Investors looking for tax-effective strategies outside of superannuation in light of the budget changes could opt for investment bonds, particularly if they are aiming to retire before reaching preservation age or scaling back their working hours while generating steady income.
Such was the recommendation from funds management firm, Lifeplan, which said investment bonds was similar to super with tax rates somewhere between super and high marginal tax rates but without the constraints of super.
Head of Lifeplan, Matt Walsh, said: “In effect, it creates a true transition to retirement strategy outside of superannuation”.
“In this situation, an investment bond can be drawn on with a ‘deductible amount’ plus a tax offset in accordance with the individual’s marginal tax rate,” Walsh said.
Walsh said if an investor decided to cut their work by 20 hours a week, they could replace lost income by drawing on an investment bond. The withdrawal amount can be as much as the investor requires, and it includes both a capital and earnings component. The capital component would not be taxed.
Investment bonds also did not have restrictions on withdrawals before preservation age, and withdrawals would be non-assessable for income tax purposes and there was no preservation age or condition of release once the policy was 10 years old.
