I’m 63 have around $800,000 in an industry Super fund and have been lucky enough to be able to add around $30,000 using increased contributions for the last few years. I plan to retire in the next 5 years or so. I’m sure the Liberals will win the election, but unsure of the changes they are apparently making to super and how it might affect me – should I be seeing an adviser?
Top answer provided by:
Michael Bishop
I will do my best to answer in light of where we are post-election. As I write there is still a degree of uncertainty as to whether the LNP will secure a majority government. Perhaps by the time this is published we will know!
As a quick analysis, I feel you are doing all the right things accumulating for your retirement and, on the surface, changes to the contribution rules will not impact your strategy outside of simply limiting how much you are able to contribute, and what you then decide to do with these surplus funds.
Presently there is broad industry discussion and views that many of the proposed measures around superannuation in the 2016 Federal budget would still likely be applied irrespective of which party is in government. But until policy is legislated, I would warn against making major changes to your concessional contribution strategy. Careful consideration around making significant non-concessional contributions should be given, as they could require ‘undoing’ if those respective proposals come into force.
Irrespective to the legislative uncertainty, and even your own current situation, I would strongly recommend that you meet with an adviser. Firstly it is likely that the initial meeting would be without charge, removing any cost versus benefit concerns!
Secondly, whilst retirement and super/tax strategies are naturally front-of-mind for you– there could be a myriad of issues that you haven’t considered that could be just as valuable, such as:
- Estate planning. There are many vital taxation and superannuation considerations relating to the payment of death benefits. They can seriously impact on both the amount of tax paid and the recipient’s ongoing superannuation options.
(ie some funds don’t allow for death benefit pensions to be paid in the event of your death, and mandatorily pay superannuation benefits OUT of the superannuation environment to a spouse, which in light of the proposed changes to non-concessional contributions could limit the tax efficiency of your surviving spouses situation by having benefits now sitting in cash in a personal account outside of super, OR if you don’t have a spouse, and have adult children, changes to the ‘anti-detriment rules’ will result in significant taxes payable by your adult children in receipt of superannuation monies, and ‘recontribution’ strategies may help preserve your benefit from these significant tax liabilities).
- How you manage cash flow leading up to and into retirement to ensure you have clarity on living requirements
- How you start to plan to transition your asset allocation from an accumulation phase to a draw down phase. As clients approach retirement, we recommend that investors start to construct a portfolio to produce retirement income to fund drawings each year. This avoids constant selling of investments throughout retirement, which in market downturns can significantly erode the capital value of the asset base. Having investment ‘buckets’ tailored to meet short/medium/long term liquidity, in hand with the portfolio income being generated, provides a superior journey throughout retirement as investors avoid becoming ‘forced sellers’.
- Over the next 12 months, it may be advantageous to commence a transition to retirement pension (TtR) to reduce tax within your fund. Assuming portfolio income of 4.5% (including franking), and a accumulation tax rate of 15%, tax savings in the fund by commencing a TtR would be approximately $5,400. If the proposed changes to TtRs do not get passed, then this benefit would continue to age 65 and beyond. In any case, the benefits are available for the period up to 30 June 2017, and once you are age 65, the pension is not considered a TtR and would receive these significant tax benefits.
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