Shila, at 58 years old, has spent 13 years working at an engineering firm, earning a commendable salary. She intends to continue working for a few more years, as she believes she has much more to offer in her current role.
Her employer, No-mans-project, has been exploring AI-driven process optimisations for several years and is now prepared to implement these new systems. Unfortunately, this shift will involve some redundancies, and Shila is one of the employees facing potential redundancy.
Shila stands at a crucial crossroads in her career; she is weighing her options between retirement, seeking new employment for a few more years, or accepting a lower salary in a different role. With her superannuation preservation age approaching at 60, the decision is pressing.
Let’s delve into the options available for Shila, along with an analysis of their pros and cons.
Shila accepts the redundancy
Firstly, we’ll look at her assessable income at the end of the financial year, factoring in the redundancy benefits.
| Component | Benefit amount | Tax impacts |
| Shila’s salary, before tax, at the year’s end. | $220,000 | Taxed at her marginal tax rate. |
| Genuine bona fide redundancy payment from No-mans-project. | $90,956 | $12,524 (2024-25 base limit) * 13 qualifying years * $6,264 (2024–25 threshold) = $93,956 is tax-free for a genuine bona fide redundancy. Hence, the total $90,956 is tax-free for Shila, and the full lifetime income cap of $180k does not apply, since her redundancy benefits are below the tax-free threshold of $93,956. |
| Long Service Leave (post-1993) | $38,000 | Taxed at her marginal tax rate. |
| Annual leave (all post-2015) | $30,000 | Taxed at marginal rates. |
| Investment income (Managed fund earnings) | $18,000 | Taxed at marginal rates. |
| Total income | $396,956 | Not all $396,956 is assessable income; her tax-free income from redundancy payments needs to be accounted for. |
Shila’s assessable income if she accepts the redundancy
If Shila decides to take the redundancy, her assessable income for the financial year will be as follows:
- Wage: $220,000
- Long service leave payout: $38,000
- Annual leave benefit: $30,000
- Investment income: $18,000
- Total assessable income: $306,000
Shila’s options with her after-tax income
Assuming Shila pays a certain amount in taxes on her assessable income of $306,000, she will have $396,956 – X amount to consider for her next steps. It is worth noting that she has not yet reached her superannuation preservation age of 60.
Superannuation contribution
Shila might consider contributing a substantial part of her benefits to her superannuation as a non-concessional contribution, utilising the non-concessional contribution bring-forward limits. This allows her to contribute up to 1 or 2 years’ worth of annual caps from future years.
This means she could contribute up to 2 or 3 times the annual cap amount during the first year of the bring-forward period. For the 2024-25 financial year, the non-concessional contribution cap stands at $120,000, allowing Shila to contribute as much as $120,000 * 3 years = $360,000 this financial year, assuming she hasn’t already used the bring-forward cap.
Shila also needs to consider her Total Superannuation Balance (TSB) cap of $1.9 million (from 2023/24) to assess how much non-concessional contributions she can make before reaching the limit. At 58 years old, she does not need to meet the work test to make her non-concessional contributions.
This could be a viable option if she does not require immediate funds for other purposes. Additionally, being only two years away from reaching age 60 means she can access her superannuation benefits without incurring withdrawal tax if she opts to remain retired.
Other options
Shila has a variety of other options at her disposal. These might include investing outside of the superannuation environment, paying off debts or a mortgage, or planning to return to part-time or full-time work in the near future.
What does Shila choose?
With her children grown and nearing the end of her mortgage, Shila has been considering consulting or part-time project roles.
She mentions, “I’m not rushing back into a 9–5. I might take six months off, perhaps take on a few contracts or join a board.”
This strategy gives her the opportunity to reflect on her life, the chance to upskill, pivot, or semi-retire, while ensuring she has a solid superannuation balance to rely on. Shila ultimately decides to start a part-time job from July 1 of the following year, making sure her redundancy payout doesn’t push her into a higher tax bracket when combined with her part-time income.
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