You’ve worked hard for your money, so why keep it locked up in superannuation? It’s natural to want freedom and flexibility in accessing what’s rightfully yours.
As Andrew heads towards retirement age, he seeks a way to keep growing his wealth with the intent to create an income when he stops work. An Investment Bond is his long-term strategy.
Up until now, Andrew has focused on superannuation, meeting his contribution limits each year. However, he’s reluctant to continue adding all his extra cash to the fund.
What if he needs his money? What if he loses his job? What if his circumstances change? Or there’s an unexpected expense? He wants to explore other options where he can get to his money quickly if needed.
Andrew is keen to explore tax benefits. And fair enough: “I’ve paid my tax on the way in, why do I need to pay tax when I take my money out?”
"I want the ability to set up an income stream at the end without paying taxes again."
Andrew explored various investment strategies to complement his superannuation and maintain flexible access to cash. He found an Investment Bond to be a fitting solution, allowing him to work alongside his superannuation without restricting access to funds if needed.
The 10-year Investment Bond provided a means to earmark funds for retirement while offering the flexibility to withdraw money if necessary, albeit with some tax implications for early withdrawals. With no caps on the initial investment, Andrew could contribute any amount he desired from the outset and continue to add funds each year, limited to 125% of the previous year’s contributions.
As retirement approaches, Andrew can choose to adjust his investment profile to a lower-risk option, ensuring a more stable financial future. The Investment Bond proved to be tax-effective, with the tax paid within the fund at a rate of 30%, which was lower than Andrew’s current tax rate. This means he doesn’t need to add the investment’s earnings to his taxable income each year, provided he keeps the money in the bond for the full 10-year term.
Understanding that his goal was retirement, Andrew was content to keep the funds out of reach for a decade, confident that he could access them in an emergency. After the 10-year period, withdrawals will be tax-free, as the tax will have already been paid by the fund, allowing him to create an income from the bond without affecting his taxable income or entitlements.
Moreover, by holding the investment for the full term, Andrew would effectively pay no tax on the earnings, further enhancing the bond’s attractiveness. He also had the option to nominate a beneficiary to inherit the Investment Bond, with the assurance that there would be no inheritance tax on the transfer.
An Investment Bond has provided Andrew with a versatile and tax-efficient strategy to complement his superannuation, ensuring financial stability and flexibility when he approaches retirement.
Like superannuation, an investment bond has favourable tax treatment. However, it comes with less stringent rules around when and how you can access your money.
In the first year, there’s no limit to how much you can put into the bond. This means investors can start with a significant sum, no matter your age.
Tax is paid within the fund (at 30%), which means it does not count towards your annual income or get declared in your tax return. The standard term is 10 years, but you can access your money before that if you need to (forfeiting tax benefits) or leave it in for up to 40 years.
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