For many Australians, reaching your 60s signals a time to consider retirement and start drawing on your superannuation. However, a growing number are choosing to remain in the workforce, whether for personal fulfilment or financial security. The good news is that key super benefits aren't locked away until you fully retire.
Unlocking Super Benefits Before Full Retirement
Financial planner Lennon Matthews-Rowell highlights that many people in their 60s are not fully utilising the strategies available to them. With the average retirement age sitting at 65.4 years, understanding these options is crucial for those who plan to keep earning.
From age 60, regardless of whether you are employed or not, you gain access to powerful tools within the super system. These are designed not just for those who have stopped work, but also for those transitioning out of the workforce. Here are three practical approaches to consider.
1. The Transition-to-Retirement Pension
This strategy allows you to start a pension from your super fund while continuing to work. You can withdraw up to 10 per cent of your total balance as cash each year. A savvy move is to then re-contribute that amount back into your super's accumulation account as a personal contribution, which you can claim as a tax deduction.
For example, an individual with a $150,000 super balance could withdraw $15,000. After re-contributing it and submitting a 'notice of intent to claim a tax deduction' form, they could see significant savings. Someone earning $90,000 annually could save around $2,250 net after the 15 per cent contribution tax. It's a strategic reshuffle of funds that leverages tax rules, though annual contribution caps still apply.
2. Moving to a Full Retirement Pension Phase
Superannuation has two main stages: accumulation and pension. The accumulation phase is where most working Australians' super sits, taxed at up to 15 per cent. The pension phase, however, can be completely tax-free on earnings for balances up to $2 million.
Eligibility for this tax-free pension phase starts between ages 60 and 65. For those aged 60 to 64, you generally must have stopped working or not intend to work more than 10 hours per week. This means many Australians who have ceased a specific employment arrangement after turning 60 can move their savings into this tax-free environment, even if they take up other limited work.
The tax savings are substantial. Based on historical returns from a major industry fund's balanced option, shifting $50,000 into pension phase could save approximately $595 in tax each year. For someone aged 65 to 69, the average annual saving could exceed $2,396.
3. Using Super's Cash Accounts for Tax Efficiency
Super isn't just for long-term growth assets; it can also be a smart place to hold cash for short-term goals. If you have excess savings in a regular bank account, the interest earned is added to your taxable income.
By moving that cash into a cash option within your super fund—and then into the pension phase—you can earn interest completely tax-free. Many super funds, including some retail funds, offer competitive cash rates that match those of the major banks.
This strategy effectively allows you to maintain a cash holding but strip out the tax liability on the interest. It is vital to remember that access to cash within super may have delays and these deposits are not government-guaranteed like bank accounts.
Seeking Personalised Advice is Key
While these strategies offer compelling benefits, Lennon Matthews-Rowell, director of LMR and Co, strongly emphasises that they do not account for individual circumstances. The rules around superannuation are complex and personal financial advice is essential before making any decisions.
For Australians in their 60s navigating the balance between work and retirement, proactively managing superannuation can lead to enhanced financial outcomes and greater flexibility in designing the next chapter of life.
