Inquiry 1
I’m 67 years old, not married, own my residence, and possess a rental property that generates roughly $20,000 annually.
My superannuation account has a balance of $1 million.
Would it be more profitable for me to keep my funds in a super account that incurs a 15 percent tax but offers good returns, allowing me to withdraw lump sums when necessary?
Alternatively, would my superannuation continue to grow if I transferred it to a pension account that doesn't require tax but mandates a minimum withdrawal?
Thank you, Craig.
This decision hinges on several considerations.
Besides your $20,000 from rental income, how much annual income do you require?
As you've mentioned, a pension account is tax-free, while a superannuation accumulation account incurs a 15 percent tax on earnings (withdrawals from both are tax-free once you reach 60).
To illustrate the impact of this taxation, let's examine the largest superannuation fund in the nation, the Balanced fund from AustralianSuper. Over the ten years leading to June 30, 2025, the return on super accumulation was 7.94 percent annually, while the pension return was 8.62 percent each year.
This results in a yearly difference of 0.68 percent.
On your $1 million investment, that translates to an additional $6,800 every year. (This serves as a demonstration and varies yearly, with each fund differing in performance).
As you’ve indicated, there is a requirement to withdraw a minimum from your pension account annually, determined by your balance and age. This is outlined in the table below:
For example, if you invested the entire $1 million into a pension, as a 67-year-old, you would need to withdraw a minimum of $50,000 in the first year (5 percent of your total balance). You may withdraw more if you choose.
However, keep in mind that withdrawing money does not necessitate spending it all. If you prefer, you could reinvest any portion you do not use back into your superannuation.
You can continue this practice until you turn 75, after which there are limitations on contributions.
In response to your question about whether your super will continue to grow: In straightforward terms, if you are withdrawing 5 percent and earning a greater return, your balance should still increase (though it's more complex, taking into account withdrawal timing, market fluctuations, etc., but generally, this is the idea).
Without knowledge of your specifics, many individuals find it wise to convert most or all of their super to a pension upon retiring.
Lastly, is it crucial for your super to keep increasing after retirement? Or would you feel comfortable beginning to utilize some of these funds for a satisfactory retirement?
Inquiry 2
Hello Craig.
I purchased my home while I was still single. After getting married, we lived in that house for a few years until we realized it was too small for us.
We then bought a new house together and moved in. I decided to keep my original home and rent it out.
When I eventually sell that property, I plan to invest the funds into my retirement account as part of the downsizer initiative.
Can my husband do the same? He lived in that house as my spouse, but he is not listed on the deed.
Thank you, Cathy
Hello Cathy,
The downsizer provisions are quite accommodating. The primary criteria are that you must be 55 years or older and have possessed the property for a minimum of 10 years.
For some portion of the ownership duration, the home needs to have served as your primary residence, which means it qualifies for a complete or partial capital gains tax exemption.
Even if your partner isn’t listed on the deed, they can still make a downsizer contribution as long as they fulfill the other eligibility criteria.
If you both are 55 years or older, it appears you may each qualify to contribute $300,000 to superannuation under the downsizer rule.
Do keep in mind that these contributions typically need to be completed within 90 days following the change of ownership.
I recommend discussing your eligibility with your accountant, financial planner, or superannuation fund.
Craig Sankey is a certified financial adviser and leads Technical Services and Advice Enablement at Industry Fund Services.
0 Comments