While the terms “sugar daddy” and “cougar” can conjure up images of Hugh Hefner, Anna Nicole-Smith, Geoffrey Edelsten or Demi Moore (even Stifler’s mom for the American Pie fans!!), there are plenty of real life examples of couples that need to plan for, and deal with, their significant age differences in planning for retirement.
It is not uncommon to see couples nowadays with an age difference of 10 years or more; in most instances it is the older partner that is more than likely having come from a previous relationship. It is this age difference and blended family situation which present some unique planning and strategy opportunities, including within self managed super funds.
One of the important considerations is whether to consolidate wealth into the name of the older fund member, or alternatively look at a deferral strategy of the asset-test for Age Pension entitlement. Where the member is 60 or over, the ability to draw tax-free income is a highly attractive outcome and would arguably be the default position where the member is unlikely to qualify for any age pension. However, subject to the couple’s level of assets, age difference and objectives, an alternative approach may be to shift wealth into the younger partner to potentially qualify for an age pension for a longer period of time (due to the operation of the assets test).
Where both members are still accumulating, the use of contribution splitting can also be an important tool to split up to 85% of concessional contributions amongst spouses each financial year. In addition, segregation of fund assets could be utilised to grow or manage the older member’s account balance.
Blended families also create their own challenges, where it is also likely that the ‘sugar-daddy’ or ‘cougar’ may be comfortable to provide for their spouse/partner’s living requirements, but doesn’t want him or her to have access to the capital of the income stream – this is to benefit the children from the original (or prior) marriage(s). The use of a conditional pension may be a suitable consideration in these circumstances. As a minimum, significant attention needs to be paid to the instructions of the death benefit nomination, which is likely to contain specific binding instructions around the payment of death benefits amongst the member’s beneficiaries.
Whoever’s ‘robbed the cradle’, it is important to note that couples with significant age gaps have unique retirement planning needs and opportunities. While the person may receive an occasional stare or a high-five from friends who are impressed by their ability to attract a younger mate, couples in this situation can potentially take advantage of this unique situation to build and access retirement savings, defer the asset-test for age pension entitlement if needed, and build various other strategies with contributions and the fund’s investment strategy.
What other superannuation strategies are available for sugar daddies and cougars? I’d love to hear your thoughts…
PS. one for the American pie fans…