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We’re in our 50’s; do we pay off the home or save for retirement?
The big question we get from a lot of people that we meet in their mid 50’s – Do we focus our income to paying off our home or start contributing more into super for retirement?
While this can seem like a perplexing decision there is often a simple solution to be had. Why not do both!
Transition to retirement pensions (TTR) are not as widely understood as they should be. ‘TTR’ was introduced in 2005 to assist people reduce their work hours without reducing their income. These pensions do however also allow for a powerful strategy that can supercharge your superannuation savings.
Currently, from the age of 55 (this will be increasing incrementally until 2019) you are able to convert your superannuation ‘accumulation’ fund into an account based pension. The pension is beneficial as the earnings of your fund are no longer taxed at the 15% your accumulation fund is. Straight away your superannuation is growing at a faster rate being free from the earnings tax.
There are minimum amounts that must be drawn down from an account based pension; however this can actually assist you to build your savings faster. To keep your net income at the same level as it was before implementation of the pension you salary sacrifice back into your super fund. This money will be taxed at 15% going into super, not your marginal tax rate which is often much higher. Further tax savings and more savings into super.
The last thing left to do is to make sure you know where the income from the pension is coming from. Letting the growth assets run and effectively managing the cash account can ensure you have a good amount of control over your money regardless of what the markets are doing. A well managed portfolio inside super can assist you with having this control.
So with this strategy put in place, the additional contribution for retirement question is answered. With your net cash flow staying as it was beforehand, you can continue to direct your free cash flow to paying off that last bit of the home. Maybe you could even put some towards that holiday you’ve been dreaming of!!
To discuss your retirement plan with Mitchell or one of our consultants, click here for a complimentary property planning meeting.
Important note: While every care has been taken in the preparation of this document, Property Planning Australia Financial Planning (ABN 93 378 061 533, AFSL 234665) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.