I’m 64 with just $93,000 in super. Should I add to it before retiring?
I’m 64, a self-employed freelance creative writer, own my home, and have $93,000 in super, $110,000 in my access account and $170,000 in savings. I intend to keep working, as I love my work, but I don’t expect any massive income from that – and it will also drop off as I age. It’s been pretty difficult to get to this point, and it’s taken many sacrifices, but owning my own home is fantastic.
I will reach pension age in August 2029. To maximise my pension and associated benefits, should I make the maximum $32,500 super contribution, plus the $23,000 of available catch-up contribution, or would I be better keeping that money in the bank?
Firstly, well done on what you’ve achieved. Building this level of financial security on the variable income that often comes with freelance creative work is impressive.
The next point to note is that money inside or outside of super doesn’t make a great deal of difference to your age pension entitlement. Either way this wealth will be included in the asset and income test, and the calculation methodology is usually identical.
The advisability of making tax-deductible super contributions, including the catch-up contributions, depends on your level of taxable income. Money that you send to super as a concessional contribution is taxed at 15 per cent when it arrives in the fund.
For you to get a benefit therefore, your personal tax rate must be greater than this. There is no tax payable on your first $18,200, and then 17 per cent is payable from their up to $45,000 (inclusive of Medicare levy). Meaningful gains through tax-deductible super contributions therefore don’t accrue until your income is above $45,000.
This does not mean you shouldn’t contribute to super. It is likely that the returns in super will be better than bank interest. But it may be that making after-tax contributions (non-concessional in super jargon), produces a better result for you. And the limits on these types of contributions are much more generous.
My wife and I are both retired with account-based pensions and are contemplating moving from our large, high maintenance home into a more suitable abode. This will either require purchasing land and building anew or purchasing an existing dwelling and undertaking major renovations.
Regardless, our preferred approach is to purchase and build/renovate first, then sell and move in when ready. Given the only funds to which we have access are in our account-based pensions, is there a cost-effective way of funding this swap without using an expensive bridging loan or having the majority of proceeds of the sale locked out of super?
Depending on the amounts involved, potentially you could withdraw monies out of super, and then replenish using the downsizer provisions. Downsizer contributions require that the home you are selling has been yours for at least 10 years.
You can contribute $300,000 per person through this mechanism. Importantly, there is no age limit on downsizer contributions, though you can only do this once in your lifetime.
If you are under 75 years of age when you sell your current home, you may also be able to get money back into super via non-concessional contributions. Spreading the contributions over a couple of financial years, you could potentially get up to $520,000 each back into super and then create new account-based pensions.
Alternatively, it may be that bridging loan costs are just one of the many costs that need to be factored into this transaction.
Paul Benson is a Certified Financial Planner at Guidance Financial Services – Retirement Planning specialists. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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