With the current political uncertainty, several public servants I’ve talked to recently are considering their options. When is the best time to retire? If you do retire, what superannuation investments are needed to stay financially secure?
Marco — a public servant in his 60s — spoke to me recently with these questions in mind. I created a strategy that will earn him more than $13,000 extra from his PSS scheme benefits. I also helped him structure his pension funds so that his children won’t pay tax unnecessarily if they inherit his investments.
Marco had been a client for a few years. The last time we spoke, he was comfortable in his government job. He was financially secure, so retirement was an option, but not for a while. Now, a management restructure had made his work less enjoyable. Retirement was very much on the table.
When to retire from the public service
Originally, Marco had planned to take his long service leave at full pay for three months. For the PSS scheme, the average of your salary on your last three birthdays determines your benefits. I advised Marco to take long service leave at half pay for six months instead of full pay for three. This would extend the period of time he stayed in the public service, so that he would retire after his next birthday at a higher salary. The result: increasing Marco’s PSS benefits.
We’d settled on the strategy, but we still needed to make sure that Marco was financially secure for that six months at half-pay. I advised Marco to draw on his allocated pension to fund his cash shortfall. This pension also paid for the extra super contributions he had to make, because he would now be in the PSS for longer.
The total benefit of this strategy was $13,000 — which paid for the cost of my advice many times over.
Inheritance and pensions
Marco hopes for a long and healthy retirement, but wanted to plan for contingencies. The income from his pension funds was tax-free for Marco, but would be taxed if it passed to his adult children.
When he retired, Marco would have two pension funds in his name. Both funds were completely tax-free for Marco. However, if a fund is inherited by adult children, a proportion of it may be taxable. I advised Marco to draw his pension from the fund that had a larger taxable component. This meant that more of the other fund could remain for his children. The result: reducing the potential tax burden for his children.
If you’re considering retiring, call us on (02) 6247 1233 for professional advice on your options — or stop in to see us at 64 Northbourne Avenue, Civic. You can’t miss us —we’re on the ground floor, facing onto Bunda Street.
…or book an appointment now
(image credit www.planetofsuccess.com/blog)