I'm 58 - I have $1.73M in an industry super fund, and looking to retire in the next few months as my wife is very sick. We own our home outright. By retiring so early, are there any hidden catches we should be aware of and can I access my money early?
Top answer provided by:
Rob Pyne
I’m sorry to hear that your wife is very sick Michael. To answer your question, yes you will be able to access your superannuation subject to some conditions as detailed below.
Your superannuation benefits will most likely be fully preserved at the moment (i.e. not accessible) despite you having met your superannuation preservation age (55 years of age in your case). However, given that you have reached your superannuation preservation age, you are able to convert your superannuation benefits into a ‘transition to retirement pension’ even before you retire. This allows you to draw pension payments from your accumulated super benefit of between 4% and 10% of the account balance. You are unable to withdraw lump sums that fall outside of this range until you retire. When you retire and notify your superannuation fund provider of your retirement, your superannuation benefits will become fully accessible, allowing lump sum withdrawals and/or pension payments with no upper (10%) limit.
The catch is that when accessing super benefits before 60 years of age, there are some tax considerations.
- If you retire and then withdraw benefits as a lump sum, the first $195,000 of your ‘taxable’ super benefits can be withdrawn with no tax applied. Lump sums withdrawn in excess of $195,000 before age 60 are taxed at 15%.
- If you convert your super to a pension either before or after retirement and before you turn 60, the payments will be taxable at your marginal tax rate but you get a 15% tax offset applied against the pension payments to help reduce the tax payable. For example, if you took the whole of your $1.73 million super benefit as a pension, your mandated minimum pension payment of 4% would be $69,200 on which you would ordinarily pay income tax of $14,037 plus Medicare levy (assuming no other assessable income from other sources). The 15% tax offset applied to your $69,200 pension would be equal to $10,380 thereby significantly reducing the $14,037 income tax payable.
You also mention in your question that you plan to retire in “the next few months”. Just be aware that the Federal Budget is announced in early May and there are almost certainly some super changes coming. For this reason and given the significant life transition you are about to undertake, you will undoubtedly benefit from the advice of a Certified Financial Planner. My best wishes to you and your wife for her recovery followed by a long, healthy and prosperous retirement together.
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Comments2
"I too am sad to hear that your wife is very sick, Michael. As Rob said it is very important that you get some advice from a Certified Financial Planner. If your industry fund happens to be with Super SA it is highly likely that there will be an untaxed element, meaning that you may be paying more tax than you expect on commencing a pension. "
Mark Taylor, CFP at Glenelg Financial Services 16:16 on 15 Jan 16
"I am not sure if Rob was aware of the breakdown of Michael's Tax Free and Taxable components but if Michael has a percentage of his $1.73m account balance that is tax free component this will assist with his tax position. This means that whatever percentage of his pension payment that is from a tax free component this does not need to be declared in his tax return even prior to age 60. "
Brian Wasley 12:37 on 15 Jan 16