Wednesday 17 February 2021

DW retirement funding via SMSF

DW decided to take 'early retirement' last year as she wasn't enjoying the workplace environment and decided to quit when they wouldn't allow her to continue working from home. Being retired meant that she was able to put her superannuation into 'pension phase' as she turned 60 this financial year, which means that a) her SMSF retirement phase account will now have a 0% tax rate applied, rather than the 15% tax rate that applies to superannuation in accumulation phase, and b) she has to withdraw at least 4% as a pension payment each year (the percentage increases as you get older).

She has around $420K in her SMSF account, so the minimum pension payment was around $16,800, but she agree that she wants to withdraw $2,000 per fortnight (she actually took out $24,000 in a single pension payment instead this FY). The SMSF pension income is not taxable.

After a month or so of hectic gardening, she decided that doing a bit of part-time work locally would actually be nice, so she found a local part-time casual job for three afternoons each week. Combined with the SMSF pension that provides her with sufficient income. It helps that I am paying the household running costs (grocery shopping, council rates and insurance on our house, water and electricity charges, and the running of our car).

She earns just enough each month to meet the minimum salary level to require SGL contributions into super by her employer, so she gets a small SGL contribution each month that will go into a notional 'accumulation account' in her SMSF. As her taxable income this FY will be below the cap for receiving the full government co-contribution into superannuation, I gifted her $1,000 a few days ago so she will be able to make an undeducted personal contribution into her superannuation this FY and qualify for the $500 co-contribution. Although it is a modest amount going into her super compared to the pension payments being withdrawn from her retirement phase account, it will help preserve her SMSF total balance and reduce her longevity risk (that her super will run out while she still needs to draw a pension).

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