Timing your retirement to increase entitlements

As we’ve noted already, there was a huge focus on superannuation in the last week of the election campaign, in particular, the change in the ‘downsizing’ rules. This proposal would mean that those wishing to put extra money into super, from the sale of a home, can do so from age 55 rather than waiting until they are 60. Previously this strategy was available only to those aged over 65 although it was set to fall to age 60 on 1 July 2022.

The new policy was announced by outgoing Prime Minister, Scott Morrison at the Liberal National Party (LNP) election launch. And quickly endorsed by (then) Opposition Leader, Anthony Albanese on behalf of the Labor Party. At the time of writing it isn’t clear if the Labor Party will achieve an outright majority.  If a minority Government is the case it will take time to understand if the legislation to lower the age of these so-called ‘bring forward’ provisions can proceed through both houses of parliament.

Despite the huge coverage, this aspect of superannuation is just one of the full suite of options available when it comes to accessing or contributing to super and using these savings to fund your retirement in the best way possible.

A quick recap. The Retirement Essentials series on the five pillars of retirement wealth covers:

  • Age Pension and the importance of being Centrelink Savvy
  • Family home
  • Superannuation
  • Private savings and investments and
  • Income from work.

The topics have been ordered to consider each of the individual pillars according to overall importance and the likelihood that most retirees will have access to that pillar.

The Age Pension is the most common form of retirement wealth, closely followed by equity in the family home so we looked at them first.

This week we explore superannuation as the next highest source of wealth.

But it is important to qualify this statement.

Whilst the median equity in a family home for the majority of retirees is much higher than the median holding in superannuation at retirement (approximately $750,000 median home equity versus approximately $250,000 median super savings), it is the more liquid assets in super that do the heavy lifting when it comes to retirement income.

Put simply, whilst wealth in the family home might be accessed and there are mortgage strategies which may help with Age Pension maximisation, it is usually the establishment of an income stream from super savings that funds or complements funding of your retirement.

So put simply, after the Age Pension, superannuation is the most important source of income for retirees.

There are a lot of misconceptions about superannuation. So today we are exploring five things you may not have known about your super – or that it would benefit you to check.

First, however, it is useful to understand the way that superannuation and the Age Pension are inextricably linked. Whether or not you receive a pension, the amount you hold in savings in superannuation has an effect on your current and future eligibility.

Yes, too much in super may mean you fail the assets test and therefore do not qualify at all.

But even if your super and other assets combined are under the assets threshold for the Age Pension, the income that your super is deemed to earn will also have an effect on whether you are above or below the income threshold.

As many retirees have learned, there is a very delicate balance between superannuation and Centrelink rules. And quite a few exceptions or rules that can be used to your advantage if you know them and how to apply them most efficaciously.

As with both the Age Pension and with your home equity, the way you either contribute to, or drawdown, your super is not a set and forget proposition. It is something that needs to be frequently reviewed for two reasons.

Firstly because rules about access to super can change frequently and keeping on top of these changes and using new rules to your advantage will ensure you are maximising your outcomes at all times. Secondly, because your own needs may change and there may be options which better suit these changing needs – for instance in the earlier stages of your retirement you may want to access lump sums for specific needs or projects. You also may wish to move super to a younger partner’s account to improve Age Pension entitlements. But 10 years later you may prefer more regular, modest withdrawals and the advantages of moving money to a younger partner may no longer be as beneficial as they approach Age Pension age.

In short, rule number one of super is to keep up to date with the rules.

And rule number two is to consider how these rules can be used to maximise your income. And if you feel that such considerations are too complicated, you can explore your super access options with a qualified adviser who is across all the rules and how they can work to your advantage.

What are the five things you will benefit from knowing and appraising on your own behalf?

  • Accessibility of super
  • Degree of control over investment choices
  • Levers you can change – Hidden/unrealised settings (insurance)
  • Downsizing legislation/bring forward rules (timing of large lump sums)
  • Partner legislation

Accessibility of super

It is a common misconception that money invested in superannuation is ‘locked up’. It is true that superannuation is a tax-favourable structure which means that before you reach preservation age you will be (tax) penalised if you access your super savings. But once you have reached preservation age there are minimum amounts you need to withdraw, if you put your money into an income stream such as an account based pension, but no maximum amounts, so you are not likely to be penalised at all. You also have access to immediate withdrawal as per your instructions. Many people hold large amounts in cash accounts (often at low interest rates) believing that this money is more accessible than their funds in super. This is a fallacy. Most super funds can and do pay-out according to your instructions within 5 days.

Degree of control over investment choices

Your super account is your investment. It is therefore subject to your wishes. Such wishes are often related to investment settings, which are based upon your goals and risk appetite. You can typically invest in cash if you are very conservative or in a more aggressive mix of assets including shares within super.  It is important to know your current settings and to feel comfortable that they are aligned to your goals and appetite for risk. You are in control of these levers. Learn more about risk assessment here.

Other super settings

It is quite common to check the fees your fund is charging you (including the running costs of your Self-Managed Super Fund if you have one), to ensure the management of your super account is comparable to others. There are many easy online tools to make such a comparison. But other ‘hidden’ fees (i.e. not highly visible) may include automatic life insurance, some of which you may no longer require if you are no longer working. Talking through your fee statement with your super fund makes a lot of sense. You will be far better informed and may well uncover some fees you wish to review and perhaps let go.

Lump sum management

The above mentioned ‘Downsizing’ legislation and ‘bring forward rules’ are a reminder that the lump sum decisions which face retirees as they reach preservation age, leave work or sell a property are big decisions requiring a thorough knowledge of all the current rules. For instance, despite the name ‘downsizing’ legislation, you do not actually need to downsize to qualify – you might buy a bigger, but less expensive house. But you do have to have lived in it for more than ten years. Much of the detail of superannuation is nuanced and requires a full understanding which takes in finance, tax, super and Centrelink complexities. There are strong benefits to be had from managing and timing withdrawals and contributions, but it’s important to make sure you are fully across all implications before you act.

Partner legislation

Those who are partnered may be able to avail themselves of extra strategies to maximise their super income if they are happy to manage their finances as a couple. One obvious example is the way that Centrelink views assets and how funds can be moved to the accumulation super account of a younger partner, with increased eligibility for the older partner as a result. Again, there is no substitute for understanding the detail before you go ahead and move the funds.

This brief summary only highlights aspects of superannuation that you may not have known about – or that may require further explanation so that you can more fully maximise your returns.

Most people find superannuation complex, so there is no need to judge yourself harshly if you too find the rules difficult to understand.

Retirement Essentials recognises the need for ‘plain English’ explanations and one-on-one support for your concerns about understanding and maximising your income options.

If you would like further information or support specific to your situation, it may help to book a consultation with one of our experienced financial advisers so that you can share any concerns and discuss possible options.

For some people superannuation is extremely important, but so to is the Age Pension.  Keeping an eye on your full, part  or possible future Age Pension entitlements is very important. You can do that on our free Age Pension Eligibility Calculator and adviser consultations can be used to ensure you are not going without your maximum possible entitlements.


Check Your Entitlements