What is ‘early-age’ retirement?
A key early-age retirement consideration is the funding of the lifestyle you anticipate in that phase of your life. An income/ cashflow source that alternative to your superannuation will need to be established. For the purposes of this article, early-age retirement is –
- leaving the workforce before you reach what is termed ‘the preservation age’,
- that is, the age when you can access your superannuation benefits (also termed a ‘condition of release’).
Superannuation access
You can only access your superannuation benefits tax-free when you are aged 60 or above. Concessional access is available to people from age 55. For those born after 1 July 1960, this access is not available until ‘up to’ age 60. Tax will apply to some superannuation benefits accessed between ages 55 and 60. There is likely to be a component that you will be able to withdraw tax free in that age range. Your preservation age determines when you can withdraw your super in a general, as of right, sense.
Absence of access to your super when retiring before your preservation age means you need an alternative financial fund.
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 –
- 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.
Financial advice from experts in their field
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 –
- phone our office on 07 3421 3456,
- or, at your convenience, use our linked Book A Meeting facility.
