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Early-age retirement considerations

What is ‘early-age’ retirement?

Amongst the early-age retirement considerations that need to be addressed when contemplating such a move, the consideration of funding the lifestyle you anticipate in that phase of your life is paramount to most. If you are thinking about early-age retirement you will need to establish an income/ cashflow source that is an alternative to your superannuation investment.

For the purposes of this article, early-age retirement is leaving the workforce before you reach what is termed ‘the preservation age’, the age when you can access your superannuation benefits: this is also termed a ‘condition of release’.

Superannuation access

You can only access your superannuation benefits tax-free when you are aged 60 or above. Whilst concessional access is facilitated from age 55 (or up to age 60 for those born after 1 July 1960), you may still be taxed on some superannuation benefits that you receive between ages 55 and 60, albeit there is a component that you will still be able to withdraw tax free.

Your preservation age determines when you can withdraw your super in a general, as of right sense. The regulated preservation age is age 55 if you were born before 1 July 1960; and phased up to age 60 if you were born after 30 June 1964 (refer Table linked above).

Simply put, if you want to retire before age 55 (or should we contain this to a reference to age 60 now?), you need a non-super pool to fall back upon because you cannot access your super on your retirement.

What tax effective investment options are available?

If you are saving for an early retirement, consider making investments for the longest-term practical in your circumstances. Even simple investment portfolio assets such as shares or equity-based managed funds that pay/ distribute franked dividends/ distributions can be tax effective, subject to your personal marginal tax rate. In appropriate circumstances, holding these investments in a properly structured discretionary trust could be beneficial.

Other investments options include, for example:

  • Tax effective investment products that have an ATO Product Ruling. You would probably be aware of the plethora of purported “tax effective investment schemes” in the marketplace. Be careful when deciding to invest in such a scheme and carefully assess the product disclosure information and the risks. It is a high-risk strategy to invest in one of these schemes unless they have an ATO Product Ruling: in these Rulings the ATO sets out the official view on the tax benefits that are available for investors and provides some protection from additional tax, interest and penalties. However, even if there is a product ruling, you will need to know whether the actual scheme is being carried out in accordance with the ATO ruling. If not, you are not protected from those additional taxes, interest or penalties.
  • Gearing investments. This can often be a more tax effective option than contributing to super. Borrowing to invest enables you to benefit from tax deductions for interest paid on the investment loan and also means that you have more capital available to invest. Of course, you will have to ensure that the returns on your investments in the long term will exceed you interest costs. A geared investment strategy magnifies the growth in improving markets, but also amplifies the fall in a declining market.

Our Financial Planners are available to consult with you to determine the most appropriate strategy for you to achieve your financial ambitions and goals for an early-age retirement – or indeed any major lifestyle transition that carries a financial cost. ‘We listen, we understand; and we have solutions’ that we deliver in ‘personalised, professional wealth management advice’. To arrange an obligation-free appointment with one of our team – at no cost for the initial meeting – Contact Us using the website facility, or call our office on 07 3421 3456.

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