"I am looking to retire in 2 years, I have no superannuation but I have a large property portfolio and I can live off the rental returns. Is it too late to set up Super? Do I need to?"
- Jimmy in Adelaide, SA
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If you are working it is not too late to start thinking about Super! There are limits on the amounts that we can contribute to Superannuation, however, they are currently $100,000 for non-concessional contributions (essentially after-tax money taken from your bank account and placed into Super), plus $25,000 pa of concessional contributions, (which are contributions for which you can claim a tax deduction - such as your employer contributions and any salary sacrifice into Super that you do).
The ability to do a one-off contribution larger than these limits is also available if you are under the age of 65. You can ‘bring forward’ 3 years of the after-tax contributions from your bank account and contribute $300,000 in one lump sum. Another option if you are earning a good income and your Super balance is under $500,000 is that you can use some of your past unused concessional contributions in order to boost your Super and reduce your marginal tax rate. MyGov is a fabulous source of information these days and if you link your MyGov to the ATO you will be able to view any past Super contributions to therefore understand what limits remain for you.
A primary benefit of having some money in the Pension phase of Super is that under current law there is no tax on the earnings you make within the fund, nor any tax when you draw a Pension from your Super, assuming you are over the age of 60. So if you do have significant rental income it could be a nice way of paying a bit less tax throughout retirement.
Another benefit of having some funds in Super would be diversification, as you can spread your money around many other asset classes rather than having ‘all your eggs in one basket', or ‘all your bricks in one property’ in this case! Real property can be a great way of building and maintaining wealth, however, I often remind people that ‘you can’t sell one brick’ to obtain money from a property, so sometimes in retirement once our income stops and we need to draw down on our assets, it can be good to have some more liquid assets available.
If you do miss out on the opportunity to add to your Super prior to retirement, there is an option down the track that may allow you to place $300,000 into Super anyway. This is called the ‘downsizer contribution’. To be eligible you must have lived in the property at some point since owning it and must have owned it for at least 10 years. There are also some very strict time restrictions on this so best to research it and get professional advice prior to any sales to avoid disappointment.
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