ASK NOEL

I AM 64 and living on an account-based pension where capital injections are disallowed. I have realised the tyranny of the GFC has taken its toll on the tax-free investments in my account-based pension so I wish to revert to transition-to-retirement. Do I set up a new accumulation phase account and a new pension account? What happens to my current account-based pension?

By InvestSMART · 29 Oct 2011

By InvestSMART ·
29 Oct 2011

Comments

I cannot see what you are trying to achieve because your super is held in a tax-free area now and you are drawing a tax-free income stream. However, I agree the best way to boost your retirement funds is to continue working and salary sacrifice as much as possible to a new super fund. You could then start an account-based pension from that fund when appropriate. Keep in mind once you turn 65 you can access your super even though you are still working.

I am 57, working full time and supporting a family of four. I have paid off my home loan. My job is not stable. I have $250,000 in super. What should I do for my retirement? Should I invest in property by using my super and contribute upfront $50,000 in available cash? If my job continues I plan to retire at 65. Are there any benefits in retiring before 65?

You will not be able to access your super unless you sign a statement that you intend to retire permanently. If you did access it now you would be liable for tax of 16.5 per cent on that part of the taxable component that exceeds $165,000. It can be dangerous to borrow at your age, so I would be cautious about gearing into property. There are no benefits in retiring before 65. In fact, if you work after 65 you will be better placed to accumulate funds.

Noel Whittaker, AM, is a co-founder of Whittaker Macnaught. Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittakermacnaught .com.au.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

If I'm 64 and on an account-based pension, can I revert to a transition-to-retirement (TTR) pension?

You can’t simply inject capital into your current account-based pension to convert it. Because your pension is already in a tax-free phase and paying a tax-free income stream, the practical approach is to open a new accumulation (super) account, salary sacrifice into that fund while you keep working, and then start a new account-based pension from that fund when appropriate.

Do I need to set up a new accumulation account and a new pension account to change my retirement strategy?

Yes — the article suggests setting up a new accumulation-phase super account to receive further contributions (such as salary sacrifice) and then commencing a new account-based pension from that fund later. Your existing account-based pension would remain in its current (tax-free) status.

Are capital injections allowed into my existing account-based pension?

No. The article notes that capital injections into an existing account-based pension are disallowed, which is why starting a new accumulation account is recommended if you want to continue contributing.

If I keep working, can I access my super when I turn 65?

Yes. Once you turn 65 you can access your super even if you are still working, so continuing to work past 65 can help you accumulate more retirement savings.

I’m 57 with $250,000 in super and $50,000 cash — should I use my super to buy property and gear into an investment?

Be cautious. The article warns that borrowing at your age can be dangerous, so gearing into property using super or borrowed funds is risky. The adviser recommends being cautious about gearing and instead focusing on working longer and making concessional contributions where possible.

Can I access my super now by declaring retirement, and what tax would apply?

You can access your super before 65 only if you sign a statement that you intend to retire permanently. If you access it now, you may be liable for tax — the article states a 16.5% tax on the taxable component that exceeds $165,000.

Are there any benefits to retiring before age 65?

According to the article, there are no benefits to retiring before 65. In fact, continuing to work past 65 can place you in a better position to accumulate more retirement funds.

Should I get personalised financial advice about super and retirement planning?

Yes. The article makes clear the commentary is general in nature and recommends readers seek their own professional advice. For further information you can contact Noel Whittaker of Whittaker Macnaught (noel.whittaker@whittakermacnaught.com.au).