Retirement Planning for Couples - Navigating Superannuation and Other Assets
Take a moment and imagine a picture-perfect retirement. It might be a sunlit patio overlooking the garden, weekend family visits filled with your children and grandchildren, a holiday you've always dreamed of, or simply the freedom to wake up each day and do what you love most. But how do you turn these dreams into reality? The answer is strategic retirement planning.
As a couple, this is not just about one future, but two futures intricately woven together. It’s a journey of mutual dreams and shared aspirations, supported by superannuation, other key assets, and even overseas investments. It's about building a safety net so secure that even if life throws a curveball, you remain unshaken.
So, let's embark on this empowering journey of planning your retirement. Whether you’re just starting or fine-tuning your existing plan, this guide will arm you with the knowledge and strategies you need. From understanding the nuances of superannuation to managing domestic and international assets, we’ve got it all covered. Let's unlock the door to a peaceful and prosperous retirement together.
Let’s start with superannuation
Understanding Superannuation: The Nitty-Gritty
Superannuation, often shortened to 'super', is more than just a regular savings account. It's your nest egg, your financial springboard into retirement. The Australian Bureau of Statistics states that over 90% of retirees rely on their superannuation for income. It's no small matter.
Contributions and Their Limitations
As a couple, understanding the ins and outs of super contributions is crucial. You and your employer make regular payments into this fund when you’re working in Australia, but did you know you can make additional contributions on behalf of your spouse? This is a particularly helpful strategy if one partner has a lower income or has taken time out of work. Not only will it bolster the lesser-earning spouse's super, but it can also provide a tax offset for the contributing spouse, if eligible. This would apply for those who are living and working in Australia.
But watch out for the contribution caps. There are limits to how much you can contribute to your super each year without having to pay extra tax. As of July 2023, the concessional contributions cap is $27,500 per year, and non-concessional contributions cap is $110,000 per year, or up to $330,000 under the bring-forward rule. Please check the current caps as they are subject to changes.
There is also the possibility of using the carry-forward concessional contribution cap, which can allow you to use up to 5 years’ worth of unused concessional contributions from the 2018/19 financial year if your super balance is below $500,000 on the 30th June. This can be a powerful tool to boost your superannuation balance, and significantly reduce your tax burden.
Super Splitting and Balance Transfer Cap
Super splitting is an often overlooked yet valuable strategy for retirement planning. It involves transferring super contributions from one spouse's account to the other. Why would you do this? Well, it could help you balance your super accounts, possibly increasing your overall retirement savings.
But there's a catch - the Transfer Balance Cap. It limits the total amount of super benefits that you can transfer from accumulation phase to the retirement phase, where earnings on the account are tax-free. As of July, the cap is $1.9 million, but do check the current limit. It is expected to continue to index (increase) over the coming years up to $2.3 million, but it’s important to keep an eye on this as it could have a significant impact on your retirement plans.
Once you reach preservation age and meet a condition of release, you can start an account-based pension or income stream. This strategy provides regular, flexible payments from your super account during retirement. It's a good way to structure your income after you stop working.
The value of your pension account will depend on the investment returns, how much you draw down, and how long you live. Bear in mind that it doesn’t guarantee income for life. Hence, careful planning is essential to make sure your money lasts as long as you need it to.
Franking Credits: A Tax Bonus
Another aspect to consider is franking credits. These are a type of tax credit that allows Australian companies to pass on the tax paid at the corporate level to shareholders. Franking credits can significantly enhance the after-tax return of your share investments held in superannuation. They’re especially beneficial in retirement when your tax rate may be lower than the corporate rate.
As you can see, there's a lot to consider when planning your superannuation strategy as a couple. These details could make a significant difference to your comfort and financial security in retirement.
Navigating Other Key Assets
Beyond your super, it's likely you've accumulated other assets like properties, investments, and savings. Each of these plays a distinct role in your retirement plan.
Real Estate Assets
Your home isn't just where your heart is - it's also a valuable asset. Furthermore, if you have additional properties, these could generate a significant retirement income through rent. However, rental income isn't guaranteed; it's dependent on property market conditions and your ability to keep the property tenanted. It’s also important to consider the tax treatment of this rental income, as depending on the ownership structure of the property, this income will likely for part of your taxable income and therefore your net return may be lower.
You could also consider downsizing by selling your family home and buying a smaller, cheaper property. The surplus could then supplement your retirement savings. The Australian government's Downsizer Super Contribution even allows people, providing the relevant conditions are met to make a one-off contribution to their super from the proceeds of selling their home. This could be a useful tool for you to boost your superannuation savings.
If you have investments like shares, bonds, or managed funds, they too form part of your retirement portfolio. You might choose to sell these assets and put the money into your super or an account-based pension. Alternatively, keeping them can provide an ongoing income stream through dividends or interest. Again, it’s important to consider how these investments are structured and what the ongoing tax treatment would be.
Then there are your savings, accumulated over a lifetime of hard work. These are a secure, albeit relatively low-return, part of your retirement plan. It's essential to have a clear plan on how and when to use these savings for maximum benefit.
Overseas Assets: An Extra Layer of Complexity
Investment properties, shares, pensions, insurance bonds - these overseas assets add another dimension to your retirement planning. According to a report from the Australian Taxation Office, over 200,000 Australians receive overseas pensions and annuities, demonstrating the prevalence of such assets.
However, these overseas investments come with unique challenges. There are foreign exchange risks, double-taxation issues, and sometimes, complicated international laws. For instance, the ATO states that your foreign income may still be taxed in Australia, even if it was already taxed overseas.
It's crucial to familiarise yourself with the Double Tax Agreements (DTAs) Australia has with other countries. These DTAs can prevent double taxation and fiscal evasion. For instance, if you own a rental property in the UK, the DTA between Australia and the UK determines which country has taxing rights.
Investment Bonds – A tax-efficient retirement strategy
Investment bonds, also known as insurance or growth bonds, could present an attractive investment avenue for couples looking at retirement planning, especially from a tax perspective. The unique advantage of these bonds lies in the '10-year rule'. If you hold the bond for at least ten years, the returns you receive - including the entire growth component – could be tax-free, depending on the investment bond and provider itself.
Investment bonds can be a useful part of your retirement strategy, offering a blend of potential tax advantages, estate planning benefits, and flexibility. Remember, while these bonds could offer enticing benefits, like all investments, they come with risks and costs. Always consider your personal circumstances and consult with a financial adviser before making investment decisions.
Strategic Planning for Couples
Understanding your assets is one thing, knowing how to strategise is another. Here's where your planning prowess comes into play.
Transition to Retirement (TTR) Strategy
A TTR strategy can help you work less without reducing your income or boost your super before full retirement. You start by moving your super into a TTR income stream while still working and contributing to super. You can then use the income stream to supplement your income if you reduce your work hours or boost your super by using the income stream to fund additional super contributions.
Balancing Retirement Savings Between Partners
It's also a valuable part of the overall plan to balance super and other retirement savings between partners. This might involve making spouse contributions or splitting super contributions, as mentioned earlier. By evening out your balances, you could reduce tax on super death benefits paid to non-dependents and increase the amount you can hold in tax-free retirement phase pensions.
Maximising the Age Pension
Your assets, both domestic and overseas, and income will affect how much Age Pension you're eligible for. Strategies like gifting within limits, asset test exemptions for some income streams, and waiting for an inheritance or lump sum until after you start the Age Pension can help you maximise your benefits.
The Role of Financial Advisers
Given the complexities, professional advice can be invaluable in retirement planning, especially when overseas assets are involved. An adviser can help you navigate tax laws, asset structuring, and develop a personalised retirement plan based on your financial situation and goals.
As a couple, planning for retirement involves understanding and strategising your superannuation, domestic assets, and overseas investments. It might seem complicated, but with proper planning and potentially professional advice, you can aim for a secure and comfortable retirement.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.
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