I don’t want to leave an inheritance. How do I spend it all before I die?

I don’t want to leave an inheritance. How can I live and use up everything I have built up? I’m 59 and don’t have children, so I don’t have anyone to leave my money to. I own my apartment and have some super.  I work full-time and think I need to keep working to 65, but would love to retire sooner.  

It’s inconvenient that we don’t know how long we are going to live. That’s the primary challenge you face here.

Your super could be invested in a lifetime annuity at the point that you retire. Lifetime annuities pay you a fixed amount of income every month until you pass away. Be sure to buy one which adjusts for inflation each year. Lifetime annuities don’t offer a lot of flexibility, so consider retaining a portion of your super in a more typical account-based pension.

You could access the equity in your home via selling and then renting. But losing the security of owning the roof over your head would not appeal to me. Alternatively, you could use an equity release scheme, such as the one provided by the government, with the debt cleared when your home is sold, either upon death, or because you have entered aged care.

Given the potential need for care later in life though, my inclination would be to hold on to your home equity, and take comfort from the fact that this is available to fund any care needs. Dying with zero might be tricky to accomplish, but you should be able to come close.

Get a financial planner to do some modelling for you to test whether you need to work until 65. A lifetime annuity provides considerable certainty, which potentially allows you to finish up earlier.

Is it worthwhile claiming a tax deduction for my super contributions if my taxable income is under the $45,000 threshold? I’m 64, single and semi-retired. I have been trying to get $30,000 into super each year for the past few years to build up a nest egg for later in life when things like aged care might become relevant.

No, it is not. In fact, you may end up paying more tax.

When we make a tax-deductible contribution to super (a concessional contribution to use the jargon), 15 per cent tax is deducted by the super fund. For you to gain a benefit, it must be the case that your personal tax payable exceeds 15 per cent.

As of July 1 this year, the tax rate applicable for income between $18,201 and $45,000 is 15 per cent, so income reduced in this band due to claiming a super contribution tax deduction achieves no benefit.

You save 15 per cent tax personally, but then pay it anyway when the money arrives in your super fund. You have saved on the 2 per cent Medicare surcharge, but I doubt that’s sufficient to be worth the bother.

But having a neutral outcome is actually best case because if the tax deduction takes you below the $18,201 point, there would have been 0 per cent tax applied to this money, whereas now you have paid the 15 per cent super contributions tax.

It’s also worth noting that the ATO won’t allow a tax-deductible super contribution to take your income into negative territory. So if your taxable income is less than the amount you contribute into super, the claim will get disallowed anyhow. This is not to say you shouldn’t contribute to super, just that a non-concessional contribution might serve you better.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au

• 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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