Everybody has a different retirement in mind. Some want to travel the world each year, while others want to downsize and spend time with their family and friends, locally. Regardless of the type of retirement you want, it’s important to have a plan as it starts to near.
Doing so helps to develop a good understanding of how much super you might need to retire in your 60s, as well as what to do with it. If it needs a boost, the federal government has just made it easier to contribute money to your super fund in your 60s, with no need to meet the work test until you turn 67.
Under the current work test, people aged between 67 and 74, now need to have worked at least 40 hours across no more than 30 consecutive days to be able to make additional voluntary contributions to their super fund.
Before you retire, it might be good to understand your spending patterns to determine how much you need to get by, or, to work out how much longer you need to work (either full or part-time). A good place to start is the ASFA Retirement Standard, December quarter 2019.
ASFA estimates people who want a comfortable retirement need $640,000 for a couple, and $545,000 for a single person when they leave work, assuming they also receive a partial age pension from the federal government. For people who are happy to have a modest lifestyle, this figure is $70,000.
To figure out which camp you fall into, take a look at your bank statement and calculate where you spend your money and what you spend it on. Go back a number of years to get a really good feel for your finances.
Making small additional contributions to your super fund can make a difference when you do retire. So if you are able to, it’s a good idea to make voluntarycontributions to your fund each year.
Based on 2020 ATO rules, you can add up to $25,000 to your super account each year, which includes the 9.5 per cent your employer is obliged to contribute to your chosen super fund each year, and receive a tax benefit. This means the tax you pay could be reduced simply be making an extra voluntary contribution from your ordinary earnings to your super fund each year.
You can also consider contributing money to your super fund from any windfalls you may receive from inheritances or bonuses you receive through work. You don’t necessarily need to add the whole amount from your windfall to your super – although you could. Just be aware adding a portion of these funds to your super balance could make a difference when you retire, although you won’t be able to access the funds until then in most cases.
If you have paid off your home, you may consider redirecting part of your mortgage repayments to your super account to add to your balance. You may be able to contribute $100,000 to your fund each year on an after-tax basis and even contribute up to $300,000 in one year to your fund under the bring forward provisions, as long as your super balance is equal to or less than $1.6 million.
If you sell a business you have owned for more than 15 years, you may be able to contribute some of the proceeds from the business’ sale tax-free to your super fund. This is a complex area of the super rules and if you’re in this situation, it’s a good idea to seek independent professional financial advice.
As you get older, it also becomes important to ensure your estate planning is up to date, especially when it comes to your super. Remember, super is not considered to be an estate asset and you need to make either a binding or non-binding nomination about how you wish your super assets to be treated after your death.
If you make a binding nomination, this gives the trustees exact guidance about what should happen to your super after you die. These nominations are only valid for three years, so be sure to keep them up to date. But if you make a non-binding nomination, this will only give them a direction about your super. They will have some discretion about what should happen to these funds.
Next: Transition to retirement
The article was prepared by BT - Part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714, and is current as at 14 July 2020. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it.
This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.
Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.