Most of us dream of the day we can stop working and start ticking off our bucket list. Whether you dream of a trip around the world, watching the sun rise over Uluru, improving your golf handicap or spending time with the grandkids, superannuation is likely to be a major source of your retirement income.
The more money you squirrel away in super during your working years, the rosier your retirement options will be. Having a clear vision of how you want your retirement to look and setting some goals will help keep you on track.
These are some essential things to address as you start to plan your exit from the daily grind.
1. Estimate your needs
You will need around two thirds (67 percent) of your pre-retirement salary to enjoy a similar standard of living in retirement. Lower income households may need more because they typically spend more of their income on necessities before and after retirement.
The latest ASFA Retirement Standard estimates that a couple retiring today needs a retirement super balance of $640,000 to provide a comfortable standard of living. This would provide an annual income of $60,977.
Singles need a lump sum of $545,000 to provide a comfortable income of $43,317 a year. These figures assume people own their home and include any entitlements to a full or part Age Pension.
The MoneySmart retirement planner is a handy tool that will look at what income you're likely to get from super and the age pension when you retire. It will also calculate how contributions, investment options, fees and retirement age affect your retirement income.
2. Your retirement bucket list
If you have plans to travel once a year and to be able to dine out regularly you may need to include a little extra in your budgeting. It’s also good to think about the ongoing costs associated with your other leisure activities.
3. Will I relocate or downsize?
Your living arrangements in retirement should be based on more than just your finances. Your health, partner, family and what activities you decide to pursue once you stop work will all play a part.
If you’re thinking of downsizing to release money from your property, planning ahead can help you feel more in control and provide greater peace of mind as you can assess any out-of-pocket costs in advance.
4. Look at ways to boost your super
According to the latest figures, the mean super balance for all workers is $111,853 for men and $68,499 for women. The mean balance at retirement (age 60-64) shows most people retiring today fall well short of the amount needed for a ‘comfortable’ retirement.
The gap between men and women persists at all ages. By the time women reach their 60s they have 42 percent less super than men on average and are more likely than younger women to have no super at all.
If your super is not tracking as well as you would like, there are ways to give it a kick along. When your budget allows, or you receive a windfall, consider putting a little extra in super. Even better, set up a direct debit or salary sacrifice arrangement.
You may also be able to make a tax-deductible contribution up to the $25,000 annual concessional cap.
You may also be able to contribute up to $100,000 a year after tax, or $300,000 in any three-year period. You can’t claim it as a tax deduction, but earnings will be taxed at the maximum super rate of 15 percent rather than your marginal rate and you can withdraw the money tax-free from age 60. Your age and the amount you have in super can restrict the amount of contribution caps.
If you earn less than $37,000, your partner can contribute to your super and claim a tax offset of up to $540. The offset phases out once you earn $40,000 or more.
If you are a mid to low income earner and make an after-tax contribution to your super account, the government will chip in up to $500. To receive the maximum, you need to earn less than $37,697 and contribute at least $1,000 during the financial year. The government co-contribution reduces the more you earn and phases out once you earn $52,697.
Speak with your employer about directing some of your pre-tax salaries into super. ‘Salary sacrifice’ contributions are taxed at a maximum of 15 percent (30 percent if you earn over $250,000). But stay within your concessional contributions cap of $25,000 a year, which includes employer contributions.
Planning for retirement can be complex and confronting, so it’s essential to get the right advice. Contact us today to discuss your options.
