If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past or getting very close. Which means you are well on your way to …. retirement!
Have you thought about how you want to live in retirement? How much will it cost? Have you looked at your super balance to see how you are tracking? Do the figures meet your expectations? If not, what action do you need to take now?
Based on the Retirement Standard, prepared and updated regularly by the Association of Superannuation Funds of Australia (ASFA), a ‘comfortable’ retirement at age 65 today costs close to $63,799 per year for a couple and $45,239 for a single if you own your home. Therefore, to afford this retirement lifestyle and secure your future, at least into your early eighties, simple maths helps us calculate you should be looking at having around $1.2 million for a couple and $859,541 for a single in super.
You may be thinking, I have nowhere near this amount in my super! Most of our clients have nowhere near this amount yet many would suggest they are having very ‘comfortable’ retirements. There is no need to be alarmed as there are other aspects to consider in projecting a ‘comfortable’ retirement. For example, ongoing strong investment returns will help to boost your retirement savings and hopefully partially fund your income and a potential entitlement to Age Pension may also be an option.
It is likely that a ‘comfortable’ retirement can be achieved with half of the amounts mentioned above. In fact, the ASFA in their Retirement Standard suggest that the amounts needed for a ‘comfortable’ retirement is $640,000 for a couple and $545,000 for a single. These are more in line with our real-life client experiences.
It’s never too late to start! Starting to contribute more into your super now that you don’t have as many expenses makes sense and will help you get closer to a comfortable retirement lifestyle. Here are some ways to boost your retirement savings:
Increase your pre-tax contributions
You can ask your employer to reduce your take-home pay and contribute this money to your super. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is known as ‘salary sacrifice’.
For example – if you are earning between $120,000 and $180,000 per year, any income between those limits is taxed at 37%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%. If you were to sacrifice $1,000 per month to super over the course of a year, you are better off by $2,640 on the tax differences alone! Plus, the earnings on those super contributions will be taxed at 15%, compared to investment earnings outside of super being taxed at your marginal rate.
You need to bear in mind, that you are only allowed to contribute a total of $27,500 including superannuation guarantee contributions (employer contributions). If you exceed this amount the excess is added to your assessable income and taxed at your marginal tax rate.
Keep your money working
Many people tend to opt for a more secure, but lower-return investments as they approach retirement. However, you need to take into consideration your investment time frame may still be decades. With cash and fixed interest investments at their lowest returns in history, you may need to keep a significant portion of your portfolio invested in growth assets, of course this does depend on your risk tolerance.
Insurance and death benefits
With the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. You may be paying for cover you no longer need, as you get older your premiums may be quite high, and that money might be better use to boosting your savings. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances.
It’s also a good idea to check the death benefit nomination with your super fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly.
Review your situation
Superannuation provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, so take those first steps and contact one of our advisers to guide you into a financially secure future for your upcoming retirement.
Talk to your kids
It’s never too young to start thinking about what you want. Optimising Superannuation while they are young can have great benefits!
