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On retirement,
you may invest through an allocated
pension. This vehicle allows you to
draw a regular, tax-effective income
from your investment assets, with
the flexibility to take lump sums
at any time.
Neither income
nor capital gains are taxed in the allocated
pension environment, making it a very
attractive option for retirees.
The following example shows how one
of our clients achieved her retirement
goals by investing through an allocated
pension.
Sarah decided to retire at age 60. She
had $300,000 in super and another $200,000
about to mature from her term deposit.
After discussing her situation with
the superannuation specialist at Elite
Financial Solutions, Sarah agreed that
an allocated pension was going to be
the best vehicle to provide her retirement
income.
After making an un-deducted contribution
of the term deposit proceeds ($200,000)
into her super fund, Sarah rolled over
the $500,000 into an Allocated Pension
Plan. Superannuation law allows Sarah
to draw between $28,089 and $55,556
per annum in the first year. Sarah decided
to pay herself $35,000pa.
Since a large proportion of Sarah's
contributions were made from after-tax
dollars (un-deducted contributions),
a certain portion of the pension paid
will not be taxed. The rest will
be taxed at Sarah's marginal rate with
the benefit of a 15% tax rebate.
As Sarah had a long term investment
timeframe for her Allocated Pension
for her retirement, she was prepared
to invest some of her allocated pension
in growth assets. This means she was
prepared to accept the possibility of
negative returns in order to maximize
her growth over the long term. She also
wanted to ensure her capital maintained
its value against the impact of inflation
over time. As
an example, should Sarah’s fund
grow by a net return of 8% after fees
and charges, the value of her capital
would grow by $40,000, which means
in this scenario, even while drawing
a tax-free income of $35,000, Sarah’s
total funds invested would grow by
$5,000!
The graph below shows the projected
holdings of Sarah's fund, assuming
the amount she draws is indexed by
3% each year and that she receives
a constant return of 8%pa. Sarah will
be able to continue spending at this
rate until she turns 86. |
