Parking your money the smart way

By Noel Whittaker

Navigating superannuation and the financial intricacies of retirement can be challenging. Let’s delve into some common queries about these matters, which many Australians grapple with.

Accumulation vs. Pension mode: what’s the verdict?

At 70, earning $110,000 annually and with $550,000 in super in a balanced fund, one might wonder if leaving their money in accumulation mode is a missed opportunity. I recently came across this query, and it’s essential to note that it’s not that straightforward.

Accumulation mode has a 15% tax, whereas pension mode enjoys a zero tax. However, with the latter, there’s a catch: a compulsory annual drawdown, which would be 5% (or $27,500) for someone at 70. The perk of accumulation is the absence of these obligatory drawdowns.

Therefore, it’s about doing the maths and weighing up the pros and cons. Would the higher return on the remaining balance ($522,500) outweigh the potential tax from any withdrawals? One could also consider re-contributing any withdrawn amount back into super to maintain the fund balance.

Debunking retirement village costs

The sale of a Lendlease retirement village unit brought to light some hefty exit fees and other charges, causing some to reconsider their future living arrangements. But are these costs standard?

Rachel Lane, an expert in the field, affirms that a 30% exit fee plus $100,000 for refurbishments and selling is typical for residents of 10+ years. These exist because retirement villages often avoid charging the full price upfront. Additionally, legislation ensures that operators don’t profit from monthly service charges.

Land Lease Communities (LLC) are an enticing alternative, devoid of exit fees, stamp duty, and council rates. However, homeowners within LLCs have their own set of obligations, such as home maintenance. Some retirement villages also offer payment plans with no exit fees. While these might exclude capital gains, they might expedite buybacks and eliminate associated costs.

When considering retirement living, it’s vital to assess rights, responsibilities, and costs. It’s not just about potential capital gains but also about other associated costs and commitments.

Understanding tax, deeming, and income

One retiree raised a concern about term deposit income and how it appears to be counted twice: once in deeming and again in income. However, there’s no double counting. The deeming rate, which is a hypothetical rate used to calculate age pension entitlements, considers financial investments but doesn’t account for the actual income. The tax scenario is a separate entity and has no connection to Centrelink.

Rolling over super funds and monthly payments

An individual raised a concern about rolling over some funds to reduce the monthly drawdown payment. However, a delay meant the drawdown payment was larger than anticipated.

John Perri of AMP Technical clarifies that if a withdrawal request is made before June 30 but executed after, like on July 3, the fund is justified in using the July 1 balance to determine the minimum pension. For those facing similar issues, it might be worth discussing further with the fund or even considering rolling over to another provider to recalculate based on the updated balance.

Navigating superannuation and retirement finances can be intricate. But with research and perhaps some expert advice, Australians can make informed decisions tailored to their individual needs.

As a financial expert and author of Downsizing Made Simple, I always advocate for staying informed about changes that directly affect your financial well-being. 

Stay tuned for more updates and tips on how you can navigate these changes effectively.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

The original article featured in the Sydney Morning Herald on 6 September 2023

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