Do you still have to worry about tax in retirement?

There are plenty of things you won’t have to worry about once you retire, but depending on your situation, tax might not be one of them. Below, we look at the various ways tax applies to your Super, investment income, and other areas of your finances.

Super withdrawals

The good news is that Super withdrawals are generally tax-free once you retire at or after age 60, whether you receive them as a lump sum or an income stream. If you opt for the latter, tax on investment earnings (the money your Super generates while it remains invested) will also be zero, down from the 15% tax that applied during your working years.

You will, however, have to declare any income your Super goes on to generate after it’s been withdrawn. For example, if you invest the money in shares or place it in a high-interest savings account, any income it generates will be taxed at your marginal tax rate.

Transition to retirement income streams

If you’re aged between 60 and 65 and not yet ready to leave the workforce, you can commence a transition to retirement (TTR) income stream. This allows you to gradually reduce your work hours while tapping into your Super to make up for the reduction in salary.

TTR payments are treated the same as account-based pensions, meaning withdrawals are typically tax-free. One difference, however, is that any investment earnings generated within your fund will continue to be taxed at 15%. This will be the case until you turn 65 and your TTR income stream will be transferred to an account-based pension.

Accessing Super before you turn 60

Early access to Super is allowed in very limited circumstances—such as severe financial hardship or urgent medical expenses for you or a dependent—but the tax exemptions available to those aged 60 and over rarely apply. One exception, however, is if you have a terminal medical condition, in which case the payment might be completely tax free.

Capital Gains Tax on investments

Capital gains tax (CGT) applies to retirees just the same as it does to everyone else, meaning that any profits from the sale of assets (such as shares or investment property) will form part of your taxable income. That said, there might be exemptions available to you depending on your circumstances.

When selling a property, for example, you won’t have to worry about CGT if:

It was your main residence.
It was purchased before CGT was introduced on 20 September 1985 (unless major improvements have been made).
It satisfies the six-year rule (meaning the property you weren’t living in can still be considered a main residence).

There are also ways to reduce the amount of CGT owed, such as using any capital losses to offset your capital gains, or taking advantage of the 50% discount that applies when you’ve held an asset for 12 months or more.

The Age Pension

As long as the Age Pension is your only source of income in retirement and no tax is withheld from it, you generally won’t need to lodge a tax return.

But if you receive other forms of income — such as rent from an investment property, dividends from shares, or interest on savings — all sources, including your Age Pension payment, will have to be declared. Depending on how much you earn, you might owe tax at the end of a financial year.

Your Super death benefit

It’s also worth mentioning your Super death benefit, as your beneficiaries might have to pay tax on it. This depends on whether they receive it as a lump sum or an income stream and whether they are considered a tax dependent.

A ‘tax dependent’ typically refers to:

Your spouse or de facto partner.
Children under the age of 18.
Someone who is financially dependent on you.
Someone with whom you have an interdependency relationship.

Generally, tax dependents won’t pay any tax on lump sums they receive. Non-tax dependents, however, will be taxed concessionally at a rate of 15% plus the Medicare levy.

A recontribution strategy, where you withdraw some of your Super and re-contribute it, can help to reduce any tax paid on Super death benefits by converting the taxable components of your Super into tax-free components. However, rules and limits apply, so be sure to speak with a financial adviser before deciding if this strategy is right for you.

Want to make the most of your retirement income?

Understanding how tax applies to your Super, investments, and other income streams in retirement can help you maximise your financial security. From tax-free Super withdrawals to capital gains tax strategies, having a clear plan ensures you keep more of what you’ve worked hard for.

At Halpin Wealth, our expert advisers can guide you through retirement tax planning, helping you structure your finances efficiently and avoid unnecessary tax burdens.

This information provided in this article is general advice only and has been prepared without taking into account your own objectives, financial situation or needs. Before making a financial decision based on this advice, you must consider whether it is appropriate in light of your own needs, objectives, and financial circumstances, and where relevant, obtain personal financial, taxation or legal advice. Where a financial product has been mentioned, you should obtain and read a copy of the Product Disclosure Statement (PDS) prior to making any decisions about whether to acquire a product.

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