing concessional caps can help to manage any tax liability on the sale of assets, if available.

Limitations – hand in hand with timing and superannuation, we are limited in terms of how much can be contributed to superanuation in any given year.

This is why planning in advance for retirement is so important. If you still have time, please reach out to a financial planner to receive some strategic advice to maximise income and minimise tax.

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Article by:

Michal Lancemore

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