There is no law on when you should retire or even a set retirement age because it all depends on each person’s individual circumstances.  It is a very personal decision which depends on whether you can financially support your lifestyle to be able to retire, whether it be your time to retire or not, it is up to you. However from a personal stand point, there are better times to retire than others, due to accessing funds to support your retirement.  Let us get back to age, there are two age rules when thinking about retirement.  One being Preservation Age where you are at the age when you are able to access your super funds provided you have also met a condition of release such as retiring or turning 65. Then there is the Age Pension Age where your age can access Australia’s Age Pension, provided you are an Australian resident and you pass both the income and assets tests.

If you have decided to retire, you must understand how any lump sum payments you receive from your employer might be taxed.  If you receive a lump sum payment from your employer for unused annual leave or unused long service leave, it may be taxed at a lower rate than your other income.

For most people, an income stream from superannuation will be tax-free from the age of 60. However there are two types of super income streams.  Account-based pension income streams are where there is a series of regular payments from your super money or an Annuity which is a fixed income for the rest of your life or a set period of time.

With transition to retirement there are new rules when you reach preservation age.  You can top up on your part-time income with a regular ‘income stream’ from your super saving which you may now be able to do, to be able to reduce your working hours without reducing your income.  These new rules can only be accessed as ‘non-commutable’ income stream.  A non-commutable income stream cannot be converted into lump sum cash payments while you are still working and must take your super benefits as regular payments.

Part of your super money is taxable and some of it is tax free.  The taxable amount is made up of employer contributions, salary scarified contributions and personal contributions claimed as tax deductions.  The tax free amounts are made up of after tax contributions and government co-contributions.

As I said before age is important when planning for retirement.  Your entire benefit from a taxed super fund is tax-free when you are age 60 or over.  However if you are age 55 to 59 your income payment has two parts either taxable; where you’re taxed at your marginal tax rate less a 15% tax offset; and tax-free where you do not have to pay any other amounts of tax.

If you are age 55 or younger you will only be able to access your super if you experience permanent incapacity at which point, you will be treated the same as people aged 55 to 59.  However, there are different reasons as to why you would need to access your super money, for example financial hardship where you income will be either taxable or tax-free.

However, there are still many different types of superannuation funds which you can still be taxed on.  One being a Defined Benefit Super Fund where you will receive a statement from your fund before becoming eligible for your benefit being your super money.  It will ultimately tell you how much money is taxable and how much is tax-free.

There are also Untaxed Super Funds where it’s mostly government superannuation funds who do not pay regular tax contributions.  Being a member of this type of superannuation fund means you pay tax when you access your money.  A very common type of fund, especially amongst the self-employed is a Self-managed Super Fund where everythng depends on the details in the ‘trust deed’ which are the rules of the superannuation fund, on how you can access your money.

There are also other benefits once you have retired, such as accessing a number of tax offsets, being seniors and pensioners tax offset where it allows you to earn more money before you have to pay tax or the Medicare Levy.  Again there are always conditions which need to be met before you are able to access this, and when are able to access this offset it’s a non-refundable offset where you can only get your payable to $nil but you cannot receive a refund of the offset amount.  There is also the Australian superannuation income stream offset, if you are either on disability superannuation benefits or a death benefit income stream or 60 or over where you may be entitled to a tax offset.

All these offsets have certain criteria to be met before you are able to receive them, if you have a question or would like to discuss it further, please contact us.

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