Once I start getting my super, can I never work again?

I’m 62 and retired from full-time work at age 60. Last year, I did a four-week temporary role at another company. To convert my super to an account-based pension, I must declare that I’ve retired. Does this mean I can never work again – even in a short-term role – or does retirement only refer to full-time work?

Because you ceased employment after turning 60, you met a condition of release at that point – regardless of any short-term work since. If you haven’t worked again since that temporary role, you can access your super and start an account-based pension.

Once you stop working, you can crack into your super.Credit: Simon Letch

I’m perplexed about the deeming rates that Centrelink uses when assessing the pension. I don’t understand the difference between deemed income and taxable income. Could you please elaborate?

When you apply for the age pension, Centrelink doesn’t look at the actual income you earn from things like bank accounts, shares, or managed funds. Instead, they apply what’s called a deeming rate to estimate what your assets should be earning. This estimate is known as deemed income.

It’s important to understand that deemed income is very different from taxable income. Deemed income is simply a figure Centrelink uses to calculate your pension entitlement – it doesn’t reflect what you actually receive.

On the other hand, taxable income is the real income you earn and report to the Australian Tax Office, including things like wages, rent, dividends, and interest.

Let’s say you have $100,000 in the bank. Even if the bank is only paying 1.5 per cent interest, Centrelink may assume you’re earning 2.25 per cent – which means they’ll count $2250 a year as your income under the pension income test. But, for tax purposes, you’ll only declare the actual $1500 you received.

The key takeaway is that deeming is a standardised method used by Centrelink to simplify the income test. It may not reflect real-life returns, but it avoids the need to track every dollar of income from various investments.

And in some cases, particularly when investments perform better than the deeming rate, it can work in your favour.

We are aged 71 and 66 respectively and still owe $300,000 on our home. We hope to pay this off in four years when we retire. Currently, we’re maximising salary sacrifice, drawing a pension from super to cover loan repayments, and throwing every spare dollar at the mortgage. But we’re wondering: would it be smarter to simply withdraw $350,000 from super now, clear the debt, and use the next three to four years to rebuild our super? We’re also mindful that super returns have been underwhelming lately.

In theory, you’d hope your super returns over the next few years would outpace the interest on your home loan. But with rates likely sitting around 5.5 per cent or more – and given your relatively short timeframe – I’d lean toward withdrawing the funds now and wiping out the mortgage.

That gives you certainty and peace of mind. You can then rebuild your super month by month through salary sacrifice. Investing regularly while markets are down lets you take advantage of dollar cost averaging – a proven strategy for long-term wealth-building.

My will leaves my share of our home to my husband, and my super is to be split three ways – between him and our two financially independent children. Would my children pay tax on their share of my super? I understand a good strategy might be to instruct my attorney to withdraw all my super if death is imminent and deposit it into my bank account. Would that avoid tax and be distributed through my estate?

Yes – there’s a 15 per cent death tax plus Medicare levy on the taxable component of super left to a non-dependent. A partner is always treated as a dependent, so no tax applies to their share. As you say, if your attorney withdraws your super tax-free before death, there’s no taxable benefit left, so no death tax applies.

The two key reasons to keep money in super are asset protection and the low-tax growth environment. But once you’re older, you may decide it’s better to take money out tax-free while you can and gift it to your beneficiaries – enjoying the satisfaction that brings. Just be mindful of how gifts may affect any age pension entitlements.

If you’re under 75, another option is a recontribution strategy: withdraw tax-free and recontribute it as a non-concessional contribution. This reduces the taxable component, and therefore any future death tax.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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