In a surprising twist for many Australian couples, a decision for one partner to stop working could be the key to unlocking better financial outcomes in retirement. Financial adviser and columnist Nick Bruining has detailed how strategic planning around a spouse's exit from the workforce can lead to substantial superannuation boosts and valuable tax savings.
The Power of Spouse Contributions
Bruining addressed a reader's question about her husband, who is 67 and considering retirement. While he has a modest superannuation balance, she continues to work and has a more robust financial position. The central opportunity here lies in the government's spouse contribution rules.
If a spouse is under 75 years old and earns less than $40,000 annually, the working partner can make contributions into the lower-earning spouse's super fund. For every dollar contributed, the contributing spouse may be eligible for a tax offset of up to $540. The maximum contribution that attracts the offset is $3,000, requiring a $3,000 contribution to claim the full $540 benefit.
This strategy effectively uses pre-tax income to build the retirement savings of the partner with less super, balancing the couple's long-term financial health. Bruining emphasised that this is a proactive step many overlook.
Navigating Age Pension Implications
The scenario becomes even more pertinent when considering the Age Pension. Bruining pointed out that a single person can have up to $301,750 in assessable assets and still receive a part pension. However, for a couple, the threshold is much lower at $451,500.
This creates a potential 'sweet spot.' If one spouse retires and successfully applies for the Age Pension, they are assessed as a single homeowner. Their working partner's income and assets are not included in this assessment, provided they are not legally separated.
"The lower asset threshold for singles works in their favour," Bruining explained. The retired spouse could qualify for a pension sooner than if the couple were assessed together, providing an immediate income stream.
A Strategic Financial Reshuffle
Bruining's advice outlines a clear, two-phase strategy for couples in this position. First, the working spouse should maximise the use of spouse contributions to build up the retiree's super balance, claiming the valuable tax offset in the process.
Second, the retired spouse should explore applying for the Age Pension based on their individual circumstances. This move can provide supplementary income while the other partner continues to work and save.
It's a powerful example of how understanding Centrelink and Australian Taxation Office rules can lead to better outcomes. The strategy turns a potential financial vulnerability—one partner having a low super balance—into an opportunity for optimisation.
Bruining concluded by urging couples to seek personalised advice, as individual circumstances vary greatly. However, the core message is clear: retirement planning should be a joint, strategic exercise. Sometimes, stepping back from work isn't an end but a clever beginning to a more secure financial future for both partners.
