As we enter Autumn 2024, it's time to focus on retirement financial planning. Our quarterly edition of "Prepare for Life" focuses on "Retirement Financial Planning 2024," highlighting essential updates and strategies to secure your financial future. This edition covers actionable insights on navigating recent tax changes and optimising your superannuation for a sound retirement.
Key Strategies for Retirement Financial Planning 2024
Tax Changes
How will you use your super?
Anti-Aging
Tax Changes - What Will it Mean to Me?
Prime Minister Anthony Albanese has announced changes to address the ongoing cost of living pressures, with all 13.6 million Australian taxpayers receiving
a tax cut from 1 July 2024, compared to the tax they paid in 2023-24
Now is the time to assess what the new rules, due from 1 July 2024, mean to your hip pocket and what implications they may have for end-of-financial-year planning.
The federal government recently announced changes to the third stage of a series of tax reforms the previous coalition government introduced almost six years ago. These reforms were designed to deliver tax cuts to most, simplify the tax system, and protect middle-income earners from tax bracket creep.
The Proposed Changes
The new rules will reduce the current lowest tax rate from 19 per cent to 16 per cent and the 32.5 per cent marginal tax rate to 30 per cent for individuals earning between $45,001 and $135,000.
The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.
In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).
A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.
On the other hand, low-income earners will receive a bigger tax cut under the revised rules.
A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023-24 would have received no benefit from the original Stage 3 tax plan but will now receive a tax cut of $654 under the revised rules.
Implications for Investment Strategies
For high-income earners, the key takeaway from the government’s new tax rules is that you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.
This reduction makes it sensible to revisit any investment strategies you had planned to take advantage of your larger tax cut to ensure they still stack up.
For example, the smaller tax cut for some may impact the effectiveness of property investment.
However, investment strategies such as negative gearing into property or shares may become more attractive, particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving to a higher tax rate.
Timing Expenditure and Contributions
Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year, given the difference in tax rates starting 1 July 2024.
Selling an asset liable for CGT must also be reviewed to determine the most appropriate financial year for the best tax outcome.
Other investment strategies that need to be revisited include contributing to your super account.
If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary-sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.
https://treasury.gov.au/sites/default/files/2024-01/tax-cuts- government-fact-sheet.pdf
How Will You Use Your Super?
We spend decades watching our super balances grow, but figuring out how best to use your super can be confusing for those thinking about retirement in the next few years.
Here are some considerations for the popular options.
Easing Into Retirement
When you reach your super preservation age (55 to 60, depending on your date of birth) and are under 65, you can keep working and receive regular payments from your super.
Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option, you must use a minimum of 4 per cent and a maximum of 10 per cent of your super account balance each financial year.
A transition-to-retirement strategy is not for everyone, and the rules are complex. It is important to get independent financial advice to ensure it works for you.
PROS
This allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary.
If you have spare cash each week or month, you can contribute extra to boost your super, perhaps by salary sacrifice.
There are tax benefits. If you are over 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed).
CONS
For people between 55 and 59, the taxable portion of the transition-to-retirement pension payments is taxed at your marginal tax rate; however, you will receive a 15 per cent tax offset.
Withdrawing money from super reduces the amount you have later for when you retire.
It may affect Centrelink entitlements.
Taking a Retirement Pension
This is the most common type of retirement income stream. It provides a regular income once you retire, and you can take as much as you like as long as you don’t exceed the lifetime limit, known as the transfer balance cap.
PROS
While there is a minimum amount you must withdraw each year, there is no maximum.
There is flexibility – you can receive pension payments weekly, fortnightly, monthly or annually.
You can still choose to return to work, and it won’t affect the income stream you have already commenced.
CONS
The account-based pension may affect your Centrelink entitlements
There is a risk that the amount in your super to draw on might not last as long as you do
The transfer balance cap limits the amount you can use for your pension.
Withdrawing a Lump Sum
Once you have met the working and age rules, you can choose to receive your super as a lump sum or a combination of pension and lump sum payments.
PROS
It allows you to pay off any debts to help relieve any financial pressures.
Allows you to invest outside super in a property, for example.
Pay little or no tax if you are 60 and older.
CONS
You may pay more tax if you use the lump sum to invest.
Reducing your super balance now means less for later.
Receiving a lot of money at once may encourage you to spend more than is wise.
Access to SMSF Funds
For those with self-managed super funds (SMSFs), there are a number of additional issues to consider. For example, you will need to carefully check your Trust Deed for any rules or restrictions on accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It is essential to consult a financial planner to understand your circumstances.
Choosing the best approach for your retirement income can be daunting, so let us walk you through the options and advise you on the most appropriate strategies.
If you’d like to take time off in the future, contact us today to ensure that taking a break from earning an income won’t impact your future financial security.
Evidence-Based Ways to Hold Back the Hands of Time
You can’t stop the clock, so the saying goes, but humanity has spent a long time trying to slow down or even reverse the effects of aging. Unfortunately, many of the measures
taken shortened, rather than lengthened, the life spans of those trying them.
Even today, it can be hard to distinguish effective measures from ineffective ones and avoid those that may be downright dangerous! Fortunately, science-based public health research has some of the answers, so read on for some medically backed ways to stay healthy as you age.
Anti-aging practices included the Egyptian queen Cleopatra bathing in donkey’s milk, 16th-century French courtesans drinking suspended particles of gold, and the Spanish explorer Juan Ponce de Leon’s infamous quest for the legendary fountain of youth.
Today, the quest continues…
The quest for the fountain of youth has not ceased—it’s just taken other forms in today’s society. The anti-aging market is ever-expanding and expected to be worth more than $119.6 billion globally.
The truth is that aging is natural. Our bodies aren’t meant to stop aging entirely. But the good news is that there are some tried and true, medically proven ways to stave off many of the problems associated with aging and, in some cases, slow down the aging process. While none of these are groundbreaking discoveries, it’s worth keeping in mind that you don’t have to spend all your money or waking hours to stay healthy as you age.
Tips for Living Well and Living Longer
MOVE IT!
That treadmill at the gym may not be a time machine, but it can play a part in slowing down the clock. Research showed that those who ran at least 30-40 minutes five days a week had an almost nine-year “biological aging advantage” over those with a more sedentary lifestyle. ”Doctors call physical exercise a “polypill” because it can prevent and treat many of the chronic diseases associated with aging, and it’s never too late to start getting the benefits from regular exercise. Even a daily walk can do wonders!
STRESS LESS
It’s no secret that constant stress is wearying and can make you feel older than your biological age. Still, recently, scientists confirmed that exposure to stress can cause inflammation and damage to DNA in cells, which can accelerate aging.iii The good news is this can be reversed using stress-busting techniques such as mindfulness meditation, breathing exercises and progressive muscle relaxation, which can improve various biological markers associated with aging.
NOURISH YOURSELF
While there is plenty of hype around the plethora of “superfoods” that are touted to possess anti-aging qualities, no one food will significantly impact the aging process and turn back the clock. However, the food and drink we put in our bodies daily make a difference to our health as we age. Research from the worlds “Blue Zones” – areas where people tend to reach the age of 100 – demonstrate the benefits of a relatively plant-focused diet consisting largely of vegetables, fruits, grains, and legumes.iv
MAINTAIN A POSITIVE MINDSET AND EMBRACE AGING
Finally, it’s also worth considering that as we can’t beat the clock, we might as well accept, if not embrace, the gifts that come with age (wisdom and a longer-term perspective come to mind!).
Thank you for engaging with our Autumn 2024 edition of "Prepare for Life." We're here to guide you through the complexities of retirement financial planning, ensuring your journey towards financial freedom is informed and confident.
If any topics within this edition sparked your interest or if you have questions about how these insights apply to your personal financial plan, our team at Middleton Financial Planning is ready to assist. Don't hesitate to reach out for a personalised discussion.
Scott Middleton Financial Planner
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