PRE-RETIREMENT PERILS
I turn 60 in January and have been unemployed for three years. I went through a messy divorce some 30 years ago, which left me ruined financially. However, I pressed on and took out another mortgage, on a rundown townhouse, which has been paid off. I am on Newstart Allowance of $489.70 per fortnight, which obviously is insufficient to live on. My superannuation has a balance of $70,000. At this rate, I'll be left with pretty much nothing when I reach retirement age of 65? in six years' time! Should I withdraw super now and suffer tax consequences, or should I wait until
I turn 60? Or should I withdraw, say, $10,000 now just to make ends meet? N.M.
If you can claim retirement after age 55, you can withdraw a lump sum, or cumulative small lump sums, up to the "low cap rate amount" of $165,000 of the "taxable component" in 2011-12, rising to $175,000 in 2012-13, without paying tax.
There is a bit of a sting to this exemption since, while superannuation withdrawals after age 60 are described as "non-assessable", and thus need not be reported on a tax return, withdrawals within the low cap rate amount, when aged 55 to 59, are taxed but at a zero tax rate.
In other words, it qualifies as assessable income, even though no tax is payable. As such, it counts towards various benefits that depend on assessable income, such as the government superannuation co-contribution, low-income earners' tax offset, superannuation spouse offset, family tax benefits, and Medicare levy exemption. Most of these may not affect you and, if your total income consists of only your Newstart Allowance, then minor withdrawals from your super that are used to pay bills will not affect it.
Accordingly, I suggest you continue to simply withdraw small amounts as needed. In the meantime, be sure that your money is invested in the cash or term-deposit option of your super fund and that you are in a low-fee fund, or roll over your benefit into one.
Meanwhile, your greatest asset is your rundown townhouse. Be sure to keep it waterproof as once buildings start to fall apart, they become increasingly expensive to fix. Work to ensure that your home is weatherproof and in the best shape possible.
HOME IS WHERE THE NEWSTART IS
My son is on Newstart Allowance with Centrelink as he has been unemployed for the past year. I have thought of putting his name on a title for an investment property. I will be the one putting down the 20 per cent deposit for the unit. I will also be responsible for paying the monthly mortgages until he is employed again. Will this sort of one-off gift affect his Newstart Allowance? D.N.
Yes. Once he is the registered owner of a property then it is counted as an asset, unless he is actually living in it and using it as his principal residence. Moreover, if you are paying off any mortgage on the property, then it is treated as income to be counted by the income test.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.
Frequently Asked Questions about this Article…
When can I withdraw my superannuation and what are the tax rules for withdrawals aged 55–59 vs 60+?
If you can claim retirement after age 55 you may withdraw lump sums (or cumulative small lump sums) up to the ‘low cap rate amount’ without paying tax. Withdrawals made aged 55–59 within that low cap amount are taxed but at a zero tax rate, which means they are assessable income and must be reported. Withdrawals made after age 60 are described as non‑assessable and generally do not need to be reported on a tax return.
What is the ‘low cap rate amount’ for superannuation withdrawals and how does it affect tax-free access?
The article cites the low cap rate thresholds as $165,000 for 2011–12 and rising to $175,000 in 2012–13. You can withdraw up to these amounts of the taxable component (if you meet the age/retirement conditions) without paying tax, although withdrawals aged 55–59 within these limits are assessable income taxed at a zero rate.
I’m on Newstart Allowance — will small withdrawals from my superannuation affect my Centrelink payments?
If your total income consists only of Newstart Allowance then minor withdrawals from your super that are used to pay bills will generally not affect your Newstart. However, remember that some super withdrawals (aged 55–59) are assessable income and can count toward means‑tested benefits that depend on assessable income.
Is it a good idea to withdraw a lump sum (for example $10,000) from super now to make ends meet while unemployed?
The article suggests continuing to withdraw small amounts as needed rather than taking a large lump sum that could trigger tax or affect means tests. Small withdrawals used to pay immediate expenses are likely less disruptive — but note assessable income implications for withdrawals aged 55–59.
How should I hold my superannuation investments while I’m temporarily unemployed and needing to withdraw small amounts?
The recommendation is to keep your super money in the cash or term‑deposit option of your super fund while you are drawing small amounts, and ensure you are in a low‑fee fund or roll your benefit into one to minimise costs.
If I put my unemployed son’s name on the title of an investment property, will that affect his Newstart Allowance?
Yes. Once he is the registered owner the property is counted as an asset for Centrelink unless he is actually living in it as his principal residence. Also, if someone else (for example you) pays the mortgage on the property, those payments are treated as income for the income test and can affect his Newstart Allowance.
Will paying the mortgage on a property owned by someone on Newstart be treated as income by Centrelink?
Yes. If you pay off any mortgage on a property that is registered to the person on Newstart, those payments are treated as income to be counted under Centrelink’s income test and can affect eligibility or payment rates.
My townhouse is rundown — how important is maintaining it while I rely on benefits and super?
Your home can be your greatest asset. The article advises keeping the townhouse waterproof and weatherproof because once buildings start to fall apart they become increasingly expensive to fix. Regular maintenance helps preserve value and avoids large repair bills later.
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