Get your finances ready for retirement

Book a holiday, prepare for a sea change – but don’t forget your finances. Here’s what to consider when planning for your retirement.

Getting advice

When approaching retirement, it’s helpful to get advice as early as possible. Navigating tax obligations, social security entitlements, superannuation and government policies can be difficult on your own. An adviser may be able to help you set up a retirement plan that takes these aspects into account.

This plan will depend on what lifestyle you want in retirement. Do you want to travel, move or study? Go on a cruise then settle down in a retirement village? Or simply downsize your home and live comfortably? Your adviser can help you work out how much money you’ll need to achieve your goals.

Long-term planning

Based on current life expectancy in Australia, a male who is 65 years old today could live 19 more years; a female, 22 more years.

But you may live even longer. Determine how much super you will have by the time you’d like to retire, when you’ll be able to access your super and whether you’ll be eligible for the Age Pension. This will help you create a plan ready for the long term.

Transition to retirement pensions

You may wish to discuss setting up a transition to retirement pension with your adviser.

A transition to retirement pension allows you to keep working while accessing your super. By continuing to work after you reach your preservation age (generally between 55 and 60, but it depends on when you were born), you can boost your retirement savings as your employer will continue to make contributions to your super and they will be taxed at a lower rate.

This type of pension could also be suitable if you are self-employed, but you would build up your super through personal deductible contributions rather than salary sacrifice.

With a transition to retirement pension, you can continue to work full time, or you can reduce your working hours and supplement your income with super withdrawals.

However, there are restrictions on how much you can take out, which your adviser can help you understand.

Individuals younger than 65 can draw down a pension income of between 4 and 10 per cent of their pension account balance each financial year. But withdrawing a lump sum isn’t allowed.

There is also tax to consider. Pension payments are typically tax-free for people aged 60 and over. However, since July 2017, the investment returns on transition to retirement pensions are taxed at up to 15 per cent.

If you’re eligible for the Age Pension, it’s also possible to continue working to supplement your savings, but doing so may reduce how much of the Age Pension you’re entitled to.

Managing your super

If you would like to retire and access your super once you reach your preservation age, there are several ways to manage your finances. One possibility is to set up a retirement income stream. This enables you to withdraw certain amounts from your super fund at intervals, so you don’t spend your savings too quickly.

Tax on retirement income streams are quite complex, so it’s a good idea to talk to an adviser if you’re considering one.

Another option is to withdraw your super in cash or transfer it to a non-super account. This may be an appealing way to immediately clear debts, invest in assets outside super or make a significant purchase quickly. However, it may also reduce your future income and attract higher tax rates.

Incentives and entitlements

If you do work past your pension age, you may be able to take advantage of government incentives such as the Work Bonus. Under this scheme, the first $250 of employment income in a fortnight isn’t assessed in the pension income test, increasing the amount you may be able to earn without potentially affecting your social security entitlements.

Retirees can also access numerous entitlements such as travel concessions, discounted medicine and other benefits that holding a Pensioner Concession Card or Commonwealth Seniors Health Card provides. If you’re eligible, the Age Pension will also provide payments that can supplement your savings.

Enjoying what’s ahead

Retirement can be an exciting time of transition – but there’s a lot to consider. By speaking with an adviser about your finances early on, you can help keep it stress-free and look forward to what’s ahead.

December 26, 2019

Back to List