Page 9 - FWP Wealth Adviser Newsletter - February 2025

ISSUE 105
FEBRUARY 2025

Recent years have seen significant shifts in global bond markets.
“Higher bond yields could draw capital away from equities,
pressuring returns,” warns economist Sarah Green. This dynamic can
have profound implications for retirement portfolios, potentially

necessitating a reassessment of asset allocation strategies.

Age Minimum Withdrawal Rate as non-concessional contributions, potentially increasing
Under 65 4% the tax-free component of the superannuation balance. This
65-74 5% can be especially beneficial for estate planning, as it may
75-79 6% reduce the tax burden on non-dependent beneficiaries.
80-84 7%
85-89 9% Navigating Market Risks in Retirement
90-94 11% While optimising the tax efficiency of your retirement
95 or more 14% strategy is crucial, it’s equally important to consider the
broader economic environment and its potential impacts on
These withdrawal rates ensure that pension accounts your retirement savings.
are used for their intended purpose – providing retirement
income – rather than as a tax-free investment vehicle. The Impact of Rising Bond Yields
Recent years have seen significant shifts in global bond
Combining Accumulation and Pension Accounts markets. “Higher bond yields could draw capital away from
A nuanced approach to retirement planning often equities, pressuring returns,” warns economist Sarah Green.
involves maintaining both accumulation and pension ac- This dynamic can have profound implications for retirement
counts. “Leaving part of your super in accumulation phase portfolios, potentially necessitating a reassessment of asset
can hedge against longevity risk,” notes superannuation allocation strategies.
expert John Smith. This strategy provides flexibility, allow- The Reserve Bank of Australia’s 2024 analysis on bond yields
ing retirees to manage their taxable income and potentially and retiree spending patterns highlights the need for retirees
access additional funds if needed later in retirement. to remain vigilant about interest rate movements and their
potential impact on both fixed income and equity investments.
Tax-Efficient Strategies for Transitioning to
Pension Mode Mitigating Concentration Risks
Another key consideration for retirees is the risk of
Pre-Retirement Concessional Contributions over-concentration in their investment portfolios. The
In the years leading up to retirement, making additional dominance of a small number of large tech companies, often
concessional contributions to your superannuation can be referred to as the “Magnificent 7,” has led to significant
a powerful tax-minimisation strategy. “Making additional market concentration in recent years.
contributions before retirement can lower your taxable “Investors overly reliant on past winners risk being
income in later years,” explains financial adviser Jane Doe. blindsided by market shifts,” cautions investment analyst
These contributions are taxed at the concessional rate of David Lee. This warning underscores the importance of
15%, which is often lower than an individual’s marginal tax maintaining a well-diversified portfolio, even in retirement.
rate, resulting in immediate tax savings and a larger retire- MSCI research on historical market concentration risks
ment nest egg. further emphasises this point, showing that periods of
high concentration have often been followed by significant
Recontribution Strategies market rotations.
For those with a mix of taxable and tax-free components
in their superannuation, recontribution strategies can be Case Study: A Resilient, Tax-Optimised
particularly effective. “Recontributing funds from a taxed Retirement Plan
element to a tax-free component can benefit beneficiaries,” To illustrate these principles in action, let’s consider the
states superannuation specialist Tom Brown. This approach case of Margaret, a 62-year-old approaching retirement with
involves withdrawing funds and then recontributing them a superannuation balance of $2.1 million.

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