Planning early-age retirement, funding?
Early-age ‘retirement’ funding will be on the mind of some readers, it appeals to those with
- health issues,
- family/ dependant-support (carer) responsibilities, or
- the ‘financially-able’
all come to mind.
Retirement at an early age may necessitate establishing an income source that is an alternative to your superannuation. This won’t be an issue for the already independently wealthy, and less an issue if super is accessible. This may be supplemented in appropriate circumstances, by Centrelink benefits. If the circumstances preclude that government support, self-funding is necessary.
Early-age retirement funding can be ‘tricky’ before you reach your superannuation preservation age. This is the age when your super benefits become accessible to you. See more on ‘preservation age’ below. Non-super investments are a likely requirement to provide for your financial needs in the interim.
Subject to the superannuation ‘rules’(1) superannuation benefits are tax-free for those who have attained their preservation age. The extent to which fund earnings were taxed when contributions went into the fund, tax may apply at early access. Note: Tax may apply to some superannuation benefits drawn between age 55 and 60. There is likely to be a component that you will still be able to withdraw tax free in this phase.
These superannuation rules pose the question: When can you access your super?
Superannuation preservation age:
Your preservation age generally determines when you can withdraw your super. The preservation age establishes one of the ‘conditions of release’ of superannuation monies. Your preservation age depends on your date of birth. It will be –
- age 55 for those born before 1 July 1960; and
- phased up to age 60 for those born after 30 June 1964.
A table showing the phased ages based on birth years is published on the ATO website: it is linked here.
Accordingly, if you want to retire before 55 you need a pool of non-superannuation funds to subsidise early retirement. As noted above, if you were born –
- before 1 July 1960 the earliest you can plan to retire, relying on your superannuation benefits, is age 55.
- after 1 July 1960 the earliest you can rely access to your super savings phases in over 5 years. It could be up to age 60.
So what are some tax effective investment options available to you now?
If you are saving for an early retirement, consider making investments for as long a term as possible. Even plain vanilla investments such as –
- shares or equity-based managed funds
- that pay/ distribute franked dividends/ distributions
- are tax effective under legislation current at the time of publishing,
for higher income earners, since you will only be paying the ‘top-up’ tax – up to your marginal tax rate.
You may be able to invest through structured entities that are taxed concessionally on income they generate. This will also apply to any Capital Gains generated during the term of ownership of invested assets. These can include self-managed entities such as discretionary trusts. They can also include the use of Bonds where the investment term is sufficient to optimise the tax benefits. (Early-retirees experiencing certain ‘incidents’ that result in an insurance payout might have a particular interest in this strategy.)
Other investments options include, for example:
Tax effective investment products (that have an ATO Product Ruling).
Readers may be aware of a range 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 very risky to invest in one of these schemes unless they have an ATO Product Ruling (PR).
The PR sets out the ATO’s view on –
- the tax benefits that are available for investors and
- provides you some protection from increases in tax and interest and penalties.
Even with a PR, you will need to ensure the actual arrangement is implemented in accordance with the ATO ruling. If not, you may not be protected from additional tax, interest or penalties.
These schemes tend to operate in the fields of agribusiness, property and shares (or their derivatives).
Gearing investments
This can be a more tax effective option than contributing to super. Borrowing to invest enables you to access deductions for interest paid on the investment loan whilst providing more investment capital. You will have to ensure that the returns on investments made in this way will, over time, exceed interest costs. Be alert to the fact that whilst gearing can magnify the return on investment, it can also magnify capital losses. These can be cruel in a ‘down-turning’ market. A Note of Caution: an appropriate investor risk profile should be affirmed before entering into this type of investment strategy.
Wanting more information about potential strategies to achieve early retirement?
Continuum Financial Planners Pty Ltd has experienced advisers available to help you determine the most appropriate strategy for –
- achievement of your financial security goals, whether they be
- that early retirement, or
- any major lifestyle transition that carries a financial cost.
To make an appointment with one of our team –
- phone our office on 07 3421 3456, or
- at your convenience, use the linked Make A Booking facility.
(1) Superannuation rules are set under the Superannuation Industry Supervision – or SIS – legislation.
‘We listen, we understand; and we have solutions’ – that we deliver in personalised, professional wealth management advice tailored to your best interests and needs.
(This article was originally posted by us in July 2011. It has has occasionally been updated/ refreshed, most recently in January 2025.)