P
eople approaching retirement are
urged to pack as much money into
super as they possibly can. Once
retired, the argument goes, you will have
missed the boat and no longer be eligible
to take advantage of super’s generous tax
benefits. But the reality is you can have a
significant amount of money outside super
and still enjoy tax-free earnings.
Thanks to the tax-free threshold and the
seniors and pensioners tax offset (SAPTO),
singles can earn up to $32,279 a year tax
free while a couple can earn up to $28,974
each, or $57,948pa combined.
“You could have a million bucks outside
of super and not pay tax on earnings,” says
Colin Lewis, head of strategy at Fitzpat-
ricks Private Wealth. “That’s why I always
say you don’t have to have every single cent
in super to have a tax-free retirement.”
There are other benefits, too. In an
emergency, it’s quicker and easier to access
cash from a bank account than it is from
super and you can also get higher interest
rates for cash and term deposits outside the
super environment.
“If you are past the ability to put money
into super, it’s not the end of the world,”
says Claire Mackay, an independent finan-
cial adviser at Quantum Financial. “We
always say to people, you should have
an amount outside of super that you can
access and that gives you comfort.
“All your financial investments get
deemed for Centrelink purposes, so it
doesn’t matter whether it’s in super or not.
So you might end up saying, ‘Well, my
defensive component is X amount, and I
will keep that outside of super.’ ”
It means you can avoid a fire sale of
super assets in the event of an emergency,
says Lewis. “If you have all your funds tiedup in super investments and you have a
downturn and you suddenly need cash, you
would have to sell an asset at the wrong
time. You’re better off having that cash
buffer outside. You don’t know when an
emergency will arise.”
Mackay says people should use super to
optimise their tax position and not simply
leave everything in cash. “If it’s a sizeable
amount, if it’s more than what you want in
your cash kitty, then don’t just sit on it. You
do need to think about how you invest it.
The beauty of putting money into super is
that someone else is making sure it’s being
invested for you and growing for you. You
wouldn’t want to keep it in cash forever.”
There may be other situations where
funds are better kept outside super.
“Since the introduction of the transfer
balance cap, you can only have a maximum
of $1.6 million in super when you move into
retirement phase. What do you do with the
balance if you’ve got more than that? Do
you keep it in the accumulation phase or
take it out of super altogether? In accumula-
tion you are paying a maximum of 15 cents
in the dollar in tax, but if you take it out you
might not pay any tax at all,” says Lewis.
Death taxes on super are another consid-
eration, he says. “If the benefit goes to an
adult son or daughter the taxable compo-
nent is taxed at 15¢ per dollar plus the 2%
Medicare levy. It can be up to 17¢ in the dol-
lar that they will lose. People need to start
thinking, ‘Do I pull it out of super and invest
it?’ It’s still going to be tax free because I’ve
got those tax-free thresholds and I’m not
passing the death tax onto the kids.”
Clearly this is an area where professional
advice is critical. Once you’ve pulled mon-
ey out of super, you may not be able to get it
back in, so the stakes are high.Enjoy the best of
both tax-free worlds
Make the most of the generous concessions by
investing your savings outside super as well
SUPER Vita Palestrant