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Money habits

Smart ways to prepare for the retirement you want

4 September 2019

Preservation age

You can access your super when you reach your 'preservation age'. This is the minimum age, set by law, that your super must be 'preserved' until. Your preservation age is currently between 55 and 60, depending on when you were born.

While retirement will look different for everyone, there’s a few things you can do to ensure your later years are fulfilling and money-worry free.

Planning for retirement

Know your lifestyle requirements

Do you already know what your dream retirement will look like? Knowing what lifestyle you’ll want can help determine how much money you’ll need to comfortably sustain it. There’s no magic number you need in the bank or super to retire on – the balance you’ll need will greatly depend on where and how you want to live.

Maximise your super

The more money you have in your super account before retirement, the more money you’ll have to play with when you retire.

As of 2019, the superannuation guarantee contribution that your employer will make on your behalf is 9.5 percent of your gross salary – keep in mind this figure can change year on year. While most forms of employment will pay super, you may need to refer to the Australian Tax Office guidelines to check if you're receiving the right contribution. Depending on the type of work you do and your overall salary, these contributions may be sufficient to cover your expected costs post-retirement. However, this may not always be the case.

If you think you’ll need more than your projected super savings, it may be worth looking into ways to maximise your contributions into super. One of the easiest ways to boost your balance is to voluntarily invest some of your before-tax income on top of your employer’s regular 9.5 percent superannuation guarantee (SG) contribution.

Known as salary sacrificing, these extra contributions are taxed at 15%, which may be a lower tax rate than your regular employment income.

If your employer doesn’t allow salary sacrificing, or you want more flexibility, there are other ways you can add to your super balance. Instead of salary sacrificing, you can make personal contributions from your after-tax income and claim them as a tax-deduction. The personal contributions you make could work in your favour to reduce your taxable income and increase how much you’re regularly adding to your super. You’ll still need to be mindful of your marginal tax rate – if the tax rate you’re paying is lower than 15%, you may not be able to reap the full benefits of these types of contributions. There is a current cap of $25,000 on the amount of combined superannuation guarantee and concessional contributions you can make each year, so keep a close eye on your contributions to save you from tipping over the limit and paying extra tax.

Have extra savings you’d like to contribute to your super? You can choose to make non-concessional super contributions to further increase your balance. Unlike concessional contributions which are combined with your employer’s when calculating your cap, non-concessional contributions are payments from your savings or income you’ve already paid tax on. This means they aren’t taxed when you add them to your super fund.

Check your debts and insurance

To help you enjoy retirement to the fullest, simultaneously planning how to reduce your debt should be part of your long-term strategy.

Some things you can try to reduce your debt pre-retirement are:

As you’re kicking your debt-busting plan into gear, it’s worth looking at your existing insurance situation heading towards retirement. While you may hold insurance policies, your needs and requirements could have drastically changed since you took out the policies – consider whether it’s still necessary to hold any of your existing insurance covers.

Sticking to a budget can be difficult, especially if you’re juggling a mortgage, urgent bills and a family. There are resources you can consult to help you budget better and get on top of your debts. ASIC’s Money Smart budgeting tools and Financial Counselling Australia’s network of independent financial counsellors are both excellent resources to use if you’re looking for free and informed guidance with money matters. ASIC also have a free retirement planner available to help you calculate when may be the best time for you to retire, and what your regular income could look like.

Consider working part-time

Part-time work can offer many benefits to retirees. Along with the increased income, part-time work is also a great opportunity to learn new skills, pass on your expertise and continue to meet new people in the workforce. For older Australians wishing to work in a reduced capacity during their retirement years, there are some rules and incentives to be aware of as laid out by the Australian government:

  • ‘Part-time’ is defined as between 10 and 30 hours of work a week. If you return to work for less than 10 hours a week, you will still be considered retired and this won’t impact your super.
  • If you’ve already started to draw on your super and return to work in a more full-time capacity, you may need to prove that your personal circumstances have changed to justify your return to work.
  • The Work Bonus is available for seniors who wish to participate in the workforce while receiving the pension. Under the scheme, the first $250 of fortnightly employment income isn’t assessed under the pension income test.
  • Working part-time may alter your overall tax position. It’s worth checking with the ATO and Centrelink to confirm how your tax and benefit eligibility could be affected.

Depending on your age, you may also be able to access your super using a transition to retirement strategy to provide you with additional income to help meet your living expenses whilst working part-time.

Know when you can retire

Depending on your situation, you can retire whenever you’re ready and able to – there’s no fixed retirement age in Australia. However, there are restrictions on when you can access your super and when you’re eligible to apply for the pension.

Generally, you can access your super when you:

  • finish work after the age of 60
  • turn 65, whether you continue working or not
  • reach preservation age and you retire, or
  • reach preservation age and implement a transition to retirement strategy.

While most Australians can currently access their super between 55 and 60 (depending on your birth year), this age is predicted to rise to 67 in 2023. So, while you may think you’ve got enough in the bank to retire at 45, it may be another 20 years before you can access any of your super.

To be eligible for the pension from the Government, you need to reach your age pension eligibility age, satisfy an income test and an assets tests, along with some other requirements. While the pension can help to supplement your savings, it also comes with other benefits like discounts on public transport and a variety of other goods and services, including healthcare rebates.

Timing your retirement to match when you can access these retirement boosters could help you to more comfortably live the life you want for longer.

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Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product

Preservation age

You can access your super when you reach your 'preservation age'. This is the minimum age, set by law, that your super must be 'preserved' until. Your preservation age is currently between 55 and 60, depending on when you were born.