“I am 61, planning for retirement next year and will continue to earn some income. I do not need to draw from my super as my partner will continue to work. However, I am looking for guidance on whether to take an income stream from my super or continue with the accumulation phase. The advice I am seeking is about the most beneficial structure for the next 2 years."
-Question from Chris in Leanyer, NT
Top answer provided by:
Glynn Phillips
Dear Chris,
There may be several reasons to consider commencing an income stream using your super.
You are eligible to commence a ‘Transitional Retirement income stream” (TRIS) and you may benefit from doing so, but you will need advice that takes your personal circumstances into account.
Whilst you don’t need income now, here are three potential opportunities to explore. I’ve assumed you have no debt.
Being over age 60 you can transfer funds in “accumulation” to “pension” and in doing so those funds then have a tax rate of 0% on earnings and on income payments. Depending on your balance, this alone could lead to a very positive and measurable benefit. However, you are then required to draw between 4% and 10% of the balance as tax-free income. (NB The 4% minimum has a temporary reduction to 2%).
As you are only 61, you may still make substantial contributions to super, even if you cease work. This allows you to return excess income to super*.
If your taxable earnings are sufficient to incur tax at greater than 15%, you can use your TRIS income to make Personal Deductible Contributions back into super to offset the income tax. These contributions are taxed at 15% hence the need to establish your average tax rate. The same outcome can be achieved using salary sacrifice super contributions.
Another strategy to explore, is to draw more income than needed, and use the additional income to make super contributions that are not taxed (called Non-Concessional Contributions). This has the effect of increasing the “tax-free” component of your super. This reduces tax paid by non-financial dependents when receiving your super upon death. A benefit for the kids!
A further possibility is for you to draw a higher pension (tax-free income), potentially allowing your partner to make salary sacrifice or personal deductible contributions, reducing their net income but reducing their income tax liability to improve your joint financial position.
Depending on your personal circumstances these strategies may put you in a better position. Be sure to take the cost of advice and implementation into account when weighing up the benefits. A good adviser will do this to demonstrate the value of their advice.
*Limits apply to all super contributions so seek professional advice.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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