For most people, turning 60 is quite a milestone. Financially, this is because this is the age that super evolves into what is essentially a tax-free avatar, or alter-ego, for the client.
Interestingly, this does not always appear to be the case when reading SOAs for clients who are approaching this seminal age. As a client approaches the age of 60, we would normally expect for super to become the preferred investment vehicle for most clients. This can typically mean a migration away from the client’s own hands, or some other form of taxed investor (such as a company), towards the lightly-til-60-and-then-not-at-all taxed environment of super.
There are various ways to do this. The simplest, of course, is to encourage as much taxable income as possible to be transferred into super. The limits for clients over the age of 49 are $35,000 and it is a relatively straight-forward process for most people to dedicate an increased amount of their salary to this form of investment holding. If cash flow is an issue, some judicious use of low-interest debt can even be wise, especially when you factor in that the client needs only to replace the after-tax income that is foregone. For example, a client in the 30% tax bracket who wishes to contribute an extra $20,000 into super only loses $14,000 of purchasing power. But the client gains a post-tax super benefit of $17,000. There can be an argument that the client is wise to borrow the $14,000 to replace their lost cash flow, and then withdraw that much upon attaining the age of 60 to retire the debt. In this example, this leaves a net $3,000 in the super fund.
Another simple way, and an appropriate one for any client with their hands on a lump sum of cash (perhaps an inheritance or the amount left over once the family home has been down-sized), is to make use of non-concessional contributions into a super fund. Clients can effectively contribute up to $540,000 each into a super fund. As the amount that might be invested in this way increases, a self-managed super fund becomes more and more viable. Once in the super environment, the monies can be used to invest in virtually the same investments as would be available outside of super – with the additional benefit of income being lightly taxed and then not taxed at all, and capital gains (presuming they occur after the age of 60) not being taxed at all.
Put simply, while super should be considered for any client, once a client enters their fifties, at least considering super is basically mandatory.