Retired with super? It’s probably going to the taxman instead of your kids
They say there are only two certainties in life: death & taxes.
You clever retirees out there might point out that while death is a formality, super is 100% tax-free if you’re over 60. “’A-ha!”, you say.
While this is fundamentally true in your lifetime, let this statement sink in:
If you’re single or widowed when you die, up to 30%* of your superannuation balance could be lost in taxes… and you could have easily done something about it!
Now, I must fess up – it’s more likely to be a tax of 15% plus a Medicare levy as opposed to the maximum of 30%. Still, I think $15,000 out of every $100,000 going to the taxman instead of my kids (or other non-tax dependants) is an enormous cost that I’m keen to avoid.
Let’s concentrate on two key things; working out the size of the future problem & what can be done about it now.
How big is the problem?
This one is easy. Simply ask your super provider to break up the taxation components of your superannuation balance. Your balance will always be broken up into 3 parts:
Super Taxation Component |
Problem Category |
Tax-free |
No problem |
Taxable (taxed) |
Big future problem |
Taxable (untaxed) |
Huge future problem |
Suppose your super asset mostly grew due to employer contributions, salary sacrifice & investment growth over your lifetime (which is most of us). In that case, most of your asset likely falls into the ‘big problem’ category.
Hey! Get your hands off my super taxman!
I will avoid getting too technical in this article and instead concentrate on three key facts.
- Implementing a ‘re-contribution strategy’ is a great way to solve this problem. It could convert as much as $440,000 of superannuation ($880,000 for couples) from a taxable problem to a tax-free haven every 4 years.
- Historically, there have been strict criteria on who could qualify for the re-contribution strategy, but this became easier on 1 July 2022, particularly for individuals (or a member of a couple) under age 75.
- The longer you leave this problem to fester, the harder it is to solve.
In practice, a re-contribution strategy is a brilliant, quick and easy strategy to ensure that super is tax–free for you AND your beneficiaries – the paperwork isn’t even that hard! However, the rules are a little tricky to navigate. So, suppose you identify a problem that can be solved (which is likely). In that case, this is one to raise with a financial adviser who specialises in retirement & superannuation.
*Based on a taxable (untaxed) element and excluding a Medicare levy.
Any advice on this site is general nature only and has not been tailored to your personal objectives, financial situation and needs. Please seek personal advice prior to acting on this information. Any advice on this website has been prepared without taking account of your objectives, financial situation or needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.
