Hey there, let's talk about a hot topic: should you manipulate your assets to qualify for the age pension when you have a substantial amount in super? It's a controversial issue that sparks debate among many.
The Age Pension Debate: A Complex Decision
A reader, let's call them John, finds himself in a unique situation. He's 67, working full-time with a good income, while his wife, aged 56, works part-time. They're mortgage-free and have a combined superannuation of $1.2 million. The question arises: should they adjust their assets to qualify for a part age pension, or is it wiser to maintain a robust financial buffer for the future?
John's wife leans towards the pension benefits, but he's cautious, believing they should keep a strong financial safety net. It's a tricky decision, and one that many retirees face.
The Entitlement Conundrum
John's initial take is straightforward: if you're entitled, you'll get it; if not, you won't. He's not a fan of financial maneuvers to gain a few extra dollars from social security when it's not truly needed.
However, the 11-year age gap between John and his wife presents an interesting opportunity. Any superannuation in her name won't count towards the age pension assets test until she reaches pension age. This opens up the possibility of transferring some of John's superannuation savings to his wife's name, temporarily improving their means testing for the age pension.
Tax Considerations and Retirement Planning
But here's where it gets tricky. Upon retirement, John's superannuation will be tax-free. If he shifts a significant portion to his wife's account for pension maximization, that transferred amount will be subject to a 15% earnings tax. The numbers need to be crunched, but the extra tax payable could outweigh the pension gained.
Equalizing superannuation balances between couples is a good idea, both for equity and considerations like the transfer balance cap. There might be a temporary pension benefit for John too once he retires, but he shouldn't orchestrate these moves solely for that reason.
Compensation and Taxation
John's SMSF is receiving over $80,000 in compensation from CSLR for poor advice. This payment will be taxed as income at a rate of 15% when it's received by the fund. It's important to consult with an accountant who can assist with the wind-up process and provide tailored advice.
Salary Sacrificing: Is It Worth It?
For someone earning $43,000 per year and looking at retirement in about a decade, salary sacrificing might not be the best move. Tax on income between $18,201 and $45,000 is 16%, and sacrificing money to super will be taxed at 15% upon arrival in the super fund. It's a minimal tax saving, but with the added drawback of losing access to that money until age 60.
A better option might be to make an after-tax contribution and take advantage of the government's co-contribution payment of $500.
Final Thoughts and a Call for Discussion
These financial decisions are complex and unique to each individual's circumstances. It's crucial to seek professional advice that considers your personal situation before making any financial moves.
And this is the part most people miss: financial planning is not a one-size-fits-all approach. What works for one person might not work for another.
So, what do you think? Should John and his wife adjust their assets to qualify for the age pension, or is it wiser to maintain their current financial strategy? I'd love to hear your thoughts and experiences in the comments below!
