MY WIFE and I are self-funded retirees and have our own self-managed super fund. We aren't entitled to the Commonwealth Health Card and seem unlikely to receive any government support for increased living costs arising from the carbon tax. It seems older Australians who spent many years accumulating retirement savings are penalised for exercising prudency, rather than those who lived the high life and can dip into government resources. Should older Australians contemplate spending up big as they approach retirement in order to enjoy dipping into government coffers?
Unfortunately, financial pressure is growing on all governments as the population ages. I don't see much relief for self-funded retirees in the near future. However, if the aged pension concessions are important to you, you could consider running your assessable assets down to $998,000 (couple) which is the current cut-off point to be eligible for a part-pension. Your own home is not included in this figure.
I'm 50 and not working this financial year. I have income from shares and rent. My super is less than $50,000 and I've just transferred it into a retirement savings account. Can I make concessional contribution to my super? I've made phone calls to my fund and the call centre couldn't tell me how to do it.
As you are under 65, you can contribute to super without passing the work test. Just keep in mind your concessional cap is limited to $50,000 this financial year.
How much of an emergency fund should people have? How does an emergency fund compare with income protection insurance or mortgage redraw?
An emergency fund is something you can fall back on if you face an unexpected financial crisis. You cannot always rely on income protection insurance as the calamity may not meet the requirements of the policy but a mortgage redraw facility is fine if you have the resources to repay the additional loan when things improve. Other options are an offset account or an undrawn credit card. I would think that nine months' expenditure would be a reasonable amount for an emergency fund.
I turn 55 at the end of this calendar year. I only have about half of what I need to retire at 60. I understand that I can transfer the balance to a pension fund at 55 to reduce tax from 15 per cent to zero. This year I salary sacrificed the $50,000 maximum amount to super. However, I believe the maximum salary sacrifice amount will reduce to $25,000 from July 1, 2012. What is the most tax-effective way to contribute additional funds for retirement above this modest amount?
There are moves afoot to retain the $50,000 cap after July 1, 2012 for people with balances less than $500,000. I suggest you continue on your present course and reassess the situation next year when the rules may be clearer.
After a disastrous business venture, we opted to rent and invest $95,000 in a managed fund, the idea being that the interest would help pay the rent in the event of my wife being left with only a single pension. Since 2006, the fund's value has reduced to $67,000. As we are in our late 70s, we are not sure we can wait for the market to recover. My calculations suggest that if I cut my losses and invest the balance at 6.4 per cent I would be more certain of recovering the money in five years. What do you think?
Unfortunately, nobody can consistently and accurately forecast when markets will come back up again. In view of your ages, peace of mind is probably more important than retaining the status quo while you wait for the market to recover, so it is hard to argue with the strategy of placing the money in the bank, where it is safe from market falls.
Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au.
Questions to: Ask Noel, Money,
GPO Box 2571, Qld, 4000, or see moneymanager.com.au/ask-an-expert.
Frequently Asked Questions about this Article…
Are self-funded retirees likely to receive government help for higher living costs from the carbon tax?
The article suggests self-funded retirees are unlikely to see much relief from government support for increased living costs related to the carbon tax. Rising financial pressure on governments as the population ages means meaningful extra concessions for self-funded retirees aren’t expected in the near term.
Should older Australians spend down assets to become eligible for a part‑pension?
If access to aged pension concessions is important to you, one option mentioned is running assessable assets down to the current part‑pension cut‑off for a couple. The article notes that the cut‑off point is $998,000 (the family home is not included in this figure). Whether you should do this depends on your personal priorities—some may prefer to preserve savings, others may prefer to reduce assets to access concessions.
Can I make concessional super contributions if I'm under 65 but not working this financial year?
Yes. The article states that if you are under 65 you can contribute to super without meeting the work test. Keep in mind the concessional contributions cap mentioned in the article is $50,000 for this financial year.
If I’ve moved my super into a retirement savings account, can I still make additional concessional contributions?
According to the article, transferring your super into a retirement savings account does not stop you from contributing. Because you are under 65 you can still make contributions, but you should watch the concessional cap, which the article identifies as $50,000 for the current year.
How large should an emergency fund be, and how does it compare with income protection or mortgage redraw?
The columnist recommends an emergency fund of around nine months’ expenditure. An emergency fund provides immediate access for unexpected crises, whereas income protection insurance may not cover every calamity if claims don’t meet policy requirements. A mortgage redraw, offset account or undrawn credit card can also be useful emergency options if you have the capacity to repay the extra borrowing when your situation improves.
I’m 55 and salary sacrificed $50,000 to super this year. With proposed changes to the cap, what’s the most tax‑effective move?
The article points out that while there were proposals to reduce the salary sacrifice cap to $25,000 from July 1, 2012, there were also moves to retain the $50,000 cap for people with balances under $500,000. The columnist’s advice is to continue on your current course for now and reassess next year when the rules are clearer.
Can I transfer my super to a pension at 55 to reduce tax on earnings?
Yes. The article notes you can transfer a super balance to a pension fund at age 55, which can reduce tax on earnings from 15% to zero. This is one reason people consider transferring to a pension phase when they reach the eligible age.
If my managed fund has fallen in value and I’m in my late 70s, should I cut losses and move the money to a bank term or savings account?
The columnist says nobody can reliably forecast when markets will recover, and at advanced ages peace of mind can be more important than waiting for a market rebound. In that situation it can be reasonable to accept the loss and place the money in the bank for safety, especially if you prefer certainty over potential market recovery.
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