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What to do with a major windfall
Retirement security: A good superannuation plan can help fund your dreams for the future.

What to do with a major windfall

Australian Catholic Superannuation and Retirement Fund regional manager ZILLA LYONS talks about superannuation and comfortable retirement.

MY friend Maxine was recently left a significant amount of money from her spinster aunt’s estate.

She already had a reasonable super account, as she had been a teacher most of her working life. Now that retirement was in view she wanted to maximise her options with the idea of retiring when she turned 65 on June 1, 2017.

Maxine had always worked and said she viewed retirement as reward time for a long working life. She had a few overseas trips in mind and intended to enjoy life in retirement with her husband Bob while they were fit and well enough to live their dreams.

I couldn’t argue with that and over a long lunch we discussed the joys and traps in travelling overseas and the simple pleasures of just taking time for ourselves.

Oh, the luxury of time, not having to rush anywhere as we do so often when we are working, probably more from force of habit than efficiency.

We agreed that life should be simpler, not more involved, as we needed time to enjoy family, friends and hopefully abundant grandchildren.

Inevitably, the conversation came around to funding this lifestyle and we both decided we needed to have significant financial resources to live our dreams, especially in the first twenty years of retirement.

Our desires for a simpler life also paralleled and Maxine said she would not bother with a self-managed super fund.

She had read a bit about these structures and realised that there was a significant time investment not to mention the liability on the position of Trustee, which she could not outsource, even though she knew she could hire the services of accountants and auditors for much of the financial management.

Maxine wanted a simpler option and thought the low cost industry super fund that had supported her savings for most of her working life would suit her just fine.

She had been to retirement planning seminars and knew a little about the benefits of superannuation and allocated pensions, but was hazy about any restrictions on getting money into and out of the super system.

 In fact Maxine, although 60, is already using an allocated pension in a Transition to Retirement strategy to optimise her salary sacrifice to super.

 In her plan she wanted to maximise her choices at retirement and knew that there were limits to the amount of money that could be contributed to super.

She knew that there should be no real disadvantage to contributing the maximum to super, as in an emergency she could access up to 10 per cent of her Transition to Retirement allocated pension without any tax burden applicable to the income.

She could also obtain lump sums at retirement since any allocated pension would then be fully flexible and would not be restricted to the 10 per cent maximum.

 In fact she would then have full control and could cash the entire pension balance out if she so desired.

Maxine had been satisfied with the tax- free earnings achieved in her allocated pension fund. Having no tax on earnings meant the allocated pension provided even better returns than the same investment option returned in the super accumulation account.

 She said it took her a little time to get used to having two super structures running concurrently while she was working – a super accumulation account, into which her salary sacrifice and employer contributions were being fed and the transition to retirement allocated pension from where she was receiving her income stream.

The inheritance received from good old Auntie Maud had placed Maxine in an enviable financial position and would provide a big boost to her superannuation savings, as soon as she worked out how to optimise contributions.

Maxine’s kids were off her hands, her mortgage paid out and they were free of debt.

She knew that the latest budget announcement meant that she could access the $35,000 concessional contributions cap.

As her teacher’s salary was approximately $80,000 and her employer offered an enterprise bargaining incentive to provide her with 12.75 per cent super contributions, then approximately $10,000 was already being contributed concessionally to super.

Maxine could contribute almost another $25,000 by salary sacrifice and promptly signed a new salary sacrifice agreement.

She jumped onto the super fund website, used the salary sacrifice calculator and revealed her new amount of take home pay.

Now to deal with Auntie Maud’s bequest and she thought long and hard about her options.

Maxine knew there was a non-concessional cap of $150,000 per year with the option of triggering a bring forward  rule to contribute up to $450,000 in one year then limit the residual to the resultant two years.

Maxine decided to make an after-tax contribution of $450,000 to super and knew that until  June 30, 2016 she could no longer contribute on an after-tax basis without exceeding the non-concessional cap and receiving a very painful tax office penalty.

Maxine would turn 65 in  2017 so she decided that in the financial year 2016/2017 she would again trigger the bring forward rule with a $450,000 lump sum deposit, being careful to contribute prior to turning 65. This would leave all options open.

She knew she could contribute to super and trigger the bring forward rule again prior to turning 65, whether she was working or not.

After her 65th birthday she would no longer be able to trigger this bring forward rule and furthermore she would need to satisfy a work test to contribute to super at all.

 Timing was important but the gold medal decision for Maxine was that there would be no tax incurred whatsoever on earnings or drawings from her nest egg of over a million dollars, once it was moved into allocated pension phase.

Maxine is happy with her super plan, and who wouldn’t be.

She knows she is lucky to feel so financially secure and thanks Auntie Maud every night in her prayers.

Maxine and Bob will have well over $1 million dollars within the super environment, so will probably be amongst the lucky ones whose retirement is self-funded, at least in the early years.

Her plans are no longer dreams and she is busy researching exotic destinations.

Retirement is in sight and although she loves her work she is eagerly anticipating the next phase of her life.

With money plans now in order, Maxine and Bob want to concentrate on measures to see that they remain as fit and healthy as they can be.

They want to live their lives to the fullest in the realisation that life itself is a gift, without guarantees for anyone, rich and poor.

Disclaimer: This superannuation column is for general information only. It does not take into account your personal objectives, financial situation or needs. As a result, you should consider its appropriateness to your own situation and obtain independent financial advice before making any decisions.

Written by: Emilie Ng
Catholic Church Insurance

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