Ask the Expert: Early retirement? What to consider when it comes to your income

Annuities could deliver you a bit of extra cash in retirement.

Annuities could deliver you a bit of extra cash in retirement. Photo: TND

Question 1

  • I am 60 years of age and have worked for the same government department for 39 years. I have accepted an early retirement package of approximately $180k. My wife is 57 and works 1.5 days a week. We owe about 100k on our home loan. We plan to pay off the home loan when I receive the payout. I’m in a defined super fund and have two options when I retire; take a lump sum payment of $930k, or receive a pension of $1400 per fortnight for life (CPI adjusted twice a year) and $465k lump sum payment. What do you think is the best option for us; full lump sum payout or part lump sum with pension? My current planning is to reinvest either of the lump sum payouts into a pension plan. I may continue to work part-time for a few years. Regards, Tony.

Hi Tony,

Thirty nine years in the same government department – wow – a great effort!

On first glance a $1400 fortnightly pension ($36,400 per year) indexed for life, stacks up pretty well against a lump sum of $465,000 when calculating an internal rate of return.

However, you need to consider some other aspects as well.

Life expectancy

Given you are 60, statistically you should have another 24 years of life ahead of you, hopefully longer.

However, if you are not in good health then the lifetime pension looks nowhere near as attractive if you have a shortened life expectancy.

Many of these lifetime pensions can continue to your spouse after your death at a two-thirds rate until her death.

And as your spouse is younger, this does improve the attractiveness of the lifetime pension even more. You should check whether this is provided.

Estate Planning

Do you have any estate planning objectives, such as leaving some of your super to your kids or other beneficiaries?

If yes, then taking some as a lump sum would be preferable as the lifetime pension does not provide this option.

Access to Capital

Do you have access to other funds or is everything tied up in super?

You have stated you want to pay out your loan, and may also have other lump sum objectives, either now or in the future i.e. buy a car, go on a big holiday etc, in which case a lump sum would be appropriate.


You have not detailed the tax components, and I don’t know your future employment income or overall situation, so it’s hard to make any concrete comments.

However, if it is provided from the fund I think it is. It will have some tax associated with both options.

Therefore, you need to consider the net amounts for both the lump sum and pension option.

There is a lot to consider and what’s best for you will be dependent on your responses to the above questions.

In any event you seem to be well placed and putting some money into a (account-based) pension plan as mentioned also seems appropriate.

You may wish to seek specialised personalised advice over this.

Question 2

  • I am 63 years old and am semi-retired. My husband is 67 and is fully retired and we are both currently drawing down the minimum amounts from our respective superannuation accounts as a monthly pension. I earn approximately $10,000 per annum through a microbusiness that I run from home. This is a very handy supplement to our retirement income as neither myself nor my husband qualify for the age pension. Is there anything that I need to be aware of regarding the additional income that I earn? For example, do I need to keep my earnings below the tax-free threshold, which I think is about $18,000 per annum? Thank you for your advice.

Sounds like you are doing well.

Your superannuation payments would all be tax free as you are over the age of 60.

The tax-free threshold for taxable income is $18,200. However, the ‘effective’ tax-free threshold is much higher due to tax offsets.

For example, due to the low-income tax offset, most people don’t pay any income tax until they earn over $21,885 (2022-23).

For older Australians it’s even more generous because of the ‘seniors and pensioners tax offset’, it takes this figure to $33,089 or $59,568 combined if you are a couple.

So, it doesn’t look like tax will be a big issue; even if your business or investments really start taking off, paying a bit of tax should not be overly burdensome.

One potential issue is estate planning.

If you are concerned about your future beneficiaries paying tax on your leftover superannuation balance after you die, this is one area that can be reviewed.

Most people’s super balance is predominantly made up of what’s called a ‘taxable’ component. And this gets taxed up to 17 per cent upon death if the benefits are paid to a non-financial dependant, such as an adult child.

I covered this in a recent article, including potentially using a cash-out and recontribution strategy to turn some or all of the taxable component into tax-free components.

You should also ensure your beneficiary nominations with your super fund is up to date and well as your wills.

You may wish to seek advice from an estate planning specialist or financial adviser in relation to the above.

Question 3

  • My husband has a super balance over $500,000. Mine is around $150,000. Seeing as my super balance is below $500,000, can I look at using the ‘carry forward’ concessional contribution rules to increase the amount of tax-deductible contributions he can make to my super? Or are there different rules because he would be putting his money in my fund? 

While you are correct in that you can use the carry forward contribution rules, your husband cannot claim a tax deduction for contributions going into your fund.

You can only claim personal tax-deductible contributions into your own super fund. Therefore your husband would need to stay within his standard concessional contribution cap of $27,500.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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