Question
I am 66, my wife 61. We are still working and I'm looking to retire in the next two years. I have $700,000 in super, and my wife has $200,000. Should I convert my super to pension mode or leave it in accumulation mode?
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Answer
Given you are still working, it would make sense to convert your superannuation to pension mode, which will require you to withdraw 5 per cent of the balance each year by way of a pension. You could then re-contribute the amount you withdraw to your work superannuation fund and if the employer contribution was less than $27,500 a year, you could allocate part of the re-contribution as a concessional contribution which would be tax-deductible. The balance would be a non-concessional contribution.
Question
You have often written that it might be better to leave some money directly to your kids to help the surviving spouse avoid the assets test. I am 71 and my spouse is 61. I have about $500,000 in my income stream, my wife has about $650,000 in her super accumulation. My concern is I have two sons not yet on the property ladder, and your suggestion is therefore appealing. What are the tax implications of leaving any money left in my income stream to them?
Answer
If you are happy for the children to wait for the money until you die, an easy strategy is to leave it to them in your will. If you wish to do it sooner rather than later, you could make a gift of say $200,000, which would be treated as a deprived asset for five years, but you could offset this by moving $330,000 from your super to your wife's superannuation where it would not be counted. This would increase your pension a little and let you help the kids sooner rather than later.
Question
We have four children - three with HECS debts and an 18-year-old about to start university. I am about to have the talk with them about adding to their super out of their wages but wondering if they should be trying to pay off their HECS first.
Answer
At their age, it will probably be at least 40 years before they can access their superannuation and there are certain to be many changes in that time. Given good superannuation funds are returning around 7 per cent and the interest on HECS debts is about the same thanks to inflation, it would make sense to me to focus on the HECS debt. Once they start work, their employer will be paying 11 per cent of the income into superannuation which should amount to a substantial sum after 40 years thanks to the magic of compounding.
