I have three properties and $400k in super. Can I afford to retire?
Can I afford to retire? I will be 65 this year. I own my house as well as two investment properties, one of which still owes $130,000. Rental income is around $40,000 and my defined benefit pension should be $56,000 net annually. I have $400,000. Food etc. Our including household expenses are about $100,000.
You certainly seem to be in a solid position. I think a significant portion of the rental income goes towards loan repayments and property running costs, but I would estimate that around half of this will be available for you to spend.
On top of that, your defined benefit pension brings you to $76,000, which means you need to come up with another $24,000. If you were withdrawing this from your retirement fund, your withdrawal rate would be 6 percent, which is quite reasonable. If you need extra funds later in life, you can always transfer investment properties.
Of course, you should consult a financial planner who can do detailed modeling for you, but the basic information you’ve provided here shows me that retirement is possible.
How can I plan for retirement if I expect to work forever? I love working. I think I would be bored if I retired.
Well done, this is a great location. Most people don’t have a definitive retirement timeline. My approach is to frame your retirement timing as “having options.”
The best way to avoid death benefit tax is to live long and use your retirement benefits. That’s what it’s for.
Maybe you’re working to have a retirement option at 65. Crunch the numbers and understand what needs to happen to make this possible. Now when you turn 65 if things are going well both health and work wise, working from that point on is no problem, it’s just the icing. The beneficiaries of your estate will be grateful.
I retired last year and recently discovered that my adult children may have to pay taxes on my pension when I die. My fund says my balance consists of a tax-free component of $65,393 and a taxable component of $542,477. What tax are my children likely to pay and is there anything I can do now to reduce or eliminate that tax?
On your current balance, approximately $92,000 will be deducted from your retirement fund and the rest will be transferred to your adult children, assuming they are not dependents.
I very much doubt that a tax close to this amount will be deducted in practice. Because your balance today will not be your balance when you die. Hopefully, you have many more years ahead of you, and when those savings are passed on to the next generation, your balance will be much lower than it is today.
The best way to avoid death benefit tax is to live long and use your retirement benefits. That’s what it’s for.
Alternatively, most people experience a period of illness before they die. During this period, you can easily withdraw your remaining money in retirement and there will be no retirement balance on which tax will apply in case of death. This is just one of the reasons why it is important to have a Lasting Power of Attorney because you may not have the capacity to make withdrawals.
Depending on your age and contribution history, you may be able to implement a recontribution strategy that increases the tax-free proportion of your balance. You should explore this further with your financial planner.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
