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Superannuation/preparing for retirement.

Discussion in 'Living Room' started by Barny, 9th Feb, 2016.

  1. Barny

    Barny Well-Known Member

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    hey team, would love some help if possible.
    Currently have a friend that asked if I could help, thought I'd put it to the group while I research the other options available.

    Scenario, 59 year old still working full time. She just went to see a financial planner but came out more confused than when she first walked in, and less money too.
    Loves her job and doesn't want to quit as yet unless, it benefits her.
    Has 130k owing on her house mortgage, has 150k in sun super.

    At 60, can she withdraw all of it and pay off her mortgage? Or is it a certain percentage per year every year till 67?
    Could she quit and access it all to pay mortgage off?

    Anyone currently at or near retirement that could possible help with her scenario would be greatly appreciated.
    As her financial planner advised her to move all her super elsewhere, (which currently all charges are less than 1% with sunsuper)and to buy an investment property in Ballarat.
    Her accountant told her she could quit,access all her super to pay off the loan.

    Appreciate all feedback, I'll find out more what was advised through her planner when I speak to her again. Thanks again peeps.
     
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  2. Lizzie

    Lizzie Well-Known Member

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    I'd be reading as much as I could independently rather than listen to an "advisor" who is paid on commission - such as:

    Accessing your super | Australian Taxation Office

    She also has to think about what she is going to live on if she uses her entire super to pay off her mortgage - will she be drawing the pension for the next 30 years? Or would she be better downsizing her property, keeping the money in the super to draw on and live a bit? Is she capable of running a SMSF if she downsized, put some extra in the super, bought some income providing rental properties?

    There are a lot of options, but depends on her capabilities and what she wants to do. Why does she want to retire so young? If she worked another 5 years, bought an investment property thru her super now and had the mortgage on them paid off in the 5 years ... she would have a slightly higher income than relying on government handouts (and eating dog bone soup).

    Do the sums on one property - multiple properties with mortgages being paid interest only etc ...

    Hubby can legally retire atm - but we still have the last kid in school, so there's not much point. We bought an investment property through a SMSF which will have it's mortgage paid off in under another 2 years ... at which time, the income would be equal to current pay income ... if we wait for 5 years to be up - junior will be finished with schooling and the super income will be tax free ... in the meantime, there is 3 years worth of "no mortgage" income going towards buying alternative income options such as shares, cash.

    I just don't want to see her retiring early - and having no money to "do" anything but sit at home and count coupons.
     
    Last edited: 9th Feb, 2016
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Nothing wrong with the fees at Sunsuper, about $1.50/contribution. Returns are reasonable (not the best nor the worst).

    Your friend would qualify for the pension even if she paid out the loan but would have very little in super to enjoy.

    She could look at refinancing the loan to a lower rate.

    She may need to look into transition to retirement (reduced working days, take payment from super and salary sacrifice her salary back to super) if it was tax effective.

    A lot more reading is required to get the best results.
     
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  4. Property Hoarder

    Property Hoarder Active Member

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    Not financial advice ec....

    What happens when she has paid off her loan?

    She will only have the $20,000, no job and could not go on to the aged pension (due to age).

    If paying the mortgage is an issue look at doing a Transition to Retirement Pension. She can take up to 10% of the balance each year.

    ie $150,000 x 10% = $15,000
    Mortgage Interest only $130,000 x 6% = $7,800

    That would cover her mortgage. She will be getting Contributions from working to help keep her balance in super up
     
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  5. Barny

    Barny Well-Known Member

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    Thanks for the info guys. I didn't explain very well. She is happy to continue to work as she doesn't have enough.
     
  6. Barny

    Barny Well-Known Member

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    Thank you for this, the 10% withdrawn a year whilst still working her current job would be an excellent idea to help pay off the mortgage.
    Perhaps if she salary sacrifices extra into super that could also reduce her tax as she doesn't have any investment properties.

    I wasn't sure what she meant, but her accountant advised she could quit her full time job with the intendant purpose of no longer working again. I'm not sure what this will allow you to access at the age of 60, will it be more than 10% a year? Still finding out and reading.
    Her accountant said she could do this (I'm assuming you can access more than 10%), then after she gains access to her super, she could pay off her loan, then get another job. This is to save on the interest over the years of paying off the loan. But it will only work if you can gain more than 10% I guess.
     
  7. JacM

    JacM VIC Buyer's Agent Business Member

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    Even if she was mortgage-free, if she did quit and live off her super it would not last long. 4 years or thereabouts. As others have said, read up on transition to retirement and don't be led solely by the financial advisor.
     
  8. Barny

    Barny Well-Known Member

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    Hi lizzie, she's happy to continue working. As she needs to. It was something mentioned to her by her accountant so she can access her funds and pay off the home loan debt. Then get another job after doing so.nim assuming it's a strategy but I don't know what she's allowed to access.

    I'm not sure buying a property at her stage is a great idea at the moment, I'm not even sure why he told her Ballarat, and sunsuper at under 1% fees seem pretty reasonable I though. (Maybe if she sold up and had more money in there the SMSF would work)

    Thanks for the feedback though. I'll find out more as I go. See what will work best. Cheers.
     
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  9. Barny

    Barny Well-Known Member

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    Yeah I agree, it's not much. But she would quit to access her super assuming she can access all of it now to pay off the mortgage, then get another job earning around 80k a year and save for the next 7 years with additional super. She could save about 40k a year once her mortgage was paid off, times 7 years= 280k in savings plus super earnings should be better than waiting till she retires then pays off the mortgage.
    Just haven't found how much you can take out once you fully retire at 60. Cheers
     
  10. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @Barny

    Is she able to take in a boarder as a bit of an income booster for a while? Help knock that mortgage down?
     
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  11. Barny

    Barny Well-Known Member

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    Great question and excellent idea I'll bring to her attention.
    I'm speaking with her tomorrow to go over options and try and get an understanding whilst I read up on superannuation.
     
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  12. Property Hoarder

    Property Hoarder Active Member

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    Salary sacrifices can be a good option.

    to get 100% of her super,

    under 60 years of age (having met min age requirement (which for her is 55 (but it moving up for younger people) she has to retire with the intention of not working full or part time.

    Once she is 60 she needs to just retire from a position (a job)

    If she was to retire from the current position what is the likely hood she could get another job? It might not be that easy.
     
  13. Marg4000

    Marg4000 Well-Known Member

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    I would be very reluctant to quit a job I was happy in at the age of 59. Getting another job may not be easy.
    Marg
     
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  14. truong

    truong Well-Known Member

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    If she can get a 80K job and save 40K pa, why not get it right away and use her savings to pay off her mortgage? Her 130K loan will be paid off in no time. In the meantime she still keeps her super intact and growing.

    I think she should plan her retirement on the basis of receiving full age pension then on top of it try to save as much as possible in her super to get extra income.

    Just roughly, say she pays off her loan in 4 years at 63.

    The eligible pension age by then would be around 67, which means she has 4 years to build up her super.

    40K saving pa x 4 years = 160K
    plus employer super contribution 7.6K pa x 8 years = 61K
    plus the current 150K,
    that makes 371K to retire with, PPOR all paid off.

    According to the ASIC Retirement Calculator this can get her about 37K income pa till 90 (age pension + super income). This income puts her just short of a comfortable living according to ASFA Retirement Standards. By the way 37K is more than what she's spending right now.

    Much simpler for her to do it this way than try to engineer some dubious scheme or buy an IP in a SMSF, which I guess isn’t suitable for a financially inexperienced person like her. That her planner tried to steer her that way is a worry.
     
    Last edited: 9th Feb, 2016
  15. Travelbug

    Travelbug Well-Known Member

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    definitely look into Transition to retirement. It can be very tax effective. The money saved on tax can be taken as extra income to pay down the house loan or left in Super to build it up for when she does retire.
     
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  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Firstly the accountant must be licenced to provide this sort of advice as it is fiancial advice and the accountant exemption doesnt apply. She should then ask him about transition to retirement and salary sacrifice into super. There are some tax advantages.but as Truong says she should get that job now and start trying to pay off the loan. Alternatively she may be better off not paying the loan off in a hurry if she can get a better return in super where there are low or no taxes.
     
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  17. Barny

    Barny Well-Known Member

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    Cheers, just found out she could access the first 150,000 if she quits, without paying any tax at 60.
     
  18. Barny

    Barny Well-Known Member

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    Excellent point terry. I will pass this on
     
  19. Barny

    Barny Well-Known Member

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    Hi truong, thanks for the feedback.
    I think terry nailed it with seeing if her super will give a better return over her mortgage. Forgot all about that. I believe the past 10 years she earned 7.5% in sunsuper. I'll have to check, as I'm with them too and assume she's in the balanced portfolio.
    The income she's getting currently is 80k from her full time gig, and has another side business which brings in about 12k in her first year(celebrant she just started) She would only be able to save about 40k(this was a basic assumption) if she didn't have the 130k still owing on the mortgage.
    If she did quit, she wouldn't have trouble finding another gig, her skills are very employable at any age and state.

    Thanks for doing all the other calculations.
     
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  20. kierank

    kierank Well-Known Member

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    @Barny I am 59 and I am trying to get my head around this stuff as well. Based on my understanding, I feel your friend should consider the following:

    1. Work until she is at least 65 when she becomes eligible for the Aged Pension, assuming she meets the Income and Asset Tests.

    2. If she can, pay off the $130K mortgage before or by the time she retires. Taking on a boarder, working a second job, etc can assist here.

    3. If she can, contribute as much as she can in her Super. As she is over 50, she can contribute up to $35,000 pre-tax or $180,000 post-tax each year. As others have stated, a Transition to Retirement strategy should be considered here.

    4. On reaching 65, she can retire and claim the Aged Pension. She can also take a pension from her Super Fund, equal to a minimum of 5% of her Super balance on 1 July in the FY she retires.

    5. The Full Aged Pension for Singles is $22,542 pa. It is most likely that she will not qualify for the Full Pension, due to the Income and Asset Tests.

    6. Under the Income Test, the Full Pension is paid as long her other income does not exceed $4,212 pa (eg less than $84,240 in Super at 5% and no other income). After this, it is reduced to a Part Pension and this is reduced to zero if other income reaches $49,296 pa (eg $985,920 in Super at 5% and no other income).

    7. Under the Asset Test, the Full Pension is paid as long her assets (her home is exempt from the Asset Test) do not exceed $205,500. After this, it is reduced to a Part Pension and is reduced to zero if her assets reach $783,500.

    8. The Part Pension is paid on the lowest calculated from the Income Test and the Asset Test.

    9. In retirement, if you own your own home, they say one needs an income of $23,695 pa after tax to sustain a modest lifestyle and $42,962 pa after tax to sustain a comfortable lifestyle. The threshold for a modest lifestyle is just above the Full Aged Pension

    10. Hence, my suggestion for your friend to work to 65 and pay off her home.

    11. Hence, my suggestion for your friend to work to 65 and contribute to Super so that with her retirement income (Super Pension + Part Aged Pension) exceed the modest lifestyle threshold and she gets as close to/exceed the comfortable lifestyle threshold.

    Sorry about all the numbers but, unfortunately, this area is all numbers driven. I think the above numbers are all correct at time of posting and most are indexed over time.

    Like others, I struggle to understand why her 'advisors' would recommend taking her funds out of Super and either paying down the mortgage or buying an IP in Ballarat.

    Normal caveats on the above:- it is not advice, just my thoughts/opinion, etc. I hope this helps and best of luck with your research.