Ask the Expert: The big super mistake far too many people are making

Most retirees don't spend their super during retirement because they fear running out of money.

Most retirees don't spend their super during retirement because they fear running out of money.

Question 1

  • I was reading the question fom a reader about “super being dangerous” and would like assure them super is good. We have two super accounts – Commonwealth Super (DFRDB) and CFS from QSuper – all organised into fortnightly income and we both get a part age pension, again all organised by a financial planner. We pay no tax and have an income of about $78,000.  Best thing I ever did was to see our planner well before I retired. I am 74 and my wife is 75. 

I love your positive comments and that you have taken the time to respond.

People getting close to retirement often worry or have a fear of running out of money, but the reality for most is that they do just fine in retirement.

As you have said, it’s finally a time when you have less responsibilities, can travel and if you have built a super nest egg, live reasonably comfortably.

However, super is still not well understood and the fear of running out of money is often exaggerated. In fact, the Retirement Income Review found that:

‘Most retirees leave the bulk of the wealth they had at retirement as a bequest’.

In other words, most retirees didn’t spend their super during retirement.

Many who took this approach did so because they feared running out of money. Research indicates that it’s younger people with a mortgage and children that are more likely to be struggling, and they find it easier money wise in retirement.

I’m not discounting that there are some who are finding it tough in retirement, especially renters with little or no super.

However, many people should take a positive outlook into retirement and hopefully get to enjoy themselves.

Question 2

  • Hi Craig, I turned 68 in April and I’m employed full time, but will be made redundant at the end of July. I’ve been salary sacrificing the full allowed amount (now) $27,500 into my super these past few years. I have shares in the USA gifted to all staff in 1998, which is worth $80,000. How much of that (less 50 per cent put aside for CGT) plus my $50,000 in my cash account can I put into my super as a non-concessional contribution? And should I do that before July 1st or after. Thanks!

Prior to July 1, 2022 there was a requirement that you would have had to meet a ‘work test’ before making after-tax, non-concessional contributions once you turned 67. However, this is no longer the case.

Up until you attain age 75 you can make non-concessional contributions (NCC), regardless of your working status.

There is an annual cap of $110,000 for non-concessional contributions. However, you can ‘bring forward’ two future year caps and make a $330,000 contribution in one go.

A couple of things to bear in mind.

Firstly, your ‘Total Super Balance’ (TSB) must be below certain amounts otherwise you are not eligible to make non-concessional contributions. These are shown in the table below.

Secondly, it is highly likely that AWOTE (Average Weekly Ordinary Time Earnings) will trigger an indexation in the superannuation caps next financial year. This would mean the annual non-concessional cap goes to $120,000 and the bring forward to $360,000.

We will know for sure once the next round of AWOTE figures are released in February 2024.

So, depending on your overall situation, including TSB and available funds to contribute, you could look at making a standard non-concessional contribution of $110,000 this financial year, and make a larger non-concessional contribution of up to $360,000 next financial year depending on whether the caps have increased.

 Question 3

  1. I’m selling my investment property – I will clear $130,000. Can I transfer $110,000 into my super direct from the sale. Does this avoid capital gains tax?

You can contribute $110,000 as a non-concessional, after-tax contribution to super if your total super balance is below $1.9 million – however, this does not reduce your income or capital gains tax.

Firstly, you should work out the actual capital gain.

When you say ‘clear’, does that means after all deductible expenses? And if you have held the property over 12 months then the capital gain can be reduced by 50 per cent. This amount then gets added to your income tax for that financial year.

You can then look at contributing to super and claiming a tax deduction on this amount. This will then reduce your income tax (which includes capital gains) for the financial year.

Personal tax-deductible contributions fall under the ‘concessional’ cap of $27,500 per financial year. However, if you have a total super balance of less than $500,000 you may have a higher cap under the carry-forward rules.

As this can get complex, I suggest you seek advice for a tax agent or financial adviser.

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.

The New Daily is owned by Industry Super Holdings

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