Chung and Carol have a great trip to Europe – fulfilling one of their retirement dreams. Unfortunately they didn’t realise that the peacock farm loan to their son is considered an asset by Centrelink because it’s seen as a business partnership and this could affect Chung’s Age Pension. In fact, they’ve risked putting their entire retirement savings into their son’s business. While this is a generous gesture, what happens if the peacock farm fails and their son can’t pay them back? They’ve lost their entire retirement savings.
Carol decides to draw down on her super. She needs to withdraw a minimum of 4 per cent each year to meet the rules of her account-based pension account. Pleasingly, the amount she draws down is tax-free on withdrawal and the earnings on the balance is also tax-free so she’s maximising her tax savings.
She manages to put some of her pension away each fortnight to save for their dream holiday to Europe. But, by the time Carol saves enough, Chung is 72 and the long plane trip doesn’t suit him anymore.
So while Carol has made some tax savings by using an account-based pension and slowly drawing down on it, they’ve missed out on their dream holiday to Europe and they were unable to help their son with his peacock farm.
Understanding your super withdrawal options in the lead up to and during retirement is extremely important and everyone’s circumstances are different.
In reality, you’ll probably decide to withdraw some of your super as a lump sum and then, once you’ve achieved some of your retirement goals, slowly draw down on your super in the form of a pension payment each fortnight.
The important thing is getting the balance right. The areas you’ll need to consider are:
That’s where a financial planner can help you understand your lifestyle goals and objectives and set you on a path to financial success both in the lead up to and in retirement.
