Steps you can take to plan for a comfortable retirement with your superannuation.
One of life’s most important questions is: “How much money do I need to have so that I can play more golf?”
The current life expectancy for men is 81.3 years and is expected to grow to 87 by 2062. For women, it’s currently 85.2 years and is expected to grow to 89.5. The Age Pension kicks in later and later now, so that means, “How much money is enough?” may be even more than you think – or have.
The Association of Superannuation Funds of Australia states that a single person needs $52,085 per year, or $73,337 for a couple, to live comfortably in retirement. You should probably add a bit more to that if you want to play a few destination golf courses each year, too.
So, what can you do to plan for a comfortable retirement or maintain it if you’re already retired?
▶ ▶ ▶
1. Investing ‘outside superannuation’ versus inside superannuation is one of the more regular topics I discuss new clients. The downside to investing outside superannuation is that the tax treatment is often less attractive than investing inside superannuation. The upside, though, is that you can typically withdraw the money whenever you want it. The downside to investing inside superannuation for those not yet retired is that the investments are often unable to be ‘cashed-in’ until you retire (or meet a Condition Of Release). This is called preservation. So, you may not be able to get it as soon as you want, but the upside is the tax treatment is often better. You’re rewarded for taking a longer-term investment view. If you’re already retired, the preservation rules may not apply. So, why is superannuation often considered favourably? The tax on its earnings can be anywhere between 0 and 15 percent – it’s the same with capital gains tax, too. That can be a lot less than the tax rates outside superannuation for the same investment for some people, so it often translates to a bigger balance.
▶ ▶ ▶
2. Add money into your superannuation regularly. Every little bit helps. There are lots of different ways to do it: excess savings from your bank account, asking an employer to put some away for you before or after you get paid, making self-employed contributions, and even contributing on behalf of your spouse. There are lots of rules and limits, so ask a financial adviser for help, but the most obvious way to plan is to put more money away.
▶ ▶ ▶
3. For retirees, or those age 55 or older, downsizing your home is reasonably common. Under some circumstances you can contribute up to $300,000 per person, or $600,000 per couple, into superannuation. If it makes sense to fund retirement via superannuation, then using the proceeds from selling your home can help.
▶ ▶ ▶
4. For those selling a small business, in some circumstances you may contribute up to $500,000 into superannuation and up to $1.78 million in others. As always, there are specific rules to this but it’s a great topic to research with your financial adviser, given the long-term benefits of the superannuation environment.
▶ ▶ ▶
5. Don’t stick with an underperforming superannuation fund. The differences between one fund and another can be enormous over time. The Australian Government Productivity Commission Inquiry Report into Superannuation (December 2018) stated that a typical worker with bottom-quartile performance could have as much as $600,000 less than someone that had top-quartile performance. That’s life-changing. For those closer to retirement or already there, though, don’t forget about the life-expectancy ages mentioned above – there are many years between retirement and life expectancy. There’s no good time for relatively bad, long-term performance. One shouldn’t ‘chop and change’ regularly either, but if you are unsure about your superannuation fund, then it may be worth seeking advice.
▶ ▶ ▶
6. Consider what levels of risk you should take. I talk to clients about risk, and I explain that there are a few types of risk. Is it riskier to have a lot of savings or little savings? Is it riskier to see your balance move about a lot or hardly at all? Logically, it’s safer to have a lot of money than to have hardly any. But to achieve a bigger balance over the years, a lot of the time it’s going to involve investing some money in shares – the very investments that go up and down daily. Consider cash – it doesn’t change in value much from year to year, but it doesn’t often out-drive inflation, either. Investing is a bit like a round of golf – sometimes you need to shoot at the flag and sometimes you need to play conservatively. Age can certainly be a part of the decision-making process, but it’s just as important to consider what your money goals are over time, and work through a sensible solution to get there.
▶ ▶ ▶
7. Ask for advice. As financial advisers, it’s our job to help you.
For more information on Dan Corbett or Superannuation Caddie, go to supercaddie.com.au or e-mail Dan at [email protected]. Dan, as an authorised representative, and Super Caddie Financial Advice (t/a King of the Mountain Financial Advice), is authorised by King Of The Mountain Pty Ltd ABN 72 642 974 061 AFSL No. 524853 to provide financial advice. The above information is general advice, and you should always check that it is right for you before you rely on this to make a decision regarding your circumstances.
