Question 1

I am struggling financially; with mortgage and bills, there’s not much left after paying them to live for a fortnight. I am a 61-year-old single female and work permanent part-time. I was doing extra shifts to help out, but haven’t been able to lately.

I have a very good superannuation amount for a female and was wanting to apply for superannuation to help pay off the mortgage, some required house maintenance, and to pay off a debt of approximately $350,000.

I don’t want to retire or change any other contributions.

How will this affect my future super tax and annual income tax?

Given your age, over 60, you can start a “transition to retirement pension”.

It’s called that because it was originally introduced for those wanting to go from full-time work to part-time work and who needed a top up of income from their super. However, there is no requirement to change your work status.

Anyone who has reached at least age 60 can start one of these types of pensions. You then have the option of drawing between 4 and 10 per cent of your account balance for the financial year.

If you have a strong super balance, this could be a good option.

Ensure you leave some money behind in your super accumulation account to accept ongoing employer super contributions.

The payments coming out of the pension will be tax free.

Of course, drawing some super out now will affect your future retirement so only draw what is needed.

Your super fund should be able to assist.

Question 2

I am 68 years old, female and still doing casual part-time job. My question is, is it better to keep your super in an accumulation account for longer instead of transferring into pension account?

What are the pros and cons of this arrangement? Do you still earn more income on investments despite paying 15 per cent tax by keeping it in accumulation account?

The main advantage of transferring your super to a pension is that the earnings are tax free, as compared to tax on earnings of 15 per cent within super accumulation.

SuperRatings recently published some returns that highlight this.

The average balanced super fund return (after tax), over 10 years, was 7.7 per cent a year, whereas the average pension fund return for the same investment over the same period was 8.6 per cent a year.

You therefore would have earned 0.9 per cent more on your super by being in a pension fund compared to an accumulation fund.

For every $100,000 you may have, that equals $900 a year.

The main downside is that you are required to at least draw down the legislated minimum each year from a pension. This is based on your age and balance. As shown in the table below.

If you don’t need these payments, you have to actually spend it. Up until age 75 you could look at re-contributing the funds back into super (accumulation).

Once you’re over 75, voluntary contributions are no longer allowed and you would need to invest elsewhere.

Question 3

Is it better to have some cash savings (up to $30,000) or to transfer it to super before retirement?

If you only have modest savings, then it’s probably not going to matter too much.

Super retirement income streams do have many advantages, like:

• All earnings/returns are tax free
• All payments are tax free
• They can provide regular income payment, say monthly
• You have a wide investment selection (similar to your super fund).

However, if you have little other taxable income, you probably won’t be paying tax in retirement anyway. From a Centrelink perspective, it also won’t make a difference.

It might be convenient to hold some funds in a regular bank account just to cover day-to-day expenses and cover large one-off lumpy payments, car repairs, new furniture etc and to have quick access to funds.

Hold whatever amount you feel comfortable with in a bank account and, if eligible, you can put the rest into super.

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.