David’s wife is considering retiring soon, but he wants to know how to get the timing right.
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Q. David
My wife is presently on long service leave at half pay. She will retire very soon. Is it better to retire before the end of the financial year or at the beginning of the new financial year? We have received different answers to this question, and some say it doesn’t matter.
A. There are a number of different factors to consider when timing your retirement. Some people do not have a choice, finding themselves out of work before they reach retirement age, whereas others plan to retire on the day that they become eligible for the Age Pension.
One of the first decisions your wife will have to make as she approaches retirement is what to do about her leave entitlements from your employer. If she is taking her long service leave, she may want to consider taking the rest of her leave as well. There are two reasons why this is a good idea.
First, if she has a considerable amount of leave accrued with her employer, she can continue to earn extra leave while taking her break.
Second, her employer continues to pay superannuation into her account while she is taking whatever leave entitlement she is owed.
If she would instead prefer to take her leave entitlements as a lump sum, then she will have to think about timing her retirement appropriately. The reason is the tax man.
If your wife retires before the end of the financial year, her lump sum leave entitlements will be added to her earnings and could potentially lift her into a different tax bracket. This could result in her owing the Australian Taxation Office money when she completes her tax return.
The alternative is to retire early in the new financial year, and to try and keep her earnings down so that her leave entitlements attract the lower tax rate, making a big difference to the way she starts her retirement.
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
