Ask the Expert: ‘OK financially’ means different things to different people
Question 1
I am 66 and my wife is 65. We own our home and have approximately $150,000 in super. My question to you is, do you think that we will be OK financially? We have no other debts and own our cars.
You own your own home and have some super, therefore you are reasonably placed. However, it will largely depend on the amount of income you want or need in retirement.
Super Consumers Australia has recently published savings targets for retirees as shown below.
Source: Super Consumers Australia
For example, if, as couple homeowners, you only need a “low” income in retirement, they estimate this income figure to be $46,000 a year. To achieve that income, you need to have only $96,000 in super/savings. That is because most of your income (92 per cent) will come from the age pension.
If, on the other hand, you want a “medium” level of income, they estimate this to be $62,000 a year. You would need super/savings of $421,000 to achieve this as 70 per cent of your income requirements would be met via the age pension.
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For yourselves, once you attain age 67 you will receive a full age pension, and the same for your wife when she turns age 67.
The combined full age pension for a couple is nearly $45,000 a year. And you can top that up with tax free drawdowns from your super.
This should give you an income well above $50,000 a year, depending on how much you draw down and how long you want your super to last.
That is not a huge income, but you have no mortgage or rent to pay. Your age pension payments will also increase twice a year.
Whether you will be “OK” will depend on your expectations. Some people can live very comfortably on that income while others may struggle.
Question 2
I’m 62, retired, single, with $700,000 in super in pension mode. No other notable assets. I’ve just sold my townhouse in Sydney that settles in April.
I will clear approx $1.75 million, and probably owe $400,000 in capital gains tax, and set aside $500,000 for an apartment in far-north Queensland as my home. I’ve owned it since 2001 and it was rented for 17 years of that, the rest I’ve lived in it.
I think I’m eligible for a down-sizer contribution into super as it is partially capital gains exempt, though I’m struggling to get this confirmed. I’d like to maximise input into super. Does it matter what the timing is for down-sizer contribution, other than somewhere within 90 days from settlement date?
Also, what options are there to safely invest the money for capital gains tax and an apartment, so I don’t risk the capital prior to having to pay. Thank you.
It would appear that you have met the rules to make a down-sizer contribution. That is, you are over 55, you have held the home more than 10 years and for at least part of that period you lived in it as your main residence.
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All down-sizer contributions must be made to the individual’s super fund within 90 days after change of ownership. Change of ownership generally occurs at the date of settlement. You can apply to the ATO for an extension to the 90 days but only where a delay has been caused by factors outside of your control.
To maximise contributions to super, you can make the following types of contributions:
- Down-sizer – maximum $300,000
- Non-concessional (after tax) contribution $360,000 using the bring-forward rules
- Concessional contribution of $30,000
The concessional contribution involves contributing to super and then claiming a tax deduction on this amount. This will assist in reducing your capital gains tax liability.
If you know you have an upcoming tax liability in the short term, simply hold the funds in a secure high high-yielding online account that is easily accessible.
Question 3
My husband and I are in our mid-80s. We own our home. We each have a part-government pension. My husband also has an account pension (rapidly reducing), from which he draws down $4000 a month. I also own a rented house which brings in $350 a month. Plus we holiday rent a cabin at our home/property for approximately $1000 a year.
We have not submitted tax returns since we turned 60. Do we have any tax issues with this arrangement?
Your account pension is tax-free so that can be disregarded.
Rental income and age pension income are both taxable incomes. However, partnered senior Australians who earn less than $28,974 (2023/24 figures) are not required to lodge a tax return.
When/if you sell the rented house or holiday home, this will create a capital gain or loss, in which a tax return would be required.
While there doesn’t seem to be any tax liabilities to worry about, technically you might be required to submit a “non-lodgement advice” form to the ATO.
I suggest contacting the ATO or seeking advice from a tax professional to confirm.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
