The run down on how to access your super at different stages in retirement

It's actually fairly simple, but it helps to understand the basic principles.

The government wants you to leave your superannuation untouched for as long as possible, so they have enacted laws to prevent you withdrawing it before you retire. This harnesses the power of compounding for your benefit, and ensures you do not fritter away your super during your working life.

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Most money in superannuation is a "preserved benefit"; that means it cannot be accessed until you satisfy the two conditions to access it: reaching your preservation age and ceasing work.

The preservation age is being slowly increased, so that by 2025 all superannuation benefits will be preserved to age 60 for anyone born after June 1964.

There are three important dates. First, your preservation age, which is 55 if you were born before July 1960, 60 if you were born after June 1964, and somewhere in between if you were born between July 1960 and June 1964.

The second important date is when you reach 60, at which point withdrawals become tax free as long as you satisfy a condition of release.

The third important date is when you reach age 65, at which point your super is yours for the taking.

Ceasing work, the other condition for accessing your super, is not that difficult - you just have to resign from a job. It need not even be your main job.

You could have a job in which you intend to work as long as possible, but get a second job at the local garage down the road, and satisfy the condition of release by resigning from that one.

Even if you quit your main job, retirement is a state of mind. It is, in fact, possible to retire, draw part of your superannuation and then return to the workforce, if you are sick of doing nothing, a few months later.

The other issue to consider here is tax. Withdrawals are tax-free once you reach age 60, but if you retire before that date you should check the tax implications.

Your superannuation will normally have two components, a tax-exempt component and a taxable component. This is determined by the tax levied on the money when you contributed it. If you withdraw money from super before you reach age 60, the exempt component is tax-free and so is the first $230,000 of the taxable component.

You cannot influence how much comes from which component: all withdrawals are in the proportions determined by your superannuation fund. If the lump sum withdrawal is so large that the taxable component is in excess of $230,000, the excess will be taxed at 15 per cent plus Medicare levy.

There are some ways to access your super earlier than this, but it's not easy. If you suffer severe financial hardship, it may be possible, however, the government has deliberately made it difficult, and one requirement is that you must be receiving Centrelink benefits.

There are also provisions for using super for certain medical expenses, but these are restricted to specific procedures and circumstances.

Remember, superannuation is designed to take care of you in retirement, not bail you out earlier in life. Special provisions were made in 2020 and 2021 for early withdrawal due to the effects of the coronavirus, but these were one-off events.

Another way to get access to your funds after you reach preservation age, but before you retire, is to start a transition to retirement pension (TTR). A TTR pension payment is a minimum of 4 per cent and a maximum of 10 per cent per annum of your account balance as at 1 July of each financial year (or the value from the date your TTR pension started in that financial year).

Your payment will be tax-free if you start the TTR after 60, but your fund will still pay tax at 15 per cent on earnings inside the fund. The ability to draw a pension of up to 10 per cent of the balance is certainly useful if you are cash-strapped, but remember the money you are using now won't continue to grow for your use in the future.

Question

I am looking to buy my first home in Melbourne. Is there an optimal time frame I should be thinking about paying back my mortgage.

Answer

Once the conventional wisdom was that you paid off your home in full before embarking on any other forms of investment. But the problem with that is you are losing precious time for those other investments to take advantage of the miracle of compound interest. This is why it's now recommended that you get your mortgage under control first, and then consider other forms of investment such as borrowing for shares or property.

Because of the way compound interest works, the amount of interest you pay increases exponentially as time passes. Most loans are written over 30 years these days to minimise the repayments, but it makes the interest cost horrendous.

Therefore I think the best strategy is to try to pay your housing loan back over a 15 year term - the payment for this would be around $3200 a month on a $400,000 mortgage, based on a rate of 5 per cent, which I think is the highest variable rates will go. If you can manage payments at this level you would have saved hundreds of thousands of dollars in interest as well as giving yourself a safety buffer if rates keep rising. Once you can make these payments comfortably you can investigate other wealth building strategies.

Question

I am 60 and am still confused about working part-time after retiring. Is the rule the same, no matter if your super is in accumulation or pension phase? I have been told you need to sign a form for your superannuation company, stating you intend to fully retire. And then I was told once you do that, that you cannot work more than 10 hours per week. Could you please clarify, as I want to retire from my full-time job at age 60, and work a casual job one day a week?

Answer

Once you reach 60, and have satisfied a condition or release, which is usually resigning from a job, you are free to access your superannuation without restriction. Furthermore, there's no restriction on how many hours you can work or how much you can earn. If you choose to work you can make concessional contributions up to age 67 without having to pass at work test, and non-concessional contributions up to age 75.

Question

My husband and I are 63 with $320,000 and $220,000 in super respectively. I salary sacrifice the maximum amount to an accumulation account. Having just paid off the mortgage we were going to redirect $400 a fortnight to my husbands super to bring his contributions up to the maximum allowable.

Is this still a wise thing to do in this unstable climate? Or should we keep the money in our savings and make a large lump sum payment later? It's very hard seeing our money slipping away as we put it into super. His job security is not as stable as mine.

Answer

You need to think of superannuation as a long-term vehicle - after all you may live for 30 years after you retire, and your superannuation needs to be able to support you during those years. Because superannuation funds invest in assets like shares which gives the best returns long-term, there will be years when their returns are low, but these are more than compensated for by the years when the returns are extremely good.

The long-term average for the good funds is around 8 per cent per annum. So don't worry about the short-term fluctuations - take the opportunity to contribute now when asset prices are lower. After all, that gives you the opportunity to buy at bargain prices.

Question

I'm 71 and my wife is 51. I'm considering retiring. My wife is not currently employed. We own our home and have a mortgage on a rental, in which we have about $350,000 equity depending on the sale price.

If I'm retiring and my wife can't work how is the pension worked out?

Answer

Because your wife is not of pensionable age you will be able to apply for a couple's pension and receive half the pension that a couple would receive.

You will be tested on both an asset test and an income test with all the assets you and your wife owned being taken into account. Provided the mortgage on the rental property is secured on that property, the value for the assets test will be the property value less the loan amount.

For the income test the net income from the property will be used. There are pension charts and calculators on my website www.noelwhittaker.com.au