Funding Your Retirement by Max Newnham

Author:Max Newnham
Language: eng
Format: epub
Publisher: John Wiley & Sons, Ltd.
Published: 2011-05-03T16:00:00+00:00

Using the original home loan to pay off $35 000 in their other debts, or taking out a new loan for $196 000, can increase disposable income, and generate extra cash flow for investing of $536 a month. Using $300 of this additional cash flow to increase or start salary sacrifice into super would achieve a monthly increase in super of $438 if the person is on the 30 per cent tax rate, and $488 at the 37 per cent tax rate. Taking into account the 15 per cent contributions tax, and an earning rate of 6 per cent for the super fund, after 15 years a person on the 30 per cent tax rate would have increased their super by almost $104 000; at the 37 per cent tax rate, they would have increased their super balance by almost $116 000.

If $200 of the extra cash produced were used to increase the home loan repayment to $2073 a month, the home loan would be paid off in 12 and a half years instead of 15 years.

For this strategy to work, a person needs to prepare a detailed domestic expenditure budget and, if impulse buying resulting in excessive credit card use is identified as a problem, all but one of the cards should be cut up and it should be left at home.

Consolidating your superannuation

A person who has worked for several employers over their working life can end up with several super accounts in different funds. Some of those super funds may even be the old style of commercial fund that pays commissions and so has very high administration fees.

In this situation, review all the super funds, and work out which has the best combination of low fees and insurance premiums, and high returns. Roll all the other super accounts into this one. Super funds are often only too happy to help you roll over money from other super funds. If you are unsure about which of your super funds is the best, you should seek professional advice.

Splitting superannuation with a spouse

Under the current super laws a person can split their super with a spouse who is under 65 and not retired. Up to 85 per cent of their yearly super contributions, made by their employer (including salary sacrifice contributions) or as self-employed super contributions, can be split.

There are three reasons why this can be a powerful strategy for people. The first relates to the fact that a person must meet a condition of release to gain access to their super. This means if one partner is working, and they are under 65, they must either retire or resign from an employer to gain access to their super.

The second reason is that each partner, if they have not reached age 60, has access to a tax-free lump sum payment from their super which is currently set at $160 000 when they meet a condition of release. For many couples, if one has not been working or has been working part-time

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