When there is a large gap between partners, this creates financial opportunity. Saying this, an age gap can create a financial challenge too. Either way, if you’re in this situation, there is a strategy that can leave you in a better position.
Challenge scenario
The challenge when there is an age gap, is that some couples rely on two incomes. If there is a large age gap and the couple would like to retire together, the younger person’s super often cannot be accessed for years later. This can create a financial strain, living off one person’s superannuation balance.
Opportunity scenario
There are also opportunities when there is an age gap between partners:
- If you are planning on using superannuation as a debt reduction strategy, you can clear your debt faster.
- The older person may also be able to receive larger contributions, than they otherwise could. When your super balances get to $1.9M, you can longer make personal contributions to super. The limit for deductible contributions is also $30K. However, the strategy that I’m about to mention, can help in this scenario too.
Principle 1 – “Prepare to make use of the zero (0%) tax rate”.
There is an opportunity for everyone obtaining a zero (0%) tax rate when either you are:
- 60 and an employment agreement or
- Aged 65+
When there is no tax to pay, your investments can last longer, or you can take less risk, or you can simply spend more and enjoy yourself!
This is super important to understand first up (pardon the pun).
Principle 2 – “With super you cannot have joint accounts”.
I oftenget asked whether it is possible to have joint super accounts. However, it is legislated that everyone needs their own superannuation account. Even if you have a self-managed super fund (SMSF), the money may jointly invest. However, the financial statements for the SMSF will show that you have separate super accounts.
Principle 3 – “The key is to move the younger person’s super contributions, to the older person”.
This principle means:
- These funds can be accessed earlier, to fund retirement.
- These funds can be invested at a zero (0%) tax rate earlier, potentially saving thousands in tax.
- The funds can be withdrawn earlier to reduce debt, savings thousands in interest.
Now it’s best to get advice on this strategy because:
- It is often best to start on the strategy as soon as possible.
- There are limits on how much you can transfer/receive from your partner each year.
- There are other considerations such as, if the younger person has life insurance premiums being deducted from their superannuation balance.
If there is a large age gap between you both, please be in touch and we can provide written advice to maximise this opportunity for you.
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Disclaimer
This information is general advice. We have not considered your objectives, personal or financial circumstances. You should consider the appropriateness of the advice for your circumstances before making any decision. You should obtain and consider the relevant Product Disclosure Statement and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.
Past performance is not an indication of future performance.
This presentation has been prepared and presented by Roger Perrett, Freshwater Wealth Management Pty Ltd CAR no.1307016, Alliance Wealth Pty Ltd AFSL No.449221. This information cannot be used or copied in whole or part without our express written consent.
While every effort has been made to ensure the accuracy of the information, it is not guaranteed. It is based on our understanding of regulations and laws as at the publication date. As these are subject to change you should talk to a professional adviser for the most up-to-date information.
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