While planning your retirement can mean different things to different people, more often than not, the type of retirement you can afford comes down to the plans put in place to set yourself up for the future.
How much you may need, how and when you can start accessing your super and having a plan in mind when moving into retirement are all things worth considering.
The first big question you might ask yourself at 50 is ‘how much do I need to retire’ and ‘how long will my money last?’
While a logical question, it’s often a difficult one to answer. The amount you need will differ depending on the plans you have and the financial resources at your disposal.
You can find many retirement income estimates in financial commentary today, and while not necessarily personalised to your unique circumstances, these can help show the costs you may expect in retirement.
To personalise this approach, one of the simplest ways to estimate your retirement income needs is to take your current expenses and assume you may only need to fund around 70 per cent of these in retirement.1
While this method is a broad but useful starting point, it doesn’t really help in determining the savings you need to generate this level of retirement income. It also ignores any other one off retirement expenses you might expect to incur.
Another method is to take your current annual expenses and then multiply this amount by varying factors depending on the age at which you plan to retire. Taking into account a set of assumptions, this method provides you with an estimated capital amount to aim for in order to generate the retirement income you need.
Keep in mind the investment returns your savings generate and your actual level of expenses in retirement will have a notable impact on whether the projection ends up being right for you.
A personalised retirement plan, determined by you or with the assistance of professional advisers, will always yield a helpful result.
Your super provides not only a tax effective way to save for retirement, but also a tax effective way to assist funding your retirement income needs once you reach an age at which you can access your accumulated benefits.2
Over your working life, it’s likely you have made contributions to your super fund via your employer, and perhaps, also directly to yourself to save for your retirement.
It’s certainly important to periodically revisit how your super is invested, the fees you are paying and the returns you are receiving to ensure your super remains on track to help you achieve your retirement goals.
From your preservation age, which is a legislated age anywhere between 55 and 60 depending on when you were born, you may be able to access some of your super to assist with either transitioning to retirement by reducing your hours worked or implementing other super strategies to boost your retirement savings while you continue to work.3
Keep in mind your preservation age may be up to ten years earlier than the age at which you may become eligible for a part or full Age Pension.4
After you have met a condition of release of your preserved super benefits, any payments you take from super from age 60 are tax free. The most common full condition of release is reaching your preservation age and then retiring, however from age 65 you are able to access your super regardless of your work status.5
Your 50s also present an opportunity to start planning how much you may wish to contribute to your savings, repaying debt such as the mortgage against your home, and planning any final super contributions to boost your retirement savings.
While your super is likely to form a cornerstone of your retirement income planning, it doesn’t need to be the only piece of your retirement income plan. Savings and investments outside of super can also be used to provide you with alternative financial resources for your retirement, often tax effectively with the benefit of tax offsets available to eligible senior Australians.
Repaying as much of your outstanding debts as possible, can make a big difference come retirement. While building your retirement savings, also consider a plan to proactively clear your debt by redirecting free cash flow to reducing the amount you owe, thereby strengthening your financial position.
After the age of 65, it’s generally those who continue to work who make additional contributions to super, so through your 50’s, have a plan around what final super contributions may mean for you. While many of the external factors which contribute to the retirement landscape, such as the current regulatory environment or the performance of investment markets, may be outside of your control, focusing on the things you can control will go a long way to getting you the retirement you want.
2 Australian Government Australian Securities & Investments Commission. “Tax & Super.” ASIC's MoneySmart, c=Au;o=Australian Government;Ou=Australian Government Australian Securities & Investments Commission, 4 Feb. 2019, www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/tax-and-super.
3 Australian Taxation Office. “Preservation of Super.” Australian Taxation Office, Australian Taxation Office, 1 Dec. 2015, www.ato.gov.au/super/self-managed-super-funds/paying-benefits/preservation-of-super/.
4 “Age Rules.” Centrelink - Australian Government Department of Human Services, www.humanservices.gov.au/individuals/services/centrelink/age-pension/eligibility/age-rules.
5 Australian Government Australian Securities & Investments Commission. “Tax & Super.”ASIC's MoneySmart, c=Au;o=Australian Government;Ou=Australian Government Australian Securities & Investments Commission, 4 Feb. 2019, www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/tax-and-super.
The article was prepared by BT Financial Group (BTFA). BTFA is a division of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 1 February 2019. 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 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.
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.
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.”