Case study – Opportunities for over 55's

Harold has just celebrated his 55th birthday. He was working full-time on a salary of $45,000 but now he'd like to work less so he can practice golf in preparation for retirement on the Seniors' Golf Circuit.

Harold's employer is happy for him to work part-time on a reduced salary of $22,500. However, he needs to supplement his income from other sources.

Apart from his salary, Harold has $350,000 in super and $100,000 cash from the recent sale of an investment property.

As Harold has reached the minimum age required to be able to access his superannuation benefits (his preservation age), he can invest some (or all) of his superannuation monies in a pre-retirement pension. Harold decides to contribute the $100,000 cash into superannuation as a personal contribution (undeducted contribution).

He chooses to place the entire $450,000 into a superannuation pension and draws a pension payment in the first year of $22,500. Included in this is a tax-free payment of $5,000. Harold's pension payments in the second and subsequent years will be based on his pension account balance every 1 July and the impact of market returns.

The table below shows the impact for Harold in the first year of starting a pre-retirement strategy. He has maintained his pre-tax income, reduced his tax liability, increased his after-tax income, and has the ability to contribute surplus income to superannuation and qualify for a government co-contribution. More importantly, he's been able to reduce his work hours, follow his retirement ambitions and maintain his income levels.

  Without a pre-retirement pension With a pre-retirement pension
Hours of work full-time part-time part-time
Pension Not available Not available $22,500
Salary $45,000 $22,500 $22,500
Gross income $45,000 $22,500 $45,000
Superannuation rebate Not available Not available $2,625
Tax liability $8,625 $2,062 $4,225
After-tax income $36,375 $20,438 $40,775

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