Finance Your Budget Ask the Expert: The superannuation moves we can make at retirement

Ask the Expert: The superannuation moves we can make at retirement

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Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question 1: My husband and I are about to retire, and we are going to use some savings before dipping into our super.

Do we need to do anything with our super once contributions from employers cease? Do we contact our super funds to move our super into a different account? Thanks Cheryl

Once you retire from the workforce, you have a number of options available with your super.

1. Keep the money in super

You can retain the funds in superannuation as long as you want. There is no requirement for them to be moved once you retire.

If one of you is under the age pension age, keeping your money in super means it isn’t counted in Centrelink’s income and assets test, which could be important if you have an older spouse who is age pension age.

Additionally, some people retain a small amount of money in super in order to retain any insurance they hold within their account.

If you ‘do nothing’, the funds will remain within super.

2. Start a superannuation income stream (Pension)

As superannuation balances have grown in recent years, it has become very common for individuals to start an income stream with all or at least some of their super savings.

Most super providers also offer at least one type of pension.

There are different types of income streams available depending on whether you are looking for flexibility or wanting a guaranteed income for life, but essentially you can draw down regular income payments from your super in order to replace your employment income that has ceased.

The income received from your super could be substantial or may just top up your age pension payments.

3. Cash out of super

You can always take funds out of super, whether to pay off debt, make a large purchase, or put them in your bank account.

However, once funds are moved outside super you cannot always put them back in due to contribution eligibility rules. And you therefore need to think carefully before deciding to remove funds from super.

4. A combination of the above

Depending on your circumstances and objectives, you may decide a combination of the above options is suitable.

Your super fund or financial planner can provide you with more information and advice.

Question 2: I am a 58-year-old male. I have $520,000 in Super ($99,000 pre-tax) and receive a DFRDB (Defence Force Retirement and Death Benefits) payment of $23,000 per annum (taxed). I plan to retire at 60 years old, and would be entitled to a Service Pension (means-tested).

I have two rental properties in Townsville. Both are currently negatively geared and will make a loss when sold with approximately $75,000 in outstanding mortgage. Should I sell now at a loss and pay accelerated repayments (post-tax money), or wait till 60 and hopefully pay from drawing down on superannuation?  Very complex issue.

I assume you are currently still earning a salary, on top of your DFRDB pension of $23,000 per annum pension.

Therefore, having a negatively geared property (or properties) may be beneficial from an income-tax perspective. However, this benefit would likely be more than offset if your properties decline in value, or even if they don’t achieve any further capital growth.

It’s common for individuals to concentrate on the tax implications, good and bad, but if the properties are a poor investment, and are unlikely to achieve future positive growth in value, then generally it’s best to sell.

If you were to sell other assets to repay the outstanding loan of $75,000, then you could consider selling assets that have a capital gain, so you can offset the capital loss from the properties.

If you do hold onto the properties until retirement, you can draw down on your super from the age of 60, tax-free, to repay the outstanding debt.

Using a tax-free payment from super to repay all debt is a very common strategy.

As you have stated, this is a very complex situation, and it may also affect the level of service pension to which you may be entitled.

Therefore, I suggest obtaining personal advice from a financial adviser.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings