"Can I withdraw my superannuation after turning 60 to invest in property?"
- Question from Ken in Brisbane.
Top answer provided by:
You can withdraw your super when;
- You turn 65, even if you haven’t retired
- Reach your preservation age and retire
- Reach your preservation age and choose to begin a transition of retirement income stream (TTR) while you continue to work.
Apart from the above, some other special conditions of release include compassionate grounds, severe financial hardship, terminal medical conditions and temporary or permanent incapacity. Some super providers may have more restrictive rules around how these benefits are paid.
Preservation age is the minimum age you must reach before you can access your superannuation.
Your superannuation balance is made up of two main components. Generally, to withdraw your super balance as a lump sum after turning 60 (before turning 65), you would need to retire with no intention of returning to either full time or part-time work. Further, withdrawing super at 60 may attract some tax depending on your super components.
This part of your super is tax-free when withdrawn. This component is made up of non-concessional (after-tax) contributions. These are super contributions made using your after-tax income.
The taxable component is made up of a ‘taxed element’ and an ‘untaxed element’. This component is made up of concessional (before-tax) contributions. These include employer contributions; salary sacrifice contributions and any super contributions you were allowed to claim a tax deduction on. The ‘taxed element’ is the part your super provider has already paid tax at 15%. The ‘untaxed element’ consists of the portion your super provider has not paid the 15% tax on.
Generally, if you are over 60 and retired, both the tax-free and ‘taxable - taxed’ components will not attract any tax. However, the ‘taxable -untaxed’ part of the balance may attract some tax as shown below;
If you chose to draw your super as an income stream both ‘tax-free’ and ‘taxable -taxed’ components will not attract any tax. The ‘taxable-untaxed’ component of the income stream will be taxed at your marginal tax rate (a 10% offset will be available if eligible). I recommend contacting your super fund to get further information on your super components prior to proceeding with this withdrawal.
Further, at 60 you are closer to your retirement age. Therefore, your retirement funding needs would need to be considered. If you are intending to use your super money to purchase an investment property, would this generate adequate income to support your retirement needs? Alternatively, if you are thinking of purchasing a home to live in, how will you support your cash flow needs in retirement? If this is the case do you have other liquid assets to utilise?
Also, if you would like to qualify for the age pension, how will this new property purchase impact your asset and income limits? As purchasing a property is considered a long term investment, retirement planning is an area to revisit/discuss in line with this purchase.
Diversification is another important area to consider. Generally, through super, you would get exposure to various asset classes including cash, fixed interest, property and shares both Australian and International. The aim of diversification is to reduce portfolio risk to get more stable returns over time. How diversification is applied to your portfolio would depend on your chosen investment option. Withdrawing all or a significant portion of your super to invest in property will reduce your exposure to other asset classes such as fixed interest, shares and cash. This would impact overall return figures over time. Conducting an analysis on investing in property vs retaining these funds in your current super environment would give you a good idea on long term return figures.
To conclude, if you are 60 and retired then your super balance can be accessed either as a lump sum or an income stream. As a first step, I recommend contacting your super fund to get a better understanding of your super components to calculate tax payable prior to withdrawal.
Secondly, consider the impact on diversification as discussed above. Finally, analyse your retirement funding needs to ensure you have sufficient liquid assets to support living/other expenses after this purchase.
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