It seems that from the moment we start working, many of us are thinking about what we’ll do when we retire. We’re thinking that the years we’ve spent working away at our jobs have earned us the right to sit back and enjoy cocktails on a tropical island (or whatever your retirement dream is).
But the current economic landscape coupled with worrying statistics relating to wage growth, home affordability and life savings – it might be seeming more like a dream than reality.
So while the life expectancy of Australia’s ageing population has increased, the age for expected retirement has not – many are still thinking 55-60 tops.
This can be extremely troublesome for baby boomers (those born between 1946-65) in particular, as while many over 55’s believe they may be on track for an early retirement, the harsh reality is likely to be most won’t be able to afford it.
Plus the government is helping that along by constantly contemplating moving the age of access to ‘retirement’ funds (AKA super) for Gen X’ers to 70 (pensions are already only accessible for Xers at 67). Currently you can’t access your super until age 60 (if you were born after 1964).
So you’ll need to be independently wealthy if you want to ‘retire’ at 55. More on how to achieve that in another blog post.
But there are some more recent changes that might help those in or about to hit retirement. After July 1, 2018 the government will allow those over the age of 65 (that are eligible) to make a contribution of up to $300K from the proceeds of selling their homes into their super (even if the individual’s super balance is higher than $1.6M – which let’s face it is only around 4% of Australia’s population). AND it applies to both spouses – so each can contribute $300K to their super.
As with all things financial and ATO related, the devil is in the detail. What are those details?
- You must be 65 years or older
- It’s for contracts exchanged on or after July 1, 2018
- You (or your spouse or both of you) must have owned that home for at least 10 years
- You can only use it on the sale of one home
- Your home can’t be a caravan, houseboat or mobile home
- You must have filled in the correct form and lodged it with your super fund (there’s always a form for these things)
- You must make the downsizer contribution within 90 days of settlement (of course the ATO has the potential to grant extensions here, but it has to be for circumstances outside your control).
Now you might be wondering why you’d do this? It’s your home – the cash asset tied up in your home is often capital gains tax free (for your primary residence as long as you’ve not used it as a rental property or otherwise claimed tax deductions for it). Well, again with the ATO, there are swings and roundabouts.
Your $300K (or $600K as a couple) will count towards your Centrelink benefits asset assessment – which might see your benefit reduced. But on the other hand if you put all your cash into an investment account, technically you’re likely to be paying tax on those returns. Whereas inside super, no tax is payable on those funds. So you have to figure out what’s going to make the most financial sense for your and your spouse.
And that’s where we can help. If after reading this, you’re thinking you might need to reconsider the tax implications of your current retirement plan, we’d love to discuss it with you further. You can call us on 02 6023 1700. Or drop us a note via the form below.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.