Retirement Planning

Are you in planning your retirement? Making a financial plan, can help you manage your finances and adjust well as your life and priorities change.

Retirement planning is the process of identifying your preferred retirement age, the retirement income that you will need and any capital expenditure requirements. Then, putting in a plan in place to achieve it, so that you can live your ideal retirement lifestyle.

Your retirement plan may also include a provision for the intergenerational transfer of wealth.

How much do you need to retire?

The Association of Superannuation Funds of Australia Limited (ASFA), regularly compiles a Retirement Standard report setting out how much is required for both couples and singles to live a comfortable and modest lifestyle in retirement, linked here.

The report consists of a detailed budget breakdown for retirees before and after age 85.

One issue that we find is often overlooked by clients when determining how much they need to retire, is the existence of the Age Pension here in Australia.

This is an Assets and Income tested pension available to all eligible retirees over age pension age, currently age 67 for those born after the 1^st January 1957.

Clients will often not be entitled to the age pension immediately at age 67, however they will become eligible as their retirement assets are accessed through the drawdown phase.

It is the existence of the Age Pension and its tendency to naturally increase over time as assets reduce, that makes the amount needed to retire on a lot less than most people think.

As of writing this article the amount a couple needs to live a comfortable life is $69,691 per annum.

Here at CTWealth, we have run modelling to determine how much super a couple would need if they were to retire at age 60 with their own home paid off and live on $70,000 per annum indexed each year at 2.5% with the funds to be exhausted at age 90.

Assuming both members of a couple are aged 60 now, a balance of around $400,000 each in a super fund returning 6.50% per annum, when the Age Pension is factored in, is expected to achieve this goal.

This is substantially less than many people think.

When is the right time to start planning your retirement?

By effectively planning for your retirement, you will have the confidence to retire knowing that you will be able to comfortable achieve your ideal lifestyle in this next chapter of your life.

Ideally, preparing for retirement begins at least 10 years out from your retirement date.

What will your retirement expenses be?

Planning your upcoming retirement?

You’ve been working throughout of your life, saving, and building your super so that you can enjoy life more when you stop working.

Depending on when you stop working, you might be retired for 20 years or more. So it is important to consider what your retirement expenses will be.

Everyone’s lifestyle will be different but here are a few things to consider:

• Housing: do you own your own house or rent? Think about what this will cost in the future. Are there renovations or upkeep expenses that you should factor in? You might consider downsizing if the family home is no longer suitable.

• Children and family: do you plan to offer additional financial support?

• Health and wellbeing: you might need to set aside more money for medical expenses, medical insurance and preventative health checks.

• Car: consider maintenance costs for your car. Will you need a new car in the next 10–20 years? What is the cost of your car maintenance?

• Daily travel expenses: if you’re not travelling to and from work every day, you might find you save on public transport and parking costs.

• Other expenses: will you have money set aside to cover unforeseen expenses and emergencies? What won’t you need anymore?

• Hobbies: you may already have some, or you might use your spare time to learn something new. Hobbies are a great way to keep in touch with friends and meet new people.

• Travel: You might want to do the big lap around the country, or explore the world.

• Activities with family and friends: social outings are a big part of most people’s lives. You might find you’re busier than ever once you’ve got more downtime.

• Volunteer: many retirees find volunteer work a rewarding way to use their spare time.

• Working part-time: you might prefer to keep working, or to start a new or different job once you’ve retired.

Most retirees receive income from at least a couple of sources. These may include the money in your super account and also investments outside super. The money you live on in retirement may also include some kind of pension payment or allowance from the Government.

The challenge is, many people find that even if they’re eligible for the Government Age Pension, it may not be quite enough to live comfortably.

One option is to use your super to top up any Age Pension payments that you’re eligible for. This will give you more income to cover your retirement expenses.

Can I make additional contributions to my Super pre retirement?

Yes, you can and it something that you should seriously consider.

Small amounts can make a real difference to your super balance. Adding a few extra dollars today means that you’ll have more savings down the road.

Making additional contributions to your super can also benefit you now, not just in the future, because making voluntary contributions could mean that you pay less tax overall.

The earlier that you add, the more that it could grow over time.

You can add to your Super in different ways:

Salary sacrifice (before tax)
After-tax contributions
Downsizer contributions
Spouse contributions

Will I get the Government Aged Pension when I retire?

If you are planning for your retirement, you will be wondering if you will get the Government Aged Pension.

The Government Age Pension is a regular fortnightly income, paid by the Government via Centrelink. It is designed to help eligible older Australians pay for basic living expenses.

If you’re eligible, it can supplement payments from your super and provide an additional income once you’ve stopped working. The great news is, you don’t have to spend all of your super before you can access it.

Before you can receive your first payment, you’ll need to meet age and residential requirements set by the Government. If you meet these conditions, you’ll then need to pass the Assets test and the Income test. These are used to determine your eligibility and the Government Age Pension payment amount you may receive.

If you’re approaching retirement, it’s a good idea to get some advice about your finances and to plan ahead. Everyone’s circumstances are unique so personal advice is required.

How do I access my Super when I retire?

Some of your options to access your super include:

Start an income stream

A retirement income stream turns your super into regular tax-free income payments. You can change your payment amount at any time, and your money stays invested in your superannuation account so your savings continue to grow.

Withdraw a lump sum

You could choose to alternatively take your superannuation as a lump sum.

You don’t have to take it all at once. As an example, you could decide to leave some of it in your super account and make withdrawals as you need it. You need to keep in mind that taking a lump sum can have tax and Centrelink implications. Also, the returns on investments outside super are usually taxable.

Lump sum and income stream

Another option is to take out a lump sum, and then to use the rest of your money to start an income stream pension.

This could suit you if you plan on buying a new home, going on a holiday, or you want to pay off some debt before you start taking a regular income from your super.

How do account based pensions work?

With an account based pension, you can turn your super into a regular income.

You can change how much income you receive and how often you want it as long as you meet government set minimum payment amounts. Payments are tax free once you turn 60.

If you need additional fund, to pay for bills, renovations, a car or holidays, you can withdraw extra money whenever you need it.

What is a Transition To Retirement (TTR)?

Wondering what transition to retirement (TTR) is?

It is a strategy recognised by the Government that allows you to access some of your super, while you’re still working. You could use it to work less and access your super to top up your reduced take home pay.

Transition to retirement is complex and everyone’s circumstances are unique so personal advice is required.

Are you entitled to a Seniors Card?

Are you approaching your 60th birthday and wondering if you will get a Seniors Card?

Seniors Cards are available to Australian residents aged 60 and over who are not working full-time, no matter what their income is.

The cards provide discounts on goods and services like transport, accommodation, restaurants, entertainment, financial products, furniture and electrical goods.

Each State and Territory Government issues its own Seniors Card and determines who is eligible. Contact your local office to apply for a card.

Should I combine my Super before retiring?

If you have more than one Super account, you could be wasting money paying more than one set of fees.

The more fees you pay, the less super for you.

Check your Super using myGov, or by phoning the ATO’s lost super search line on 13 28 65.

What should your insurance be at retirement?

Most super funds like Australian Super, Australian Retirement Trust, QSuper, Hostplus and Cbus, offer automatic insurance to protect your income and the people that mean the most to you.

The thing is, how do you know if the type and level of cover that you have is right for your? How much cover do you need? As you get older, your insurance needs will change, so you might find yourself with too much, too little or the wrong type of cover.

Your cover might need to change if:

You get married or divorced
You start or end a de facto relationship
Your adult children move out or you add to your family (including step children)
You take out a mortgage to purchase or build your main principle place of residence
Your spouse, de facto or other dependents dies
Your job or salary changes

You can choose the types of cover that you need:

Death cover (also known as life insurance). This can help ease financial stress by paying a lump sum to your beneficiaries if you die.
Total & Permanent Disablement (TPD) Cover. This can pay you a lump sum if you become totally and permanently disabled and no longer able to work.
Income Protection. This can help if you become ill or injured and can’t work temporarily. You can apply to increase, reduce or cancel your Income Protection at any time to suit your needs.

Why is important to nominate beneficiaries?

It is very important to nominate beneficiaries. You may not realise, that even if you have a valid Will and you specify where you want your assets to go, this may not apply to your super.

That’s why it’s important to nominate a beneficiary, so that your Super fund knows who you’d like to receive your super in the event of your death.

There are a few ways you can do this:

Non-binding nominations: A non-binding nomination is not legally binding, but it lets your Super fund know who you’d prefer to receive your super if you die. So although they will take your nomination into account, in the end the Super fund have to decide who your account would be paid to according to your situation at the time and in accordance with the law.

Binding nominations: A binding nomination provides more certainty over who receives your death benefit. If you make a binding nomination, your Super fund will pay your account to the person/s you’ve nominated … as long as your nomination is valid at the time of your death. A binding nomination is valid if it was made within three years of your death, all the individuals nominated are alive at the time of your death (ie, if you nominated four beneficiaries and one was no longer alive at the time of your death, your nomination would be invalid), and all the individuals nominated are eligible.

You can make a non-binding or binding nomination, plus you have an additional option to nominate a reversionary beneficiary. This means whoever you nominate can then choose to receive the balance of your account as an income in the event of your death. If so, they would receive regular payments from your account until the balance reaches $0.

Your beneficiaries can be:

• Your spouse or partner

• Your children

• Other financial dependants

• Your estate or legal personal representative.

What is your retirement age?

Are you wondering what your retirement age is?

Technically retirement is whenever you decide it’s time to cease working in paid employment. Accessing your super and the Government Age Pension however are set at specific pre determined dates.

For anyone born after the 1st July 1964 your preservation age is 60. This is the age when you can access your super under normal retirement rules once you reach a trigger of release.

For anyone born after 1st January 1957 your Age Pension age is 67.

You may also need to meet other criteria to access your super or be eligible for the Government Age Pension.

Your retirement age may not be the same as your preservation age or your pension age.

Your preservation age is when you can access your super and your pension age is when you could qualify or be eligible for the Government Age Pension, also known as the qualifying or eligibility age.

Your preservation age and your ‘pension age’ are set by the government. It depends on your birthdate, and it is very common to confuse the two.

It is a tax planning strategy where one member of a couple contributes into their spouse’s superannuation account.

This can be done by providing the contributor with a personal tax offset for doing so.

The maximum spouse offset amount available is $540 per financial year. It is based on the receiving spouse’s income and the amount contributed.

There are rules around the amount that can be contributed and claimed as a spouse contribution tax offset strategy.

Super earnings are tax free after 60 only if you have met the definition of retirement or attained age 65 and have used your super to commence an account-based pension income stream.

It is important to note that just turning age 60 does not signify tax-free super investment earnings. However, age 60 generally does mean that super withdrawals are received tax free.

Have you got your thinking cap on about how to avoid capital gains when you retire?

A strategy that you could consider is making deductible contributions to super to offset capital gains tax if the asset sold was owned in your personal name.

Consider waiting until you have no other taxable income before you sell the investment, in order to reduce the impact of CGT.

Otherwise, if the asset is owned within super, you could consider converting your super into the pension phase prior to selling the investment.

Everyone’s situation is different so to determine your required Super balance and retirement plan, book an initial 1 hour retirement planning consultation with Cameron Teague.

The fee for this consultation is $440.

Retirement Planning

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