Are you 56 or older and still working OR do you know someone who is?
The big question we get from a lot of people that we meet in their mid 50's - Do we focus our income to paying off our home or start contributing more into super for retirement?
While this can seem like a perplexing decision there is more than often a simple solution to be had. To be perfectly honest the numbers speak for themselves.
Transition to retirement pensions (TTR) are not as widely understood as they should be. 'TTR' was introduced in 2005 to assist people to reduce their work hours without reducing their income. These pensions do however also allow for a powerful strategy that can supercharge your superannuation savings.
Currently, from the age of 56 (this is increasing incrementally until 2019) you are able to convert your superannuation 'accumulation' fund into an account based pension. The pension is beneficial as the earnings of your fund are no longer taxed at the 15% your accumulation fund is. Straight away your superannuation is growing at a faster rate being free from the earnings tax.
There are minimum amounts that must be drawn down from an account based pension; however this can actually assist you to build your savings faster. For one thing, there is no tax on these payments at all once you are over 60.
Money you receive as a pension can then be used to help you fund higher personal contributions to super, which means you are salary sacrificing part of your income at 15% tax, compared to your marginal tax rate which is often much higher.
The combination of tax savings and more investment savings into super will likely add up to the $10,000’s if not more than $100,000 of additional retirement savings.
When setting up this structure it is vital to make sure you know where the income from the pension is coming from. Letting the growth assets run and effectively managing the cash account can ensure you have a good amount of control over your money regardless of what the markets are doing. A well managed portfolio inside super can assist you with having this control.
So with this strategy put in place, the additional contribution for retirement question is answered. This will likely leave sufficient surplus cashflow to continue reducing debt. Maybe you could even put some towards that holiday you want!!
To discuss your retirement plan with us, please contact us for a complimentary meeting.
By James McFall - Founder Yield Financial Planning
"GOOD FORTUNE NEEDS GREAT PLANNING"
The content of this presentation is intended to be general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions. Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.