Every so often the comment or a question left below my video might trigger a great and interesting topic of discussion.
But instead of just replying to the question, I might decide to create the full video as an explanation.
And I might do this for couple of reasons:
The answer is too long or too complex or might require looking at different scenarios
The answer might help more people, therefore makes sense to make it available to you all in a form of a video and not just replying to the question.
And that is exactly how this video got created.
Irene Hoimes wrote the following note:
Hi Katherine, I like how you explain points. I have a question?... say you're retired and in an allocated pension already.,
can you open up a 2nd super fund and use the 2nd as an accumulation fund? And at what age can you no longer contribute to any pension fund? Thanks
Well, thank you Irene, what a great question and as you can see it is impossible to reply in one sentence,
and most certainly I’m sure more people than Irene would benefit from understanding super and that part of the rules that I have never explained before.
My name is Katherine Isbrandt from About Retirement, I am certified financial planner, and you are watching AboutRetirementTV,
the place where you can find and learn all you need to know how to prepare yourself financially for a great retirement or how to improve it if you are already there.
So today we are talking about income streams and superannuation when a person has retired already
and what are the rules for those products from the legal stand point.
Let’s start from the beginning:
Superannuation:
The best place to start are my videos explaining basics of superannuation with one of the oldest:
What is superannuation? How does super work?
I have already created over 45 videos just on the topic of super, so lots of information available for you already.
But let’s review the contributions rules:
If you are below the age of 67, generally any type of the superannuation contributions are accepted by super fund,
subject to the annual contribution limits or what we call annual caps.
Before 2020-21 the age limit was 65, but there are two reasons for extending the contribution eligibility age:
1. We live longer, we work longer and because of this, we need more money in our super funds, to provides us with an income support for longer.
2. Making the contribution limit age equal to the Age Pension age,
as most people will try to match their retirement date with the time of becoming eligible for the Age Pension benefit.
The only exception to the above rule is the downsizer contribution that is only available for people aged 55 and older.
This is the allowance from the 1st January 2023, as the previous age limit was 60.
There is no maximum age for the downsizer contributions.
For people 67 until their 75th birthday, the contribution rules are a little bit tricky.
You can still add extra money as your personal post tax contribution.
If however you would like to add contributions as a salary sacrifice or personal where you can claim tax deduction, you need to meet work test.
I might explain this in another video though.
After you reach the age of 75, only mandated employer contributions and your downsizer contributions are accepted by super fund.
If you want to learn about the employer Super Guarantee (SG) contributions, this is the place to start: Concessional contributions to super - what is SG
If you want to understand the rules of the downsizer contributions I also have videos for you:
Downsizer Contribution to super – who can benefit and
Downsizer Contribution to Super for better retirement.
Just please keep in mind that those videos are already a year old, all the information is correct,
but from the 1st January 2023, the age eligibility has been decrease from 60 down to 55.
So those are general rules in relation to your age and your ability to contribute to your superannuation.
Once we get to the stage of wanting to stop working, often we look into moving the superannuation savings from that accumulation phase that is super,
to a pension phase, therefore some kind of an income stream, so we can start receiving an income to cover all our ongoing living expenses in retirement.
So let’s now see the rules of commencing an income stream from the age limits:
The general retirement age is still 65.
This is the time when you can do whatever you wish. Move your super to an income stream and start receiving a tax-free income payments,
make full or partial withdrawals from your super or leave funds in super altogether – it is all your choice.
But often people would like to retire earlier and have access to their super savings earlier.
Generally, there are only two options:
1. You are aged 60 – 65 and still working, your only way to access any money from your superannuation is with Transition to Retirement Pension,
but there are strict limits of your access to those savings – that is all explained in my video: Can I access super and continue working? TTR
2. You are aged 60-65 and you stopped working, therefore retired – then you have no restrictions to access your super savings,
you can make tax-free withdrawals, or you can commence an income stream.
There are number of videos already available to you explaining various forms of income streams in retirement.
So here we go, very fast overview of age limits of contributing and withdrawing from your super.
Based on the information I explained before, now it should be really very easy to answer Irene’s question.
If you are retired already, you can still open a new superannuation account, subject to meeting the age eligibility I’ve just explained.
As a matter of fact, as long as you are within the age range, you can decide how you wish to split your savings:
1. You can keep all your savings in super for as long as you wish, there is no rule that you have to move your funds to an income stream at all.
It would be a little bit silly though, considering that the pension account is 100% tax-free haven,
no income tax, no capital gains tax, no tax payable on your pension payments,
2. You can transfer only a portion of your super to a pension account and keep the rest in a super, if this is a strategy for you
3. If you already have savings in any kind of an income stream, so you have retired,
but you are within the allowable age to make contributions, you can always open a new superannuation account and make your contributions up to the limit.
4. If you have retired and you moved money to an income stream, you can then move money back to super if needed
5. If you already retired, there is no rule you have to have one income stream, as a matter of fact you can have as many as you wish,
which often I could recommend to my clients for the purpose of assets security, income protection, diversity or Age Pension benefits.
6. The same applies to your super, there is no rule that says that you can only have one superannuation account, you can have as many as you need.
Super funds advertise superannuation consolidation as a highly recommended strategy as you can save on your ongoing fees.
And sometimes it is correct, however often there are reasons why I would recommend more than one super account,
and that in most cases is for estate planning or tax reasons.
I hope Irene, I have answered your question, or maybe I managed to provide a little bit more helpful information.
If so, please LIKE this video and SUBSCRIBE to this channel not to miss any of my future videos.
For more best ideas for retirement visit my website AboutRetirement.com.au where you will find hundreds of articles
and videos on the topic of super, tax, retirement or government benefits such as Age Pension.
And while you are there sign up to my newsletter to be always updated with all the changes that can impact your retirement.
If you need to set up your retirement in the most effective and beneficial way, feel free to book a meeting with me.
On each page of my website there is a link to my calendar where you can choose the time that suits you for our meeting,
which could be in our office or online if you are not in Melbourne.
And now my recommendation for further watching with the first video: Can I access super and continue working? TTR
very important if you wish to have access to your super savings, but still continue working.
And the second recommendation is to learn about employer contributions: Concessional contributions to super - what is SG
Enjoy and I will speak with you soon, Bye