It’s a situation many of us in the Starts at 60 community have had to consider: when one partner retires first, will that leave you financially better off, or worse? How long should you wait to access it? Who should draw on their super, and when?
It may seem like an unwanted complication, but thankfully, in many instances, it can open up new and exciting opportunities you might not have otherwise had.
We spoke to Kurt Jorgensen, a financial planner with AustralianSuper, about what an age difference can mean for your future finance and retirement.
“There are always advantages to an age disparity,” says Kurt.
He believes there are three major factors to consider before an informed decision can be made: Access, Tax and Estate Planning.
This first step is a case of simply taking stock: find who is entitled to access their super, and when.
“Let’s say they’re a 50-year-old female and a 56-year-old male. Only the male has access to his super. So when considering ‘do we salary sacrifice to a certain spouse’, ‘do we do spousal splits’ or ‘do we move money between the spouses’, you’ve got to think: who can access their super?”
It’s also worth considering when each person will stop contributing. “If you’re over 65 and you don’t meet a work test, you can’t contribute to super anymore.”
“For example… the wife might be 63, the husband might be 67. They receive an inheritance or they sell their house. Unfortunately, unless he meets a work test, he can’t put money into super any more. So that’s a common error I see: people don’t understand contribution rules”.
“At 60, superannuation payments are in most cases tax free,” says Kurt.
So if partners are 55 and 60 years old, “it might be more beneficial to commence an income stream from the 60-year-old member, because it’s tax free from that source”.
“If you’re moving money into an older spouse’s name for tax purposes through spousal splitting, you’re going to have an immediate tax benefit once you start an income stream – more so than if the income stream came from your account”.
“It can benefit in the here and now, but it also benefits long-term as well, because a dollar today and a dollar next fortnight will accrue better over time than trying to get that same dollar in ten years’ time.”
“The hardest thing we try to convey is that you might not see the benefits immediately, but at the end of the financial year, you’ll have paid less tax; you’ll have had more age pension”.
This final factor is the most difficult to discuss: what happens to the super if one partner dies?
It all comes down to whether or not your fund offers anti detriment: an additional payment in which the tax office allows that money to transfer to a partner after death.
Some super funds pay it; some super funds don’t. Knowing this information today could have a huge impact on your future finances.
“The super fund will effectively refund an estimate of the contributions tax that a member paid on their taxable component,” says Kurt.
“It seems really complex, but it’s something members need to consider before moving money between spouses.
“Estate planning, even if it doesn’t seem like it, is one of the long-term strategies people need to consider, and it really can have a significant difference on the outcome.”
Where to start today
At the end of the day, it comes down to this one invaluable piece of advice: do as much research as possible. Speaking with an advisor – or speaking with your fund to get in contact with an advisor – is one such way to go about it.
Kurt also suggests talking to the Financial Information Service officers at Centrelink, which can be “very helpful in terms of maximising potential age pension payments”.
“There’s a lot of information out there, and a lot of differing opinions, so it’s really just a case of getting that information personalised to you”.
Do you have an older or younger partner? Is this something you’ve stopped to consider?
This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788. The views expressed are those of Starts at Sixty and not necessarily AustralianSuper. For more information, please visit the AustralianSuper website.