Take control of your retirement

Are you planning to retiring in the next 5 years?

Are you affected by the increase in the Age Pension’s qualifying age? Take steps now to avoid getting caught short on retirement income.

The minimum age to qualify for the Age Pension has started going up. For those born on or after 1 July 1952, the qualifying age increases by six months every two years until it reaches 67 in July 2023. It rises to 66 in July this year.

So if you’re turning 45 this year and plan to retire when you reach 60, you will need to wait until you’re 67 before you can apply for the Age Pension. You’ll have to rely on your own savings and super in the interim, making it crucial to ensure you have enough money put away for later years. But the good news is that there’s still time to grow your retirement savings.

Boost your super

Contributing more to your super can be a reliable route to bolstering your retirement fund. By making extra contributions through salary sacrifice, you can grow your super and at the same time reduce the amount of income tax you pay. The government will tax your salary sacrificed contributions at 15 per cent, which could be much lower than your marginal tax rate.

Making non-concessional or after-tax contributions is another option. You can contribute up to $100,000 each financial year if your total superannuation balance is less than $1.6 million. To understand how these contributions work, it’s wise to get professional advice.

Beef up your savings

Your personal savings can supplement your super payments in retirement. But are they growing enough now to provide you with some income when you retire?

To build up your savings, you may have to invest part of it and make sure it’s growing faster than the rate of inflation. Investing in a managed fund or buying an investment bond may help you increase your nest egg, but you should seek professional advice to see if these instruments are appropriate for you.

Know your entitlements

Besides the Age Pension, you may be eligible for other government benefits and concessions. The Seniors Card, for example, offers individuals over the age of 60 discounts on some commercial and public services. Concessions that allow you to buy prescription medicine at a discount are also available.

But keep in mind that these benefits have strict eligibility rules. There’s also no guarantee that these entitlements will still be available by the time you retire. So take charge of your retirement. By working with your financial adviser, you can develop a strategy that helps ensure you’ll be well provided for regardless of changes to pension policies.

Be retirement ready – plan early

You need to be savvy to build a sufficient nest egg for retirement. Planning is key, and so is getting professional advice.

Most Australians are not saving enough for retirement and risk running out of money sooner than they expect.

Data shows that in 2015–16, Australians had average superannuation balances of only $270,710 for men and $157,050 for women at the time of retirement.[1] These sums are significantly lower than the $545,000 that the Association of Superannuation Funds (ASFA) estimates singles need for a comfortable lifestyle in later years.[2]

The good news is that you can avoid pinching pennies in your retirement by planning ahead.

Setting a plan

Start planning by finding out how much income you will need. You can do this by answering the following questions:

  • What are your retirement goals?
  • What kind of lifestyle do you want?
  • What’s your life expectancy?

While it’s relatively easy to set goals and lifestyle expectations for retirement, estimating how long you will live can be tricky – not to mention unsettling. But it’s crucial to make retirement planning decisions. For example, knowing your estimated life expectancy can help you decide on your asset allocation or when to stop working to ensure you can sufficiently fund your retirement. It can also help you determine when is the most appropriate time to start your super income stream.

Although there are tools for calculating life expectancy, a financial adviser can guide you through the process and help you come up with an accurate estimate.

The ASFA retirement standard may help you see how much you will need annually to maintain your lifestyle. The table below shows ASFA’s September 2017 quarter estimates for people aged around 65.[3]

Table 1: Retirement budgets for those aged around 65

Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Total budget per year $24,506 $35,189 $44,011 $60,457

Keep in mind that these are national estimates and assume that retirees own their home. Seek your adviser’s guidance in estimating an amount based on your lifestyle expectations, profile and life expectancy.

Ensuring enough income

Once you know how much you’ll need, your adviser can design a plan and make recommendations to help you meet your required retirement income. These may include growing your retirement fund by investing some or all of it.

Investment strategies come with various levels of risk and target returns. It’s important that you choose investments that suit your risk appetite and need for returns.

There are also products that offer a regular and stable flow of income in retirement. Speak to your adviser to know your options.

Getting advice

It’s important to understand that retirement planning is a complex process that can make or break the kind of lifestyle you want later in life – which is why seeking professional advice can be both critical and beneficial. Talk to your financial adviser about how you can navigate this process.

Get in touch with Dev Sarker today on 1300 71 71 36 and start planning!

[1] ASFA Research and Resource Centre, 2017, Superannuation account balances by age and gender. Accessible at: https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y.

[2] ASFA, 2017, ‘How much do you need to get comfortable?’. Accessible at: https://www.superannuation.asn.au/media/media-releases/2017/media-release-4-december-2017

[3] ASFA, 2017, ‘ASFA Retirement Standard’. Accessible at: https://www.superannuation.asn.au/resources/retirement-standard