Super contributions over $500k, selling the IP, the bucket strategy debate + more (ep442)

Summary

The episode covers Australian superannuation contributions, whether to keep or sell an investment property, retirement “bucket” strategies, and tax treatment in accumulation, transition-to-retirement, and pension phases.

Super contributions and caps

• The presenters state that the concessional contribution cap is $32,500. If a person’s total super balance was above $500,000 on 1 July, they cannot use unused concessional caps carried forward from the previous five years.
• The non-concessional cap is described as $130,000 a year, with a possible three-year bring-forward limit of $390,000. The $500,000 threshold does not prevent non-concessional contributions. The discussion gives $2.1 million as the relevant total super balance threshold, with lower bring-forward limits potentially applying at higher balances.
• The presenters distinguish the total super balance test for contributions from the transfer balance cap for pension phase, while noting that the figures discussed were the same at the time.
• A downsizer contribution is treated separately from the standard non-concessional cap. The presenters say eligible people may contribute up to $300,000 each, without the usual super balance restriction.
• A notice of intent to claim applies when claiming a personal tax deduction for a contribution—not to an ordinary non-concessional contribution. The fund deducts 15% tax from the amount claimed and reports the treatment to the ATO; the individual remains responsible for ensuring the claim is valid.
  • For example, from a $400,000 contribution, a person could elect to claim $10,000 as concessional. The fund would deduct $1,500 tax from that portion; the rest would remain non-concessional, subject to the applicable rules.
• The $500,000 carry-forward test is assessed on 1 July. Being over the threshold later in the financial year does not change the result for that year. Conversely, being below it on 1 July may preserve eligibility even if the balance rises later.

Investment property: sell or retain?

A listener’s situation involved a couple planning to retire in about two years. They had combined super of roughly $2 million, a mortgage-free home, and an investment property valued at around $900,000. The property had a $450,000 loan, expected to fall to about $250,000 by retirement, and rent of $850 a week—about a 5% gross yield.

The presenters say there is no universally correct choice. They suggest weighing:

• Whether the property is intended as a long-term holding or was mainly accumulated for equity or tax benefits.
• Its rental yield, condition, likely maintenance costs, and tenant situation.
• The couple’s liquidity needs and ability to access super, including the younger partner’s access timing.
• Whether to keep the debt and service it from rent, or use some super to pay it down.
• Capital gains tax timing, estate planning, and the administrative burden of owning a rental property.

They consider the couple’s overall financial position strong enough that keeping the property could be reasonable if they want to retain it. Selling could also make sense if maintenance, tenants, or other costs become unattractive. They mention getting the property valued on 1 July the following year in connection with a “deemed disposal” and a tax change, but do not explain the change in detail.

Bucket strategy and portfolio construction

The presenters compare a cash-bucket approach with a diversified portfolio that is periodically rebalanced.

• An illustrative three-bucket portfolio consists of $150,000 in cash, $250,000 in fixed interest, and $500,000 in growth assets, with $50,000 a year drawn for spending.
• In an IDPS or wrap account, ETF distributions and share dividends can be directed to the cash bucket. In unitised funds, distributions may instead be reinvested in the unit price, so retirees may need to make explicit decisions about selling assets to replenish cash.
• A periodically rebalanced portfolio can sell assets that have risen and buy assets that have fallen to restore target allocations. The presenters say research generally finds this approach produces better outcomes than a bucket strategy, while acknowledging that buckets may help some retirees avoid panic-selling during market declines.
• A key risk of buckets is deciding when to sell growth assets to refill cash if markets remain weak for an extended period—potentially several years. The approach can involve market-timing decisions.
• The presenters say buckets are often set up about five years before retirement, though the timing depends on expected cash inflows, such as an inheritance or home downsizing. Contributions can be redirected to build the buckets gradually.
• Their overarching point is that investment strategy should fit a person’s ability to tolerate market volatility; there is no single approach suitable for everyone.

The discussion cites a 2018 paper by finance professor Javier Estrada, which the presenters say found bucket approaches underperformed static strategies with periodic rebalancing.

Pension, accumulation, and transition-to-retirement accounts

• Moving super into pension phase does not mean the money is no longer invested. Investment returns continue, and the outcome depends on the chosen assets and market performance.
• The presenters say pension-phase earnings and withdrawals are generally tax-free, while accumulation-phase earnings are generally taxed at 15%. Fees still apply. A balance may decline because of withdrawals, fees, or inflation—not simply because employment contributions have stopped.
• Pension accounts are subject to minimum withdrawal rules. A balance may fall if withdrawals exceed investment returns.
• For a transition-to-retirement income stream (TTR/TRIS), the presenters describe earnings as generally taxed at 15% and payments as tax-free for people over 60. They say the usual maximum withdrawal is 10%.
• They state that at 65, a TTR account automatically becomes an account-based pension: earnings become tax-free and the 10% maximum no longer applies.
• Moving money from accumulation into a pension account may reduce tax, but the benefit depends on the balance, returns, and circumstances. The presenters suggest the paperwork may be less worthwhile for small balances, while a balance in the $50,000–$100,000 range or higher could make the potential savings more material.
  • As an illustration, $500,000 earning 8% would produce $40,000 of earnings. At 15% tax, that is about $6,000 in tax in accumulation. The presenters stress this is an example, not a forecast.
• They also suggest that someone who does not need pension payments may consider what to do with withdrawals, including whether eligible contributions by a spouse could be relevant.

Changing super funds after age 75

• The presenters say a person can change super funds after 75 and transfer existing super between funds.
• They say personally held assets—such as shares, managed funds, or cash—generally cannot be moved into super directly, except where a specific pathway, such as an eligible downsizer contribution, applies.

Assets and instruments mentioned

• Australian and international equities
• ETFs and shares/dividends
• Bonds, corporate bonds, and fixed-interest investments
• Term deposits and cash
• Gold
• Managed funds and unitised super funds
• Investment property and residential property
• Superannuation accumulation, pension, and transition-to-retirement accounts

No individual stock tickers or named securities are mentioned.

Disclosures and cautions

The presenters state that the episode provides general financial advice only and does not take account of an individual’s objectives, financial situation, or needs. They recommend considering whether information is appropriate before acting, reading the relevant PDS and TMD, and obtaining advice tailored to the individual. They also caution against relying on a podcast for personal financial advice.

The show notes identify Tallowwood Wealth Advice as the show partner. The presenters also disclose commercial relationships with some of the advice businesses they recommend.

Presenters and sources

• Glenn James, host of Retire Right
• Martin McGrath, Financial Edge Group
• Research discussed: Javier Estrada’s 2018 paper on retirement bucket strategies and rebalancing
• The presenters also refer to their book, 12 Months to Retire Right.