Reviewing Your Assets, Structures, and Estate Planning
It is important to plan for retirement, as it requires strategic thinking and careful consideration. This is especially true when you are getting closer to retiring. Many people believe that retirement planning is just about building up a nest egg, but the truth is that the transition from work to retirement requires a more comprehensive financial review. Understanding your assets, your investment strategy, and your long-term goals is key. This third part of the Transition to Retirement series (TTR) explores critical steps that you can take to make sure your financial future is secure and organised as you approach retirement.
Marco Mellado, an investment expert, offers valuable insight on the assets that individuals should review during this time of transition. This includes superannuation and shares as well as property. He discusses how to evaluate the structure of your assets, including whether they’re in your name or a trust. This can have a significant impact on tax planning, retirement income, and estate planning. Marco stresses the importance of reviewing estate planning documents, such as wills, powers of attorney, and beneficiary designations, to ensure that your wishes are clearly expressed and your loved ones are protected. You can prepare yourself for a more comfortable and confident transition to retirement by reviewing these areas.
1. Reviewing Your Assets
One of the key steps in planning for retirement is understanding the full scope of your assets. While many people focus solely on their superannuation balance, it’s essential to consider all investment assets that can contribute to your retirement income. These include:
- Cash in the bank
- Investment properties
- Term deposits
- Shares and managed funds
It’s important to assess whether these assets are well-placed to serve your needs in retirement. Some key considerations include:
- Liquidity: Can you easily access funds when needed? For instance, an investment property might provide rental income, but if you need a large sum quickly, selling the property may not be a convenient option.
- Returns: Are your investments generating sufficient returns to support your lifestyle in retirement?
- Tax implications: Moving assets into superannuation can offer tax benefits, but it’s crucial to understand any tax liabilities before making changes.
A thorough review of your assets can help ensure they are aligned with your retirement goals and structured for maximum efficiency.
2. Reviewing Your Structures
For those who own businesses or have structured their finances through companies or trusts, it is important to evaluate whether these structures remain beneficial in retirement. Many individuals may have:
- Self-Managed Super Funds (SMSFs)
- Trusts (such as family trusts)
- Private companies are used for investment purposes
As retirement approaches, consider whether these structures continue to serve a purpose or if they add unnecessary complexity. If they no longer provide advantages such as tax efficiency or asset protection, it may be time to wind them down and consolidate assets into superannuation or personal ownership.
3. Reviewing Your Estate Planning
Estate planning is a crucial but often overlooked aspect of retirement preparation. Key areas to review include:
- Wills: Ensure your will is up to date and reflects your current wishes.
- Powers of Attorney: Have a legally designated person to make financial and medical decisions if you become incapacitated.
- Superannuation Beneficiary Nominations: Superannuation does not automatically form part of your estate. Ensure that your super fund has the correct binding or non-binding nominations to direct funds to the right beneficiaries.
- Trust and Company Succession Planning: If you hold assets in a trust or company, clarify how these will be managed or distributed upon your passing.
Proper estate planning ensures that your assets are distributed as per your wishes and reduces potential tax burdens for your beneficiaries.
Common Questions About Retirement Planning
How much money do you need to retire comfortably at 60?
The Association of Superannuation Funds of Australia (ASFA) suggests that a comfortable retirement requires about $700,000 for an individual or $1,000,000 for a couple at age 67. Retiring at 60 may require an additional $100,000–$150,000 due to the extra years of retirement funding needed.
When can you access your superannuation?
- At 60 and still working, you have limited access through a TTR pension.
- At 60 and retired, you can access your super tax-free.
- At 65, you have full access regardless of work status.
What is a Transition to Retirement (TTR) Pension?
A TTR pension allows individuals aged 60–65 to withdraw up to 10% of their super balance each year while still working. At 65, this restriction is lifted, and the super balance converts into a regular retirement pension with unrestricted access.
Can you minimise tax on super payouts to adult children?
Yes. Re-contribution strategies allow individuals to withdraw their super and re-contribute it as a component that is not taxable, which reduces the tax payable by adult children who inherit superannuation. This can be a good way to reduce the tax burden on beneficiaries.
The ATO warns that while this is technically possible, it should not be used repeatedly or in a continuous manner, as it could be viewed as illegal access. This could be abused to gain unfair tax advantages if someone did it frequently, say every week during the year. The law does not intend this. The policy was intended to help people reduce their work hours gradually and transition to retirement. It is not meant to be used to minimise taxes.
They don’t want people using it like an ATM, and just accessing, accessing, accessing. And so- Can you do it once or twice? Probably yes. Okay. If it were a regular pattern, I think the ATO would be on to you.
Managing Savings for Grandchildren
When my grandchildren were first born, I started contributing monthly to a bank for them. Over time, my curiosity grew, and I wondered if there was any way to keep the money in a place they couldn’t reach until they reached an age limit. It was important to make sure the money was used properly and protected, not spent prematurely or without guidance.
How the account is set up will determine a lot of what you can do. You are the legal owner if the account is set up in your name, as a trustee for the children. The grandchildren cannot access the money in this case. They can’t withdraw it or manage it until either the account has been renamed or the funds have been transferred to an account that is theirs.
The children do not own or have control of the savings as long as they are under your trusteeship. You can give them the money as a cash gift when you think the time is right. You can still control when and how money is spent while ensuring that it will benefit the grandchildren over time.
What happens to your account when you die?
In your estate plan, it’s important to provide clear instructions that will direct the proceeds of the account towards the grandchildren whom you have left behind. This is especially true if the grandchildren are minors. Your will should specify who is responsible for managing the money on behalf of minors, as they are not allowed to handle large sums or receive them directly. Your money will be used in accordance with your wishes, and according to legal requirements, until your children reach majority.
A testamentary fund is often used to manage large sums of money. This type of trust can hold assets for beneficiaries until a specific period, like when they reach a certain amount of age. It may also include conditions such as allowing annual income payments while restricting capital withdrawals. Your will ultimately determines what happens to your assets after your death. It’s therefore important to plan well and make sure your estate documents reflect the intentions of your family.
How to Set Up a Testamentary Trust?
You should first contact the lawyer who prepared your will. You can update your estate plan to include a testamentary trust that reflects the wishes you have for your grandchildren. It’s vital to consult a lawyer if you haven’t already drafted a will. You can also discuss with the solicitor how you would like your grandchildren’s inheritance managed. The solicitor will then recommend the best trust structure for your will.
Tax implications of leaving superannuation with non-dependent children
Superannuation, no matter how it is left to the children, can have tax implications. Heather wanted to leave superannuation money to her adult kids, but was worried that naming them a beneficiary would mean they’d have to pay taxes as it’s part of their income. She asked if she should not name a beneficiary, so that her money would go into her estate and then given to her kids to avoid paying tax. The tax situation remains the same, however, because the taxable part of the super-balance is taxed before it reaches her children.
This tax is collected by the ATO before the child gets the money. The estate will save a little tax if the super is transferred. The overall tax result is the same, however, because the estate pays 15% of the taxable portion when the children inherit. To avoid superannuation taxes, you must withdraw the remaining balance before death and transfer it to a bank account. This allows the children to inherit cash. This option can have a significant impact on your income, eligibility for benefits, and financial security in the long term.
Should you buy a property or contribute to super?
It is natural to wonder if you should prioritise buying a home or making additional super contributions at age 60. With $175K of super and two expected inheritances, it’s understandable that you would want to make more super contributions. Although each individual’s situation will be different, key considerations include long-term financial stability, tax efficiency, and investment types that match retirement goals.
Superannuation can be a good option for retirement savings because it allows you to earn tax-free income once you retire, or at the age of 65. This can enhance the growth of your superannuation on a long-term basis. You can also have money outside of super because you can earn up to the threshold for tax-free income and get tax offsets. It is important when planning for retirement to think about the types of assets that will provide you with income, such as low-risk investments or shares. It is important to create a portfolio that offers liquidity and income during retirement.
Transition from Retirement to Tax Deductions
You can top up your super by adding additional contributions to your bank account if you’re still working full time and salary-sacrificing, but you don’t reach the $30,000 concessional limit. If you have a Transition to Retirement pension (TTR), these additional contributions are still considered concessional contributions as long as they stay within the cap.
If you are in this situation, it is possible to make a non-concessional contribution while claiming a deduction for tax purposes as long as your total concessional contributions don’t exceed the limit. You can increase your super balance while working and still benefit from the tax benefits.
Final Thoughts
Planning and reviewing your financial situation regularly is essential to a smooth transition into retirement. Auditing your assets and evaluating your financial structure, as well as ensuring estate planning is done, will help you optimise your retirement strategy. It is beneficial to seek professional advice in order to navigate these complex decisions and ensure that your plans are aligned with your personal goals and circumstances.
This discussion covered important financial strategies, including transition-to-retirement planning, superannuation, tax strategies, and estate planning. To ensure that your financial decisions are tailored to you, it is best to consult a financial planner. Watch out for our next conversation to learn more about this topic!
