Published as ‘The Mentor’ column in The Australian on 6 June 2017. Tim Howard, BT Advice Services
I turn 65 in January next year and my husband turns 65 six months later. He is already retired and I will retire at the end of the year.
We have an SMSF valued around $650,000 currently invested in equities and in a small holiday rental on the south coast.
In retirement, we don’t want to withdraw a lump sum but would like to have a regular pension paid to us. How can this happen with our SMSF?
Subject to any specific restrictions in your SMSF’s own trust deed, you could look to take a pension benefit from your SMSF when you retire, take a lump sum, or a combination of both, although there’s no onus on you to take any benefit payment until you are ready.
In addition the money you have contributed to super is generally preserved, meaning you are unable to access your accumulated savings until such time as you meet a condition of release.
The most common condition of release is reaching your preservation age (currently age 56 but increasing to age 60 over time) and then retiring. Reaching age 65 is also an automatic condition of release of your preserved benefits based on your age.
Your husband looks to have met a condition of release and would be eligible to begin taking a pension from his member benefit today. As you are yet to retire you may need to wait until you also retire, although there are a number of other conditions of release you may have already met. A financial adviser can help you determine this, as they will have a better understanding of the circumstances unique to your situation.
When paying a pension from your SMSF it’s important to remember you need to pay a minimum amount each year from your fund, based on your age and your account balance.
You will also need to ensure your SMSF has enough cash to make these pension payments to you each year. Returns from your investments such as the income from your holiday rental and dividends from your equities can help to assist you in meeting these pension payments.
If you did want to take a fortnightly pension payment, one strategy could be to set-up a direct payment each fortnight from your SMSF’s bank account to your nominated personal account. As you are both over the age of 60, the good news is any pension payments you do take will be tax-free. This also applies to any lump sum benefits you might look to take.
In the future you may find yourself in a position where your SMSF doesn’t have the cash required to meet your required pension payments, so you may want to consider selling your holiday rental or other assets owned by your SMSF in order to free up some capital.
Up to certain limits and with the appropriate level of planning, investments held by your SMSF which are supporting a retirement pension can be sold capital gains tax free. If you did sell your property, you may then look to re-invest the proceeds across a diversified portfolio of income-producing assets, or an annuity which can pay you a guaranteed income for a defined period of time.
From 1 July 2017, a number of new rules come into play around superannuation including a cap on the amount you can have in a retirement pension.
The various changes also present many unique strategy opportunities, and as members and trustees of your own SMSF you are in the box seat to take advantage of any strategies which might apply to your situation.
Enjoying the independence of managing your own retirement savings doesn’t mean you shouldn’t seek the advice of appropriately skilled professionals. The upcoming changes to super might just present you with the best opportunity to draw on all professional resources at your disposal to help you achieve the best outcome possible for you and your fund.
This information is current as at 30/05/2017.
This information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on it, you should consider whether it is appropriate for you. Any opinions expressed in this article are the author’s own.