Question 1

Hi Craig.

My wife and I are aged 66 and retired. We each have approximately $1.2 million in super (40/60 split between growth/conservative) and $500,000 in outside cash savings. Annual living expense $72,000. We own our house. We are living off our outside savings with the super funds still in accumulation mode.

Should we continue using our savings or commence the account-based pension where income and earnings are tax free? Are there any other options or strategies we could consider?

Well done on the retirement savings you have built and living still very much within your needs.

In fact, you are only drawing down 2.48 per cent of your savings annually ($2.4 million in super plus $500,000 outside). Over the long term, your funds should generate a return much higher than this and therefore your funds will continue to grow.

Hopefully you are drawing $72,000 because that is all you need, not because you are worried about running out of money. You should have some confidence in this space. However, I understand many people struggle to change from savers to spenders when they retire.

You ask about strategies to consider, but this should be dependent on your goals. Are you just trying to build wealth for the sake of it? Are you building a big buffer to give you confidence? To leave a large inheritance? To spend some money on a specific goal?

To come to your question about whether to move your super from accumulation to pension directly. Yes, you should consider moving some/most of those funds to a pension.

Because of the tax savings, pension funds generally have after tax returns of 10-15 per cent higher than accumulation funds. So if an accumulation fund returned 8 per cent after tax, a pension fund may achieve a return of 8.8-9.2 per cent. On balances over $1 million, this is a lot of money.

However, you need to draw down a minimum amount from your pensions each year. Given your ages (between 65 and 74), the minimum is 5 per cent of your account balance.

Over the next few years, if you do not use this money, you can simply contribute the funds straight back into your super accumulation account via a non-concessional contribution. This can continue until you reach age 75, when voluntary contributions are no longer allowed. At that point you can again review your options.

Question 2

My wife deposited $50,000 into a new super account in 2022. That balance is now $34,000, and we are very reluctant to invest any more money in super. She is 70 and I am 72.

We have $1.7 million in an investment account as we have recently sold our home and are looking at buying a downsized home and investing the balance, but where?

First, markets have performed very strongly over the past four-five years, so it sounds odd that your balance has dropped by almost a third.

It’s important to understand why this has occurred. You should contact the super fund and/or financial adviser (if you have one).

Again, given it’s such a big drop in what has been a very good time to invest, you may also want to consider making a complaint to the fund. If unsuccessful, then consider contacting AFCA.

The next thing to consider is what to do going forward.

Superannuation is NOT an investment. It is a tax structure to hold investments. Within super you can hold cash, term deposits, balanced funds, shares, ETF’s, properties etc.

So, there are two decisions to make. What structure to hold the investments – within super, individually, in joint names, or a combination.

Next, the actual investments themselves. This will depend on how much risk/return you are willing to take, whether they need to generate an income and your investment timeframe.

Given you have a lot going on and a sizeable amount to invest, I suggest speaking with a licensed financial adviser who can discuss the issues above and help you determine the best way forward. Make sure they are licensed on the Financial Adviser Register.

Question 3

Does a non-binding (superannuation) inheritance to a minor (17 years old) have to go into the estate from the super company?

A super fund can pay a benefit to a minor, but generally not directly.

By law, funds cannot make direct death benefit payments to children under 18. Instead, the payment is usually made to a legal personal representative or into a minor trust managed by a trustee.

I obtained this information from Australia’s largest super fund, AustralianSuper.

Craig Sankey is a licensed financial adviser and head of Technical Services and 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.