When it comes to retirement, there’s no magic number. In order to determine how much to save, it’s important to note the type of retirement lifestyle you hope to enjoy. By doing so, it’s easier to determine how much annual income you might need to fund your future.
Creating a retirement savings plan can also help you understand what your desired retirement income might look like. Not only will this plan show how much you’ll need to get there, but it can also help you where you need to scale back in order to achieve your goals.
While it’s important to plan for retirement, the reality of our finances usually becomes clearer as we reach this stage of our lives. Unless you plan to rely solely on the age pension (which only provides for a very basic lifestyle), it may be worth looking at ways to boost your retirement savings in your final working years.
There are a number of ways to do this:
For starters, you may be able to increase your before-tax super (concessional) contributions. You could talk to your employer about making contributions via salary sacrifice, which is where part of your before-tax wage or salary is directed to super instead of being paid directly to you.
You may also be able to make a contribution out of your own pocket; super savings are only taxed at 15%, but be aware of the contribution caps.
If you have a spouse or partner, it may be worth making a contribution to his or her fund. Once again, be aware as annual limits on super contributions do apply. Your financial adviser can help explain these limits.
Now may also be the time to review your super fund, to check that your nominated investment strategy is in line with your tolerance for risk.
Pre-retirees may be tempted to shift their super into low risk, conservative options, however, it could pay to have part of your retirement savings, including super, invested in growth assets. By doing so, this could generate long-term capital gains. You can explore these options with a financial adviser.
Another option to consider is using part of your super balance to purchase a transition to retirement pension. When combined with salary sacrifice super contributions (if possible), these pensions may help you put more money into your super without reducing your take-home pay.
If you still have money owing on your home loan, you may be wondering whether it is better to use spare cash to pay down this debt or add the money to your super. It is a good idea to speak to your financial adviser, who would be able to advise the best option for your circumstances and the economic climate.
You may have plans to give your adult children or grandchildren a financial helping hand when you are retired. Just be sure you have sufficient funds in place to secure your own lifestyle first before offering financial assistance.
A self-managed super fund (SMSF) can have real pluses, allowing you to have more control over how your super is invested (within superannuation and taxation laws).
In addition to determining if you have sufficient capital for a SMSF to be worthwhile, consider whether you want the added responsibility, as managing your own retirement savings comes with costs of its own.
Keep in mind, there are also strict laws and regulations that govern SMSFs. As a trustee of your own super fund, you’re held responsible for your investments and complying with superannuation and taxation laws. Please ensure you consider the risks before setting up an SMSF.
Along with your superannuation, it may be a good idea to grow some of your investments outside of super. This may give you a diversified pool of funds to draw upon, as well as providing some protection against any unexpected legislative changes to super.
Downsizing to a smaller property could offer the benefit of a lower maintenance home, an opportunity to be closer to family and a way to access any potential home equity.
It is worth crunching the numbers to be sure downsizing puts you in front financially. The upfront purchase costs and notable stamp duty, in addition to ongoing costs, on your new home can take a bite out of your available cash.
There may be other options worth looking at, such as a reverse mortgages, which allow you to harness any home equity you may have without the need to sell a much loved family home.
If you are aged 65 or over, you may be able to make an after-tax (non-concessional) contribution into superannuation of up to $300,000 for an individual or up to $600,000 for a couple from the proceeds of selling your principal residence. The usual contribution caps of $100,000 per year will not apply in this situation and it doesn’t matter what your super account balance is (you would usually only be able to make after-tax contributions if your total super balance is less than $1.6 million).
To be eligible for this measure, you must have owned the principal residence for at least 10 years prior to selling it. This may allow you to unlock the value of your home to help boost your retirement income. You should be aware that unlocking these savings may impact your entitlement to Social Security benefits, such as the Age Pension.
 The Government has set caps on the amount of money you can add to superannuation each year on a concessional (before-tax) basis. From 1 July 2018, the cap on before-tax contributions to super is $25,000 per financial year. In addition, the government has set a non-concessional (after-tax) contributions cap of $100,000 per financial year. Those under age 65 can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $300,000 per person over a three year period. You will also only be able to make after-tax (non-concessional) contributions if your total super balance is less than $1.6 million. For more detail, speak with a financial adviser or visit the ATO website.
This information is current as at 13 March 2019.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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.
Any tax considerations outlined above are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.
Any projections are predictive in character. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be affected by inaccurate assumptions or may not take into account known or unknown risks and uncertainties. The actual results actually achieved may differ materially from these projections.
This Information 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.
BT Advisers are representatives of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian Credit Licence 233714 (Westpac). BT Advice is a Division of Westpac.