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17 April 2007

What a difference a day makes to retirement: 'Pre-retirees must time their retirement carefully' says Westpac Financial Planning

When it comes to choosing a retirement date, a difference of one day could add tens of thousands of dollars to retirement savings, according to Westpac Financial Planning's Head of Technical Services, Aman Ramrakha.

"Anyone nearing age 60 or considering full-time retirement in the next few months should think very carefully about their age and the date on which they plan to retire," Mr Ramrakha said.

"With the superannuation changes to be introduced this year, there are serious implications to be considered for anyone planning to retire prior to 1 July, or before age 60.

"The savings can be significant. For example, for someone with super savings of $500,000, the decision to retire at age 60 rather than 59 could increase their lump sum payout by $38,866 or add an extra $3,600 a year to a pension," he said.

Table 1. Difference of retiring at age 59 or 60*

Lump Sum	Drawn at age 59	Drawn at age 60
Super Savings	$500,000	$500,000
Tax	$38,866	NIL
Resulting Super Pay Out	$461,134	$500,000
Financial Benefit of waiting until age 60		$38,866

Pension (income stream)	Drawn at age 59	Drawn at age 60
Super Savings	$50,000	$50,000
Tax	$3,600	NIL
Resulting Super Pay Out	$46,400	$50,000
Financial Benefit of waiting until age 60		$3,600

"The message is really a simple one - anyone planning their retirement should pause for a moment and be sure they are taking full advantage of the simpler super system."

Mr Ramrakha added that anyone nearing retirement who did not understand the super changes, or how best to structure their retirement, should speak to a qualified financial adviser about how they could retire with more.

Retirement Planning Checklist:

• If possible – wait until 1 July 2007 to access super.
• Can't afford to wait until 1 July 2007, or you are not yet 60? Take advantage of the current tax free threshold ($135,590). This allows those age 55 or over to take a lump sum up to this amount tax free.
• Consider a pension – still the most tax effective way to access your super.
• Consider using non-super assets to provide income until tax free super is available.
• Seek advice – make sure you understand how the new rules affect you and how you could retire with more.

• Superannuation components are $150,000 pre 1 July 1983 and $350,000 post 30 June 1983 – taxed.
• Tax on lump sum includes 5% of pre 1983 taxed at 46.5%.
• Tax free threshold is $135,590 (2006/07).
• Tax on pension is net of 15% tax offset and assumes no tax free component.