Retire in a better place

By making informed decisions, you’ll have a better chance of doing exactly what you want to do when you retire.

Making the most of your retirement

You’re probably getting excited about how you’ll spend all that extra time. You might even be planning trips to those places you’ve always wanted to see. But more importantly, you’ve probably started to think about how much money you’re going to want or need for all your plans.

There are plenty of options available that can help help you reach your retirement goals – and you might not be aware of them all yet. But the good news is that with a little planning you can get the most out of your money today,while looking forward to your exciting future.

Will you have the money to retire the way you want to?

Retirement means different things to different people so it’s important to identify your goals and find the right solution so you can retire on your terms.

How much is enough?

These days we’re keeping more active, staying healthier and living for longer. It makes it more important that ever to plan for the loner term and to make sure you’ll have the money to live the life you want.

But how much money is that? It’s difficult to put an exact figure on it but as a guide, for those aged around 65 years, for a comfortable retirement you’ll need $1,156 per week (for a couple) or $841 per week (for a single). So it’s never been more important to invest for your retirement.

However, everyone is different so some questions to think about first include:

  • What age do you plan to retire?
  • What sort of lifestyle do you want?
  • Have you paid off all your debts?
  • will you need extra money for other needs such as holidays or a new car?

Finding a strategy that suits you

Super is the natural go-to when it comes to saving for retirement. But there are opportunities to grow your wealth in other ways.

Keep in mind that retirement is no longer an all-or-nothing proposition. Whether it’s choosing to build your retirement nest egg in a tax-effective way with salary sacrifice or working part-time and supplementing your reduced income with super payments – or a combination of both – it comes down to what’s right for you.

Investing inside and outside super

Super is one of the best ways to save for you retirement because of its favourable tax treatment. Super earnings are generally taxed at a maximum rate of just 15%.

But it’s not the only option out there. You can also grow your wealth by investing outside of your super in assets such as property and shares. To make sure you’re investing tax effectively, it may be worth considering gearing.

Suitable for those with their mortgage under control, this strategy involved borrowing against the equity in your home to invest in other assets outside of super. It can allow you to make a much larger investment than you could have otherwise, but it can also magnify losses. Borrowing to invest isn’t a strategy for everyone.

Salary Sacrifice

In order to boost your retirement nest egg you may want to get some of your pay or bonus to be paid into your super before tax is deducted.

Known as salary sacrifice, these contributions are generally taxed at a concessional rate of 15%, not your marginal rate which could be up to 47% (incl. Medicare Levy).

Depending on your circumstances, this strategy could reduce the tax you pay on salary, wages or bonus by up to 32%.

Transition to retirement

Another option to consider is to scale back your working hours and start a transition to retirement (TTR) pension that could help you replace your reduced income.

This strategy gives you the chance to test the waters – so you can see whether you’re really ready to stop work altogether.

To be able to commence a TTR pension, you must read your preservation age. The preservation age is 55 for those born before 1 July 1960 and gradually increases to 60 depending on your date of birth.

Here’s how it works:

  • You invest some of your super in a TTR pension and draw at least minimum income each year, which is 4% of the account balance per annum.
  • Investment earnings are taxed at a maximum of 15% and not your marginal tax rate.
  • You’re likely to pay less tax on the income your receive form the TTR pension than you do on your salary or business income. As a result, you’ll generally need to draw less income from the TTR pension to replace your reduced salary.
  • You can’t draw more than 10% of the account balance each year.
Using your super wisely

When you retire it’s tempting to withdraw all your super at once. But if you do, depending on your age and the amount of lump cum withdrawn, you could end up with a significant tax burden.

So it might be a smart move to use your super to start an income stream. That way, you won’t have to pay lump sum taxes, or tax on any earnings your money makes while it’s in the pension fund.

Planning for things not going to plan

Even the best laid plans can come unstuck. From economic recessions to divorce or illness, unexpected events can seriously impact your savings, and therefore your retirement.

Looking out for your children

It’s not just your poor health that could negatively impact your retirement savings. What would happen if you lost one of your adult children to an accident or illness and they didn’t have any life insurance? Would you have sufficient funds to raise their children if necessary?

It’s a difficult situation to think about but it highlights just how important it is to talk to your kids about taking out insurance, so that you’d all be protected if the very worst did happen.

Making the most of social security

Retired and can’t male ends meet? Depending on your circumstances, you might qualify for an Age Pension or other social security benefits and/or concessions including:

  • Disability Support Pension
  • Carer Payment and Carer Allowance
  • Family Tax Benefit and Child Care Benefit (if you’re a grandparent and responsible for looking after your grandchildren)
  • Commonwealth Seniors Health Card
  • Low Income Health Care Card
  • Rent Assistance