Can you afford to retire early? (Ali Roshan)

 

Ever dreamt of retiring early? Yet without winning the lottery or inheriting a fortune from a long lost relative, just how possible is it to structure your finances so you never have to work again?

 

Many Australians working for a living, dream of the possibility of retiring early, spending their days travelling or playing golf or doing nothing much at all.

 

There’s even a name for it these:

 

FIRE - The Financial Independence, Retire Early movement

The FIRE movement is prompting more and more young Australians to question exactly what it takes to retire early. How possible is it to structure your finances so you never have to work again?

 

According to the Australian Bureau of Statistics, the average Australian retirement age is just 55.4 years [info link], which makes it seem that early retirement is somewhat the norm for Australians. However, this number is dragged down by partners who stop work while their spouses support them financially, and people forced into early retirement by redundancy or medical issues.

 

So, how plausible is it to stop working sooner rather than later?

The answer depends on how soon you start setting goals and saving for your retirement, the type of retirement you dream of, where you are hoping to live, and whether you have children or other dependents you need to support. It’s also more achievable if you can structure your life so you are still earning at least some income, whether from a positively geared investment portfolio, a hobby or something you love doing and would do anyway.

 

The Association of Superannuation Funds of Australia (ASFA) currently suggests a couple who owns their own home requires $62,000 a year ($640,000 in savings) [info link], to enjoy a comfortable retirement in Australia. At the other end of the scale, some people are eager to retire overseas to a country such as Indonesia, where living expenses can be a fraction of what they are in Australia.

 

The key to deciding whether you can retire early depends on just how determined you are to achieve it.

 

You need to think through your lifestyle requirements and determine if you need a simple caravan and campsite in rural or regional Australia, or whether you require a five-bedroom home in leafy metropolitan suburbia. You’ll also need to ensure your retirement savings are invested in quality assets that will continue to generate a strong, consistent level of income.

 

As your financial planners, we can help you with this.

A good tip is to keep your options open and your job skills up to date, in case you have a change of heart and decide you do want to go back to work, even if only on a part-time basis. In fact, you might be better off taking what is increasingly referred to as a mature age ‘Gap Year’ and try out what it’s like living overseas or spending all day on the beach before you quit your job.

 

While being permanently retired and free to live each day as you choose does sound wonderful, it’s still important to set yourself goals while in retirement. As always, the earlier you start setting goals and putting financial plans into place to achieve your early retirement dreams, the better.

 

 

Ali Roshan is an Authorised Representative (ASIC No. 000378611) of Lifespan Financial Planning

ABN 23 005 921 735 AFSL Number 229892

No Advice Warning / General Advice

 

The purpose of this article is to provide general information only and the contents of this website do not purport to provide personal financial advice. KNP Solutions strongly recommends that investors consult a financial adviser prior to making any investment decision.

 

The contents of this knp Solutions article does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.

 

The information is selective and may not be complete or accurate for your purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this website is given in good faith and is believed to be accurate at the time of compilation.

 

Higher PAYG withholding rates continue to apply to backpackers

 

As we recently communicated, the High Court has held that the 'working holiday maker tax' (also known as the 'backpackers tax') did not apply to a taxpayer on a working holiday visa from the United Kingdom who was also an Australian tax resident.

 

This was due to the application of the Double Tax Agreement between Australia and the United Kingdom.

 

This tax treatment will only apply where the working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.

 

However, the ATO has recently told employers that the higher PAYG withholding rates continue to apply to working holiday maker employees.

 

This is regardless of the country they are from (unless the employer receives an PAYG variation notice from the ATO). 

 

Broadly, the working holiday maker withholding rates apply as follows:

  • If the employer is registered with the ATO as an employer of working holiday makers, they should withhold tax at the tax rate of 15% from the first dollar the working holiday maker employee earns up to $45,000.
  • Tax rates change for amounts above $45,000.
  • If the employer is not registered with the ATO as an employer of working holiday makers, they must withhold tax at 32.5% from every dollar the working holiday maker employee earns up to $120,000. 
  • The foreign resident withholding rates must be applied to income over $120,000.

 

If a working holiday maker employee has had excessive amounts of PAYG withheld from their salary, they can lodge a tax return at the end of the income year to receive a tax refund (where eligible).

Single Touch Payroll exemption extended for WPN holders

 

The ATO has extended the Single Touch Payroll (‘STP’) reporting exemption available to entities that have a withholding payer number (‘WPN’).

 

As a result of this extension, certain entities that have a WPN (but not an ABN) will not be required to report under STP for the 2021-22 and 2022-23 financial years. 

 

This continues the exemption that has been provided to relevant entities since the commencement of the 2018-19 financial year.

 

Editor: Any entity covered by the exemption may still choose to voluntarily report under STP.

Payment extension relating to JobKeeper objections

 

The JobKeeper rules have been amended to ensure the ATO can make payments to certain taxpayers after 31 March 2022.

 

Where a taxpayer has objected to an ATO decision relating to JobKeeper, a payment can be made by the ATO after 31 March 2022 to give effect to the objection decision and decisions of the AAT or a court.

 

Importantly, this extended payment date will only apply where a valid objection was given to the ATO on or before 30 November 2021.

knPeople

 

Back in the Office

As a new month of the year begins, we return to a familiar setting back in our Armadale office. It’s been refreshing working with each other in person once again – something we will certainly never take for granted after the last two years!

 

 

 

Newsletter - March 2022 Edition

 

7 March

Congratulations!

 

We would like to congratulate, Kate McGillivray of The Body Lab and her husband Luke Guberek on the exciting news of the arrival of their second child! This is Levi Harley Guberek born 15th February 2022, 51cm long and weighing 3.6kg.