Tax-Savvy Retirement: How To Maximise Your Nest Egg

Financial Advice for retirement planning

Tax planning is just as important after you retire as it is during your working years. Understanding the role tax plays during your retirement can ensure you have enough money to enjoy your golden years in style. In this article, we’ll take you through some tax-savvy strategies to help maximise your retirement savings.

How to make tax-smart withdrawals from your superannuation

After retirement, there are two main ways to access money from your superannuation: either via a lump sum or a super income stream. Here’s the difference between each one, along with the tax implications:

Super lump sum

A super lump sum involves withdrawing part or all of your superannuation balance. You can only withdraw a lump sum once you reach the preservation age, which is the minimum age at which you can access your superannuation funds. If you were born after 1 July 1964, this age is 60.

Any time you take a lump sum from your super after reaching the preservation age, it will be tax-free. However, it’s important to note that once you withdraw this money, it loses its classification as super. Consequently, if you choose to invest the withdrawn funds, any earnings generated from those investments are not taxed as super, so you may be required to declare them in your tax return.

If you’re aged 55-59, you may still be able to withdraw from your super, but it will be taxed differently. You will not face any tax if the withdrawal is up to the ‘low rate cap’ of $235,000. However, if the withdrawal exceeds that amount, you’ll either pay your marginal tax rate, or 17% inclusive of the Medicare levy, whichever is lower.

Super income stream

With a superannuation income stream, you receive regular payments from your super fund, either monthly, quarterly, or annually. A super income stream is a popular choice, because you have flexibility in choosing the frequency and amount of these payments, depending on your financial needs.

Just like with a lump sum, if you are over the age of 60 you will not need to pay tax on your super income stream. However, if you are aged 55-59, the taxable component of your super income stream will be taxed at your marginal tax rate, with a 15% tax offset applied.


Tax implications for different types of retirement funds

You may have different tax implications depending on the type of superannuation fund you have. Your fund will most likely fall into one of three categories:

Retail or industry super fund

If you’re like most Australians, you will have either a retail or industry super fund. As outlined above, you can access your savings from these funds either as a lump sum or an income stream during retirement. As long as you are over the preservation age, you will not need to pay tax.

Self-managed super fund (SMSF)

Similar to retail and industry super funds, self-managed super funds allow you to withdraw either a lump sum or an income stream. If you have reached the preservation age, you will not need to pay tax. However, if the money you receive is from a capped defined benefit income stream payable from the fund, then the defined benefit income cap applies (more on this below).

Defined benefit income stream

If you receive a capped defined benefit income, or you have a certain type of defined benefit pension during your retirement, different tax rates will apply. Currently, you can receive an amount up to $118,750 tax-free. However, if your payments exceed this cap, then 50% of the amount over $118,750 will form part of your assessable income, meaning you may be required to pay tax.

Strategies to reduce your tax burden during retirement

There are numerous tax strategies you can use to keep more of your hard-earned money in your own pocket. Incorporating the following tips will provide you with a well-rounded approach to optimising tax efficiency in retirement:

Plan ahead

If you are still working, planning for retirement can help you take advantage of tax benefits in the lead-up to your golden years. For example, you can consider salary sacrificing, which involves contributing a portion of your pre-tax salary into your superannuation fund, or after-tax contributions, where you deposit money from your after-tax income into your superannuation. Both of these strategies can reduce your taxable income and help you pay less tax.

Consider downsizing your home

Downsizing your home may generate additional funds for your retirement while also allowing you to take advantage of the downsizer contribution to superannuation. This enables you to contribute $300,000 from the sale of your home into your superannuation fund.

Take advantage of rebates and tax offsets

Leveraging government initiatives like the Senior Australians and Pensioners Tax Offset (SAPTO) and the Low Tax Income Offset (LITO) can significantly enhance your tax efficiency in retirement. SAPTO can reduce or even completely eliminate tax liability on any income you earn outside your super funds’ pension, while LITO offers a tax offset of $700 for individuals with taxable income below $37,500 per year.

Review your investments

During retirement, you may want to focus on investments that offer tax benefits, such as dividend-paying shares and government bonds. Dividend-paying shares often provide franking credits, which means the tax has already been paid by the company, leaving you eligible for an offset or refund. Government bonds, on the other hand, can offer interest income that is generally taxed at a concessional rate for retirees, providing a tax-efficient source of income.

A financial planner can help maximise your retirement savings

It’s critical to think carefully about how you manage your finances during retirement. If you don’t have a clear plan, you could run out of money or be forced to downgrade your lifestyle. So it’s a great idea to discuss your retirement strategy with a financial planner or advisor.

A financial planner can:

  • Create a financial plan to make the most of your retirement savings and maintain a comfortable lifestyle.
  • Maximise your superannuation benefits through strategic contributions, withdrawals, and tailored investment plans.
  • Give you advice on tax-efficient withdrawal decisions.
  • Provide investment recommendations that align with your risk tolerance and goals during retirement.
  • Offer guidance should there be any changes to the economic landscape, the law or your personal circumstances.

Regardless of where you are in your retirement journey, Poole Advisory can help. We can create a stra

tegy that enables you to enjoy the retirement you deserve. To speak with a financial planner, get in touch here or book an appointment.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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