Planning your retirement extends beyond envisioning your post-career activities; it encompasses strategic considerations to optimise your accumulated wealth, including tax planning. Minimising tax obligations allows for more funds towards your retirement goals – obviously right!
Start to think about the timing of retirement, individuals should assess the implications of their chosen month. In cases of retirement prompted by redundancy, substantial lump sums may accompany accrued long service or annual leave. You’ll need to place some consideration to the timing of the payment, particularly aligning with the employment anniversary, as this could alter the payout as it typically correlates with completed years of service. Also, Irrespective of the retirement motive, deferring until the onset of a new financial year may mitigate tax liabilities.
Significant attention is warranted towards redundancy payments, whereby a portion is tax-exempt up to a predetermined threshold determined by years of service. Any surplus beyond this threshold constitutes an Employment Termination Payment (ETP) subject to taxation, contingent upon age and payment components.
How about a holiday?
So what should i do with my holiday pay? It’s possible that you might remain employed to exhaust accrued leave immediately before retirement, thereby continuing the accumulation of leave entitlements and retaining eligibility for superannuation guarantee contributions. Conversely, opting for a lump-sum payment forfeits these advantages.
Some businesses offer incentivised early retirement schemes to incentivise workforce attrition. Analogous to genuine redundancy, such schemes offer tax-exempt portions based on years of service, with excess amounts subjected to ETP taxation.
Self employed and selling a business?
For business owners looking to sell, capitalising on small business capital gains tax (CGT) concessions warrants consideration. Fulfilling specified criteria affords eligibility for tax benefits, including potential CGT exemptions for assets held over extended durations. However, age considerations apply, mandating rollover of proceeds into superannuation for individuals under 55 to qualify for retirement concessions. This area of advice requires special consideration both from an accountant and financial adviser, planning ahead is necessary.
Age of retirement
The timing of retirement bears significance. Transitioning to the pension phase of superannuation renders any growth on your balance tax free, while income payments post-60 enjoy similar tax-free privileges. Delaying withdrawals until reaching this age threshold may optimise tax efficiency for your retirement savings.
If you’re between your preservation age and age 60, you may incur some tax on any income or withdrawals. its smart to note though, all non-concessional contributions will always remain tax free. irrelevant of the age of retirement.
Retirement is a big milestone in our lives, so it’s important to plan ahead to maximise your financial assets to support your retirement goals – whatever they may be.
Contact us here to make an appointment to discuss your goals, or read about what opportunities you have at different stages of your life here.
