Bernie's Blog (4)

Access to super

Bernie, I am 59 and want to access some of my super to finish the home we are building. How can I get it? Mary, Castelreagh.

Well Mary, Superannuation is a structure set up by the government to encourage people to provide for themselves in retirement.
The Superannuation system lets you save money for retirement and earnings are taxed at 15%. Being 59 means you can access your money if you are retired. If you are still working, you can only access your unpreserved money (if you have any) or access your money as an income stream, with a maximum of 10% of the balance being paid to you each year.

Now, be careful to consider how much tax is payable as you are 59! When you turn 60 you will pay no tax on any money that comes out of super, but until then, any lump sum withdrawn may be subject to tax. It sounds silly but generally, the first $160,000 of the taxable component is tax free.

Under age 60, the income you draw will be taxable and will come with a tax offset (formerly called a rebate) of 15%.

So , as always with super it is a little complicated. In summary, if you are retired you can probably get all of your super and if not you can get 10%. The other thing to consider is that the particular super fund you are in might have product rules that are different to the legislation……so meet with a financial planner to get tailored advice before you make any decisions and make sure you are considering your longer term needs as well.

Bye for now,

Bernie

Question.

Bernie,  I have a question about super. My husband and I run our own businesses (one each in fact).  Do we really need to have Super ?   Is it compulsory?   Brian and I don't really see the benefit of having it at all.   What if we put a certain amount of money away monthly in the bank and call it super?   At the end when we retire, we can have that money back plus interest. Wouldn't that be better?    Tracey – Fairfield.

Well Tracey,  you are not the first small business owner to ask me that!

Paying superannuation is compulsory for your employees.  If you and your husband operate your businesses as sole traders or in partnership (with each other or other people) then you are not employees and do not have to pay super for yourselves.  If you are employees of a Pty Ltd company then it is compulsory to pay for you as well as other employees.

Superannuation is simply a trust structure that is taxed quite favourably.  The best way of describing it is to consider a self managed super fund (SMSF) that you could set up for you and Brian.  You could make contributions to the SMSF and if you claim a tax deduction for it, these contributions will be taxed at 15%.  This is better than 30% or higher if your businesses are actually making some good money.  Once in the fund the earnings will only be taxed at a maximum of 15% and you can put the money in a bank account and earn the same rate as you would if it was outside of super (and the interest is getting taxed at a lower rate).  The only catch  is that you cannot spend the money until you are over 60 (assuming you were born after 1964).  You could also invest in shares or property or other investments being careful not to break the rules.

So it all depends how well your businesses are going.

If you are not making much money then you will not be paying much tax and there will be not much point in putting money into super where you can’t touch it till you are much older.  If on the other hand your businesses are making plenty of money and you think you are paying too much tax then it makes a lot of sense to put money into super (saving tax), get taxed lower on the earnings and then get it back tax free later.

You see, the government rewards you with lower tax if you promise to save it till later.  I hope your business is going well and if it is then super makes sense.  You mentioned putting it in the bank and it is interesting to see that a lot of super funds now offer term deposits inside super.

So either shop around to find one of those, consider a self managed super fund or find a professional advisor that you can trust.

Thanks for a great question,

Bernie

Bernard Fehon is a Certified Financial Planner and Managing Director of Tactical Solutions

Bernard Fehon and Tactical Solutions are Authorised Representatives of AMP Financial Planning AFSL 232706