The government is taking more and more steps to motivate people to at least partially self-fund their retirement, and it’s no secret that the emergence of mandatory superannuation was the first step in what will be a long process to unwind the aged pension.
Is there a formula for retiring independently wealthy? This article will teach us how to do that.
What Is A Self-Funded Retiree?
A self-funded retiree is an individual who has saved and invested their own money to support themselves during retirement, rather than relying on a government pension or other retirement benefits. This typically involves accumulating sufficient savings and investments during their working years to generate a steady stream of income during retirement.
Self-funded retirees may use a variety of investment vehicles to build their retirement nests egg, such as stocks, bonds, mutual funds, and real estate. They may also use strategies such as diversification, asset allocation, and tax planning to maximize their retirement income and minimize their risk.
Self-funded retirees often have greater control over their retirement finances and may be able to achieve a higher standard of living in retirement than those who rely solely on government pensions. However, they also bear the risk of market fluctuations and the possibility of outliving their retirement savings.
What Is An Eligible Self-Funded Retiree In Australia?
In Australia, an eligible self-funded retiree is a person who has reached retirement age and is not eligible for a government-funded Age Pension due to their income and assets exceeding the relevant thresholds.
To be considered an eligible self-funded retiree, a person must meet certain criteria related to income, assets, and superannuation. Specifically, they must have:
- Income below the relevant Centrelink income test threshold for the Age Pension. This threshold changes regularly and depends on factors such as the retiree’s marital status and whether they own their home.
- Assets below the relevant Centrelink assets test threshold for the Age Pension. This threshold also changes regularly and includes all assets owned by the retiree and their partner, including property, investments, and superannuation.
- Total superannuation balance below a certain threshold, which is currently $1.7 million.
Eligible self-funded retirees are entitled to receive a Commonwealth Seniors Health Card, which provides access to a range of concessions and discounts on healthcare, prescription medicines, and other services. They may also be eligible for other government benefits and subsidies, such as the Seniors Supplement and the Pension Loans Scheme.
It’s worth noting that the eligibility criteria and thresholds for self-funded retirees may change over time, so it’s important to stay informed about any updates or changes to the rules.
How Much Do Self-Funded Retirees Earn?
The amount of income earned by self-funded retirees can vary widely depending on a range of factors such as their level of savings, investment returns, and spending habits.
Some self-funded retirees may have significant savings and investments that generate a high level of income, while others may have more modest savings and rely on a combination of investment income and government benefits to support their retirement.
According to a survey by the Association of Superannuation Funds of Australia (ASFA), the average annual income required by a retiree couple in Australia to enjoy a comfortable lifestyle in retirement was $62,828 as of September 2021. This figure assumes that the couple owns their own home and is in relatively good health, and covers expenses such as food, housing, utilities, healthcare, transport, and leisure activities.
However, it’s worth noting that this figure is only an average and may not be representative of every self-funded retiree’s situation. The amount of income required to support a comfortable retirement will depend on a range of factors, including the retiree’s circumstances, their desired lifestyle, and any ongoing expenses or debts they may have.
Do Self-Funded Retirees Have To Lodge A Tax Return In Australia?
Self-funded retirees in Australia are generally required to lodge a tax return each year if they meet certain criteria.
If a self-funded retiree’s taxable income for the financial year is above the tax-free threshold, which is currently $18,200 (as of the 2021-22 financial year), they must lodge a tax return. This includes income earned from investments such as interest, dividends, and rental income, as well as any capital gains from the sale of assets.
Self-funded retirees who receive income from a superannuation fund may also be required to lodge a tax return if their superannuation income exceeds certain thresholds. For example, if a retiree is aged 60 or over and receives income from a taxed superannuation fund, they will generally not need to pay tax on this income, but they may still need to include it in their tax return.
In some cases, self-funded retirees may be exempt from lodging a tax return if their income is below the tax-free threshold and they have no other tax obligations or entitlements. However, retirees need to check their circumstances and seek advice from a qualified tax professional to determine whether they need to lodge a tax return.
How Much Money Can A Self-Funded Retiree Give Away?
The amount of money that a self-funded retiree can give away depends on several factors, including their financial situation, their intentions for the gift, and the tax and legal implications of the gift.
If a self-funded retiree wishes to give away money to family members or friends as a gift, there are no specific restrictions on the amount they can give. However, it’s important to be aware that any gifts made by a retiree may be subject to gift tax, which is payable by the gift recipient in some cases.
The gift tax rules in Australia are complex and depend on a range of factors such as the amount of the gift, the relationship between the giver and the recipient, and the timing and purpose of the gift.
If a self-funded retiree wishes to give away money as part of their estate planning, there are specific rules and limitations on the amount that can be gifted without incurring tax or other legal consequences. For example, under current Australian law, a person can give up to $10,000 each financial year as a tax-free gift to another person, and up to $30,000 over five years as a tax-free gift to buy a first home.
Gifts above these limits may be subject to gift tax or other taxes or may affect the retiree’s eligibility for government benefits or entitlements.
Given the complex nature of the tax and legal implications of gifting, self-funded retirees need to seek professional advice before making any significant gifts or donations.
In summary, self-funded retirees are individuals who have reached retirement age and have chosen to fund their retirement rather than relying on a government-funded pension. These retirees must meet certain income and asset thresholds to be considered eligible for government benefits and subsidies.
The amount of income earned by self-funded retirees can vary widely depending on their level of savings, investment returns, and spending habits. Self-funded retirees may be required to lodge a tax return each year, depending on their circumstances, and there are specific rules and limitations on the amount of money that can be gifted without incurring tax or other legal consequences.
As such, self-funded retirees should seek professional advice to navigate the complex financial and legal issues associated with funding their retirement.