Making the most of my retrenchment payment

Most of us would like a comfortable retirement that allows us to live our dreams. While you may be tempted to spend your available retrenchment benefit immediately, it’s important to consider the impact on your retirement.

If you choose not to spend your non-preserved super, you can help boost your retirement savings and:

  • Defer taxation or pay no tax at all depending on your age and when you need to access your super.
  • Potentially reduce capital gains tax and income tax on investment earnings.
  • Take advantage of compound interest over the term of your super investment.

The cost of withdrawals

 

David is retrenched at age 40. His total retrenchment benefit is $100,000. $30,000 of his benefit is classified as non-preserved and can be taken as cash. David decides to take his cash component and buy a new car. 

As the graph below illustrates, by missing out on the compound interest on $30,000 over 25 years, David could reduce his retirement savings by $162,823. 

 

How David's car could cost him $162,823 in compound interest

 

Graph
The graph assumes money is invested at 7% for 25 years. The amount shown is the estimated value of the benefit in 25 years’ time with no further contributions and does not take into account any tax or fees that may be payable on the benefit.

 

To make sure that you make the most of any retrenchment benefit payable to you, why not take advantage of the advice services available through Telstra Super Financial Planning. To discuss your advice needs, call us on 1300 033 166.