Ask the Expert: When to finish working and how to maximise your super
Question 1
Hi Craig, thanks heaps for your many articles, much appreciated.
We are nearing retirement with good supers. Is there an optimal time within a financial year to retire? For example, the end of financial year or just after starting the next financial year?
All else being equal, it often comes down to tax and super payments.
If you will be paid out large amounts of leave when you are retiring, then you want to retire at the start of a financial year. This is because if you don’t have any other taxable income (because you are retired), then your leave payments will attract little or no tax.
However, if you have worked all financial year and get your leave paid out as a lump sum, then the tax on it will most likely be higher as you will be in a higher marginal tax rate.
If you do have substantial amounts of annual and/or long-service leave, then you should also consider taking your leave payments as regular income rather than a lump sum at the end.
The main advantage in doing this is that these payments attract employer super guarantee payments if taken as normal wages, but SG is not applied if taken as a lump sum.
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For example, let’s say you earn $6000 a month and have accumulated three months’ worth of (annual or long-service) leave at retirement.
If you take these payments as regular salary income, your employer will pay superannuation on them: $18,000 (three months’ pay) x 12 per cent (super rate as at July 1, 2025) = $2160 into your super over those three months.
If you simply take the leave as a lump sum when you retire, you will miss out on those SG payments.
Additionally, while you are on leave, your leave continues to accrue. In the above example, if you went on three months’ leave, by the time you got back, you would have another five days of annual leave accrued.
Question 2
When you use the term “super”, it means what exactly? Does it refer only to funds in “accumulation” mode?
If I retire and move all the funds from “accumulation mode” to “pension mode”, is this the same as cashing out and re-contributing.
Thanks for your question, it’s good for me to clarify.
I use the term “super” or “superannuation” when I talk about the funds in the superannuation system in general.
“Accumulation mode” is your super account that you have when saving for retirement. It’s where all your and your employer’s contributions go. Every adult working person would have at least one of these.
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Once you have an accumulation account, while there is no compulsion to close it, most people convert it to a pension or annuity when they retire. This is because those products pay a regular income from the super you have accumulated over the years. There are also tax advantages to moving into these products.
All contributions have to go into a super accumulation account first. They cannot go directly into a super pension account. This includes money being cashed out from a super or pension account and then re-contributed to super.
Moving/rolling funds from accumulation mode to pension phase is not the same as cashing funds from accumulation and re-contributing them.
Question 3
If you give away significant amounts of money, Centrelink wants to know for a tail period of five years. It’s the “deprived asset” test. How about if you use a redraw facility and give away money from a debt source?
When you retire, you can use the super to repay the bulk of the redraw debt, having carried an interest burden across the life of the donation to retirement. Does this affect the deprived asset test?
You are correct in that “deprivation” may arise where you dispose, destroy or diminish the value of an asset or income without receiving adequate financial consideration.
Amounts exceeding the disposal-free areas are treated as a deprived asset.
Deprived assets are assessed for five years from the date of the relevant disposal and are subject to deeming during that time.
Giving away money from a debt source makes no difference. It still would be captured under the deprivation rules.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
