There is no magic figure that shows how much all of us need in retirement. The important thing is to understand the sort of retirement lifestyle you hope to enjoy and determine how much annual income you might need to fund this goal.
One strategy that can give you a good idea of your desired retirement income is to write up a retirement budget. It can show how much income you will need but also let you fine-tune your ideal lifestyle if it looks like you may need to scale back your plans.
It’s often only when we are approaching retirement that the reality of the financial side of things becomes clearer. 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 may like to talk to your employer about making contributions via salary sacrifice. This is where part of your before-tax wage or salary is directed to super instead of being paid directly to you.
Or you may 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.1
If you have a spouse or partner, it may be worth making a contribution to his or her fund.
Be aware, annual limits on super contributions do apply.
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, but bear in mind you could have 20 or even 30 years of living ahead. It could pay to have at least part of your retirement savings, including super, invested in growth assets that 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 be able to help you put more money into your super without reducing your take-home pay.
1. 1. 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 2017, 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. From 1 July 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.
If you still have money owing on your home loan, you may be wondering whether it is better to use any 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 of 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 complete control over how your super is invested (within Tax Office guidelines).
Your financial adviser can explain if a SMSF is right for your circumstances. Managing your own retirement savings is a significant responsibility – and one that comes with costs of its own.
In addition to determining if you have sufficient capital for a SMSF to be worthwhile, consider whether you really want the added responsibility.
There are 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 aware of the risks to consider 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 on 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, notably 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 mortgage, which allows you to harness any home equity you may have without the need to sell a much loved family home.
Changes announced in the 2017/18 financial year Australian Federal Budget
In this year’s Federal Budget, the Government announced a proposal to help older Australians who downsize their family home to invest some of the proceeds into superannuation.
If the Government passes legislation to enable this proposal, from 1 July 2018, if you are aged 65 or over you will be able to make after-tax (non-concessional) contributions 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 new 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 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.
This information is current as at 4 July 2017.
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.
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