I have $400,000 split between two super funds. I turn 60 next March. Should I take a transition-to-retirement pension? If so, how would it work? I would like to continue working four days a week. Should I put all my super into one fund and, if so, which one would be better?
A transition-to-retirement pension is usually used to take advantage of the difference between the tax you pay on your salary and the tax you pay on deductible contributions to super. It usually involves salary sacrificing to the maximum and then starting a pension from your super fund to make up for your reduced income. Your adviser will be able to do the numbers for you so you can see what savings are possible. There is no need to wait to age 60 to start one. It is better to have just one fund the job of your adviser is to help you choose one that fits your goals and your risk profile.
I am 59 and earn $140,000 a year. My wife and I live in NSW and are mortgage-free. I have a fully geared rental property in Queensland in my name only for tax advantages and, if sold today, it would generate about $120,000 in pre-tax profit. As I am still working, the capital gains tax would be huge. I plan to retire in a couple of years. Can I personally declare the investment property as my prime residence and live there off and on for more than a year when no rental income is generated, before selling it to avoid the capital gains tax? I would then resume living in our NSW home. How can I maximise profit and minimise taxes on selling the investment property in the year I retire?
I doubt that the capital gains tax would be "huge". The taxable profit would probably be only $50,000 once buying costs and the 50 per cent discount were taken into account, which means the CGT bill may be about $20,000. If you move into the investment property, any CGT on the sale will be apportioned on a time basis. This means, if you owned it for a total of five years and lived in it for one year, you would still pay CGT on four-fifths of the capital profit. Your accountant will be able to do the numbers for you but, on reflection, you may decide the costs of moving in and out are not worth the small amount of the tax you would save.
I am 59, not working, and my wife is 52, working full time. I have a defined-benefit pension and a separate transition-to-retirement pension from an account balance of $140,000, which together provide me with a $37,000 tax-free income. My wife has a defined-benefit superannuation account and also salary sacrifices the maximum allowable into another fund. We have periodically transferred my wife's salary-sacrificed super balance into another beneficiary account in my name because of the potential advantage of my being able to access the funds, tax-free, sooner than her. As that time rapidly approaches, I am wondering if there are issues associated with continuing this strategy after I turn 60, and if there are other factors or legislation that we need to consider.
Your strategy looks fine to me. Obviously, there is always the possibility of changes to the law, but I doubt that they would be changed in a way that would adversely affect people of your age.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: noelwhit@gmail.com.
I am 44, my wife is 40. We have a $1.1 million house which is encumbered with a mortgage of $680,000 after we rolled a bunch of loans and other debt into it. I am making $330,000 before tax and super and my wife makes $80,000-$90,000 a year. We have no clues and want to retire early if possible. I don't know where to start as we just love spending money on nothing. Please help.
You need to understand that the secret to becoming wealthy is to make your investing commitments first and then spend the balance.
It appears that what you have been doing is trying to save what's left over, but the reality is that there is usually nothing left over irrespective of income. This is because it's human nature to spend right up to what is available.
As a first step you should set some concrete goals and then put steps in place to achieve them. For example, if a goal was to reduce your mortgage to $640,000 within 12 months, you could start a direct debit to pay $6850 a month off your home loan. In a year, the debt would be down to $639,000, and you would have reduced the loan term to just 11 years if you kept up payments at that rate. Alternatively at that stage, you could re-examine your options. Goals are the secret to getting you back on track.
Frequently Asked Questions about this Article…
What is a transition-to-retirement (TTR) pension and how can it help reduce tax while still working?
A transition-to-retirement pension lets you draw an income from your super while still working and is commonly used with salary sacrificing. The idea is to salary sacrifice more into super (which is taxed at concessional super rates) and then start a TTR pension to make up for reduced take-home pay. An adviser can run the numbers for your situation to show potential tax savings.
Do I need to wait until I turn 60 to start a transition-to-retirement pension?
No — you don’t have to wait until age 60 to start a TTR pension. The strategy can be used earlier while you’re still working, though an adviser should model the outcomes to see if it suits your goals and tax situation.
Should I consolidate my super into one fund, and how do I choose which fund to keep?
It’s generally better to have one super fund to simplify management and fees. The best choice depends on your goals and risk profile, so your financial adviser should help you compare fees, investment options and insurance to pick the fund that fits you.
If I move into my investment property before selling, can I avoid capital gains tax (CGT) by claiming it as my main residence?
If you change a rental into your main residence, any main residence exemption is apportioned on a time basis. For example, if you owned the property for five years and lived in it for one year, CGT would apply to four-fifths of the capital gain. An accountant can do the exact calculations, and you should weigh moving and other costs against the likely tax savings.
How much CGT might I realistically expect on a rental that shows $120,000 pre-tax profit today?
In the example from the article, once buying costs and the 50% CGT discount are applied, the taxable profit might be closer to $50,000 and the resulting CGT bill around $20,000. That is an estimate only — your accountant can calculate your actual liability.
Is it OK to transfer my spouse’s salary‑sacrificed super into my beneficiary account so I can access it sooner and tax‑free?
According to the article, that strategy can be fine and is used to access funds tax‑free sooner, but you should be aware of changing laws. While changes are always possible, they are unlikely to adversely affect people who are close to retirement. Get professional advice to confirm it’s appropriate for your circumstances.
We want to retire early but keep spending — what’s the first step to get on track financially?
Start by setting concrete, measurable goals and ‘paying yourself first’ — that means making investing or debt‑repayment commitments before discretionary spending. Goals focus behaviour and make it easier to stick to a plan, rather than trying to save whatever is left over.
What practical steps can I take now to reduce my mortgage quickly to support early retirement plans?
A simple approach is to set a regular extra repayment (for example, a direct debit). The article gives an example: paying an extra $6,850 a month could cut a mortgage from $680,000 to about $639,000 in a year and materially shorten the loan term. Use concrete targets like this and reassess options once you reach them.
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