ASSESSING RETIREMENT OPTIONS
I have just retired at age 57. My total retirement benefit will automatically be rolled over into my fund's retained benefit section with the $235,000 in the defined portion going into the cash option and the additional $240,000 benefit into the balanced option. My wife and I have around $1 million outside super, and at present we can get at least 5 per cent interest. Our top tax rate would be 20.5 per cent (nearly all our income this year will be from interest), giving us a minimum of 3.975 per cent net. Should I withdraw money from super in order to get a better return? My wife, 60 and retired, has $235,000 in a super account. By the time she reaches age-pension age, if we have upgraded our house for the future and been able to change from naturally thrifty to spendthrift, our assets may have been eroded sufficiently to make her eligible for a small age pension. As there will be a four-year period when my super would be excluded from the assets test, will the fact that I have retired make it assessable for age-pension purposes? Also, I have shares in BlueScope and Qantas, neither paying dividends. Any suggestions what to do with them? E.B.
I am generally loathe to withdraw money from super even though there may be more attractive interest rates in taxable non-super accounts. If you shop around, there are some reasonable term deposit rates being paid within super funds.
I also feel with $1.8 million in savings, you are looking towards a fairly comfortable retirement, though not a profligate one. If you splurge on renovations and convert to being a spendthrift, you may obtain a small age pension, the September assets test limit for couples being $1.05 million.
Of course, it will have been indexed up by the time you reach your age pension age of 66 but there are few benefits you can get with an age pension that you cannot get with a Commonwealth Seniors Health Card. It is pointless to needlessly reduce your assets in order to get a small pension, the fringe benefits from which are generally costed at about $2000 a year.
No money in super is counted by Centrelink's means tests until you reach age pension age, even if you are retired.
Both your shares have fallen dramatically in value, though both have bounced a little of late. You might want to hold on because, if you sold now, (a) you may not get enough cash to buy another parcel of shares and (b) if their prices then recover further, and Qantas's may yet do so if it can cut its losses, then this apparently represents one of the more pained feelings for investors.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808 pensions, 13 23 00.
Frequently Asked Questions about this Article…
Should I withdraw money from super to get a better return in a taxable account?
Generally no — the article advises against needlessly withdrawing from super just to chase higher taxable interest, noting there are reasonable term-deposit style rates available inside some super funds and that keeping money in super preserves tax and retirement benefits.
Are there term deposit or cash options available inside superannuation funds?
Yes — if you shop around some super funds pay reasonable term-deposit or cash rates inside the fund, so you can often find competitive, low-risk returns without moving money into taxable accounts.
How does tax on interest affect my after‑tax return if I earn around 5% interest outside super?
If your top marginal tax rate is about 20.5%, a 5% gross interest rate converts to roughly a 3.975% net return after tax, so compare after‑tax returns when deciding between super and non‑super investments.
Will my superannuation be counted in Centrelink’s assets test if I retire before age pension age?
No — the article states that money in super is not counted in Centrelink’s means tests until you reach age‑pension age, even if you have retired earlier.
Should I reduce my assets to try to qualify for a small age pension?
Probably not — the column warns it’s usually pointless to erode assets just to obtain a small pension because many of the fringe benefits are modest (estimated around $2,000 a year) and you may be better off preserving capital.
How does the age‑pension assets test threshold affect couples thinking of spending down assets?
As noted, the September assets‑test limit for couples was about $1.05 million (and will be indexed over time), so deliberately spending down assets to fall below that threshold may not be worthwhile given the limited additional benefits.
What should I do with underperforming shares like BlueScope and Qantas that aren’t paying dividends?
The article suggests you might hold rather than sell: both shares have fallen substantially but have shown a small bounce, and selling now could lock in losses, leave you short of cash to repurchase a parcel, and miss any further recovery (Qantas might recover if it can cut losses).
Is having around $1.8 million in savings sufficient for a comfortable retirement?
According to the article’s adviser, with about $1.8 million in savings you are likely to have a fairly comfortable retirement (though not extravagant), so major asset reductions to chase a small pension are usually unnecessary.
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