Roger is currently aged 58 and is retiring with $550,000 accumulated in superannuation. He was retrenched from his previous role a couple of years ago and accessed some of his super and employer termination payments at this time - about $110,000 in total (all Post June 1983).

Roger, with the urging of his wife Claire, plans to embark on a range of activities that he has deferred in the last couple of years. This includes a trip to America, renovations to the kitchen as well as spending more time on his passion of woodworking (he will need new equipment). He estimates that he will need about $90,000 to make this happen.

If Roger immediately withdraws the money from super

Roger does not want to delay, so he withdraws the $100,000 that he requires from his super (including an allowance for tax), understanding that he will need to pay some tax in the process. He accepts the inevitability of the $12,277 tax bill.

If Roger seeks advice now

Roger learns from his adviser that under the new superannuation rules any withdrawals from superannuation after age 60 will be entirely tax free. So, to avoid incurring the large tax liability he works out a strategy with his adviser.

Firstly, Roger will immediately withdraw $25,590 from super. This will keep him below some critical tax thresholds and allow him to access these funds tax-free.

Secondly, he will use the line of credit on his home to borrow an additional $70,000 (including allowance for interest payments) for two years.

To assist his cashflow, he will make repayments to cover just the interest cost of the loan during this time and pay the loan off in full after age 60 by using the money in his super fund – that he will be able to redeem tax free in two years time. The interest on the loan during this time will be approximately $5,700. This is a saving of $6,577 compared to paying tax immediately.

The good news is that Roger and Claire get to immediately enjoy the things they love, while avoiding a hefty tax bill.

This approach helps Roger and Claire but is it suitable for you? How will you make the right choices?

Make an enquiry or see an adviser now, or call us on 1800 626 881.

Assumptions: Previous indexed withdrawals from superannuation $110,000. Low rate tax-free threshold 2006-07 $135,590. Superannuation withdrawal subject to tax at 16.5%. Loan interest rate 8% pa. Line of credit drawing $2,700 per month.

*Important Note: Roger and Claire are not real people. This example is based on the type of financial situation that ipac’s financial advisers help people manage all the time.

The information provided in this article by ipac securities limited is for general use only and has not taken into account any individual's personal circumstances or objectives. You should speak to a financial adviser before taking any action.