Retirement Stages
Reach your retirement goals and live the life you want.
Take an active role to make your assets last
Retiring after age 60 will mean you can withdraw your super tax-free as a lump sum or as pension payments through a retirement account.
People born before 30 June 1964 have an earlier preservation age. For everyone else the preservation age is age 60. If you retire before your preservation age, lump sum payments and pension payments are taxable but some of the payment may be tax-free. Additional tax offsets may be available for certain people.
Your benefit will be made up of a:
- taxable component—made up of super guarantee (SG) contributions, employer contributions and self-employed and personal contributions where a tax deduction was claimed, as well as all fund earnings. The taxable component is made up of taxed and untaxed elements
- taxed element—earnings and contributions that your super fund has paid tax on (and the major part of most people’s super)
- untaxed element—super that your super fund has not paid any tax on but is still taxable. This is more common with defined benefits funds (eg some Commonwealth, state government and private sector employer schemes)
- tax-free component—after-tax contributions and government co-contributions.
If you’re looking to access these benefits after you've reached your preservation age, you can do so tax-free.
If you don’t quite have enough to live the retirement lifestyle of your choice, you can think about these options:
1. Delay your retirement
It will give you more time to add to your super. Retiring after age 60 will also offer tax-advantages by letting you withdraw your super tax-free. You can also consider whether you are able to benefit from starting a transition to retirement (TtR) pension if you have passed your preservation age
2. Review your investment strategy
You should review how your super is invested. Talk to us to help you choose the right investments.
3. Adjust your budget
You may need to live on less (now and in retirement). If you’re not living to a budget start planning one with our Budget planner calculator
4. Use your assets
- Salary sacrifice—Consider contributing more of your pre-tax salary into super while you’re working. But be aware of the pre-tax concessional contribution limits.
- Downsize—If you have paid off your family home, consider downsizing to a smaller home or looking at alternative residential options.
- Reverse mortgage—If you still have a mortgage, you can use the value of your home to borrow for your retirement. This will be secured against the equity in your home to a maximum amount and will have limits on what you can withdraw. This may also be used to tide you over until you downsize.
- Release your wealth—Look at any assets you hold outside super that might be sold and the proceeds contributed to super. Earnings in super are only taxed up to 15% and after age 60, any income or withdrawals from super are tax-free. See our case study on how Marie made an extra $65,000 in her super with the right strategy.
5. Add to super with government co-contributions
If you earn up to $34,488 pa, you can contribute up to $500 to your super account and the government will match It. You can qualify for a maximum matched contribution of $1,000. Contributions reduce if you earn more than this amount but only cease where you earn $49,488 or more pa. See details at the ATO website.
What would it take to live the way you want in retirement?
There’s no single answer because your retirement expenses will depend on your expectations and your individual lifestyle. They will be affected by your activities, your health, where you live, your relationships and much more.
Need some help to work out the numbers? The Association of Superannuation Funds of Australia (ASFA) calculates and regularly updates different retirement lifestyles and their associated costs. See the ASFA Retirement Standard.
Retirement, in the superannuation world, means you could be eligible to access your superannuation savings as young as age 55 (depending on when you were born). This may mean you could be younger than your aged pension age if you want to retire early. It’s important to know when you can take your super as a lump sum or draw on it through an income stream or have a combination of both.
But there are other income sources you may like to look at, like the aged pension, annuities and allocated pensions.
Aged pension
With a growing number of our population reaching retirement, governments will be less and less likely to contribute to adequate pensioner payment amounts. Current basic rates (June 2014, sourced from Centrelink) are:
| Status | Rate per fortnight | Annual |
|---|---|---|
| Single | $766.00 | $19,916.00 |
| Member of a couple | $577.40 | $15,012.40 |
This is about $3,484 less than the amount the ASFA Retirement Standard says is needed for a modest lifestyle. These amounts exclude the pension supplement, which pensioners may also receive. See details at Planning for retirement.
Guaranteed annuities
Annuities can give you the peace of mind of a guaranteed fixed income, regardless of what may happen in financial markets.
Annuities are purchased from a life insurance company using any savings. They provide a guaranteed series of payments over an agreed period of time, which can be a fixed number of years or for as long as you are alive. Payments can be indexed to inflation or have a pre-set increase.
They are less flexible than account-based pensions as you cannot easily make lump sum withdrawals, and the fund manager decides how your money is invested.
There are a variety of annuities available with different conditions, including:
Lifetime annuities
These are payable over your lifetime or the life of your spouse. If you die young, the money is kept by the provider unless it is reversionary (see next) or has a minimum payment term which is transferred to a beneficiary. They usually are found in defined benefits funds.
Reversionary annuities
Payments revert to a beneficiary if you die before the end of an agreed fixed term (eg 10 years)
.Allocated pensions
Allocated pensions (or account-based pensions) provide a series of regular payments drawn from money transferred from a super fund. They can be provided by any regulated super fund.
The payment amount is subject to minimums described as a percentage of the account balance. There is no maximum annual payment and you can take lump sum amounts out and also roll amounts back into a super fund.
Transition to retirement (TtR) account-based pensions are a little different. You cannot make lump sum withdrawals and there is a maximum annual withdrawal limit of 10% of the balance. See more about TtR strategies on our Moving towards retirement page.
Unlike a guaranteed annuity or pension your payments are dependent on sufficient funds being available in your account to make the payment. So if your retirement account runs out of money, your payments will stop. But if you die before that time, the account will be held for your beneficiaries or estate.
Your decision to stay in your family home, downsize or move into residential care is entirely your own and should be based on factors beyond financial. Your health, your spouse or partner, your family and what you decide to pursue once you stop working all play a part in deciding where—and how you live.
Selling your home to release wealth
If you’re thinking of moving to release money from your home, planning ahead can help you feel more in control and provide greater peace of mind. Here are a few suggestions:
1. Make a wish list before looking for a new place. Think hard about what features you need in your new home, as the more you can live without, the more proceeds you can have leftover to fund your retirement.
2. Sell your existing home before buying another, unless you can afford to hold two properties. Consider any potential capital gains tax implications if you own more than one property. While you don’t have to pay capital gains tax on the sale of your primary residence, this is not the case for an investment property.
3. Factor in the costs of moving―such as stamp duty and real estate agent fees.
4. Explore the impact of selling your home on any pension entitlements you may have.
5. Rent or house-sit before buying in an area that’s new to you.
6. Invest conservatively while you’re house hunting, so you give yourself some flexibility as you learn more about the choices and trade-offs involved in choosing the right property.
Residential living options
The Property Council of Australia has a helpful website, where you can search over 2,200 retirement villages and find out more about making the transition to residential living. Visit the Retirement living website.
Estate planning can help make sure your assets are distributed according to your wishes. It’s also a good way to assess your finances and assets, and understand the kind of legacy you want to leave.
Retirement Planning Specialists, together with your legal advisor can help guide you through the estate planning stages:
- creating or reviewing a will
- setting up enduring power of attorney
- selecting an executor
- giving guardianship
- considering a family trust
- plans for your super and insurance remainders
- naming a beneficiary
- protecting what you have.
If you need help and are looking for special expertise, contact us now.
You may feel that retirement is too far away to give it serious thought. However it's never too early to start planning.When you’re far from retirement you have the opportunity to make smart choices that will position you for a worry-free retirement later.
Retirement Planning Specialists can help you plan for the retirement lifestyle of your dreams.
To see how much you’ll need for your retirement dream take “What’s My Number?” test
If you have 15 years or more to retirement:
If you have 10 years to retirement:
The Age of Opportunity…
From age 55, you can set up a retirement account and start receiving an income stream while you are still working. This can allow you to reduce your hours of work or boost your super using a Transition to Retirement strategy. This is why 55 is often referred to as the age of opportunity.
The Retirement Countdown:
10:If you have 10 years to retirement
– Check your debt. Will you still be paying a mortgage in retirement?
– Think lifestyle. Ten years from now where do you want to live and how do you want to live? If youcan visualise retirement, it’s easier to plan it. AMP advisers have a Picture Your Tomorrow tool theycan use to help you visualise your goals.
– How much will retirement cost? Use the AMP Budget Planning Calculator to get a number in yourhead (then write it down).
– Estimate what your retirement income will be. Your super fund can give you an idea of what yoursuper will be worth when you retire. Find out from Centrelink whether you’ll be eligible for apension. Or ask a financial planner to do some modelling for you.
– Think about timing. When do you want to stop work? Can you work part time? Do you and yourpartner want to retire at the same time? There can be advantages – social and financial – to easinggradually into retirement.
– Even at this early stage it’s important you understand your likely eligibility for the Age Pensionand other benefits such as the Commonwealth
Seniors Health Card. This will help you plan your retirement income more realistically.
5 years to retirement
– Think about your asset allocation. An adviser can help you balance risk and return.
– Check the estimates for your retirement savings and retirement income and your eligibility forgovernment assistance. Have they changed? What adjustments are needed?
– Get your Estate Planning in order – your Will, Power of Attorney, etc.
– Consider boosting your super savings if you can (see section 2).
– Consider strategies like salary sacrifice and transition to retirement that might help you reduce taxand save more into super.
– If you’re planning to change jobs after you retire start preparing now.
– Should you move your other investments into the tax-advantaged superannuation environment?Ask an adviser.
– Integrate your super strategy with your partner’s.There could be benefits - like living on one income while living on the other’s super.
1 year to go
– Think (again) about your asset allocation. Your adviser can help you balance your need for growthover the long term against the risk of short-term volatility.
– Double check the estimates for your retirement savings/retirement income. Talk to your financialplanner, your super fund and Centrelink.
– Consider your retirement timing – are there tax or employment-related advantages (eg longservice leave or super vesting) to a specific date?
– Re-check your eligibility for the Age Pension and other benefits such as the CommonwealthSeniors Health Card.
At a glance:
A Transition to Retirement strategy can be an effective way to increase super or can be used to maintain your income while reducing your working hours.
Introduction to Transition to Retirement
Some pre-retirees would like to make a gradual transition to retirement. Others are simply looking for ways to ramp up their super before they retire. And the financially astute are always looking for tax-effective strategies.
More than two in five Australians aged 45 years and over who work full time and plan to retire in the future want a phased retirement (i.e. work part-time before retiring completely) and more than three in five working Australians aged 45 and over who plan to retire at a certain age are looking to work beyond age 65*. The good news is that you can use your super to create an income stream to make the transition, and set a retirement date which suits you.
Using a Transition to Retirement strategy may allow you to either:
How can a TtR strategy benefit you?
*There is a proposal to double the tax on contributions to 30% for individuals earning over $300,000 pa. This proposal has not yet been passed.
When to start
You can start a Retirement Account once you reach your preservation age, currently age 56. At this age you can start drawing on your super through an income stream, even if you're still working.
Steps to using a TtR strategy
Fine tune with a professional
While the steps can seem straightforward, it may pay to obtain professional financial advice to fine tune the figures and details of your strategy so contact us today for further information.
*ABS's Retirement and Retirement Intentions, July 2010 to July 2011.
From www.amp.com.au.This material provides general information, current at 16.07.13, which Retirement Planning Specialists believes to be reliable at the time of publication. However, we are not the author of this information and therefore do not confirm its content.
Boost your super with a Transition to Retirement strategy
A TTR income-swap strategy can make a significant difference to your super without reducing your after-tax income. You can use the AMP Retirement simulator to see you how long your super may last if you take advantage of this strategy. (Click on the Try a 'Building for retirement strategy' in 'Expert strategies' in the top right-hand corner of the simulator.)
The following example shows how a transition to retirement income-swap strategy can help boost super. Keep in mind that your personal situation will be different, so you may have different results.
Jack's story
Jack, age 55, is employed on a full-time basis and earns $95,000 a year. He has saved $200,000 in his super (all taxable component) and would like to retire at age 65. While his employer is paying 9% pa as compulsory super (rising to 12% pa by 1 July 2019), he's worried he won't have enough to enjoy a comfortable retirement and wants to boost his super over the next 10 years, even though he can't find the money to increase his contributions.
1. Jack salary sacrifices $16,420 from his salary into super as a pre-tax (concessional) contribution.
2. Jack opens a TTR allocated pension using all his $200,000 super. He will then draw an income of $13,200 in the first year.
How will this impact on Jack's after-tax income?
After-tax income comparison
| Before | After | |
|---|---|---|
| Gross earnings | $95,000 | $95,000 |
| Salary sacrifice super contributions | - | ($16,420) |
| TTR Allocated Pension | - | $13,200 |
| Tax payable | ($24,522) | ($21,302) |
| After-tax income | $70,478 |
$70,478 |
| Income Tax saving | $3,220 |
|
Jack's after-tax remains the same and his income tax savings are significant.
But what does this do to his super?
Yearly increase to super age 55
| Superannuation contributions | $16,420 | |
|---|---|---|
| Contributions tax | ($2,463) | |
| Pension payments | ($13,200) | |
| Yearly increase to super benefits | $757 | |
The strategy has increased his superannuation benefits by $757 for the year.
Once Jack turns 60, the TTR allocated pension income will be completely tax free, reducing his income tax even more, and improving the increase in his super.
Yearly increase to super at age 60
| Superannuation contributions | $19,550* |
|---|---|
| Contributions tax | ($2,933) |
| Pension payments | ($12,200) |
| Yearly increase to super benefits | $4,417 |
*Assuming amount is within the indexed concessional contributions cap in 5 years' time
But this is only half the story! By using a TTR allocated pension, any earnings on the $200,000 invested in the pension will not attract any tax.
Over 10 years, the combined effect of the increase to Jack's super and the tax-free pension earnings are impressive:
Total benefit after 10 years at age 65
| Do nothing | Income swap strategy | |
|---|---|---|
| Pension balance | - | $177,126 |
| Superannuation Accumulation | $453,031 | $336,047 |
| Total | $453,031 |
$513,173 |
| Advantage | $60,142 (13.3%) |
|
Jack's retirement position at age 65 has been improved by $60,142 (or around 13.3%) without decreasing his after-tax income.
Jack's position would be even better if he had refreshed the income swap strategy.
This example is illustrative only and is not an estimate of the returns or benefits you will receive or taxes, fees and costs you will incur.
TTR strategies need to be fine-tuned to make sure you're not left short of cash. They also need to be refined as markets change, as your super grows and as your allocated pension reduces.
While simulators can help, it can pay to obtain professional advice from a financial planner to guide you through, help you refresh and stay on top of the figures.
Assumptions
- Salary sacrifice contributions and superannuation guarantee contributions made each year are assumed to be within the concessional contributions cap.
- The $25,000 p.a. concessional cap is assumed to increase to $30,000 at 1 July 2014 and $35,000 at 1 July 2019
- Spare cash flow after reaching the concessional cap is contributed into super as a non-concessional contribution (within caps).
- The personal tax rates and thresholds for the 2012/13 and 2015/16 financial years (as of July 2012) for Australian taxpayers have been used when estimating tax payable. Income tax calculations include the Low Income Tax Offset. They do not include the Medicare Levy Income Thresholds exemption.
- Superannuation and pension balances are both invested in the same Balanced investment portfolio (70% growth, 30% defensive), which provides a combined return of 7.25% pa gross, (after deducting a 0.65% pa management fee). For the superannuation balance there will be up to 15% income tax applied, while no income tax applies to the pension balance.
- Superannuation Guarantee rate rises from 9% pa to 12% pa as legislated have been included.
- 25% minimum pension discount for 2012/13 has been ignored.
- No other fees or charges have been considered
- Contributions and pension drawdowns are made mid-year. Drawdowns are based on standard pension factors.
- No initial or ongoing advice fees are incurred.
For simplicity, there has been no indexation of salary and living expenses.
From www.amp.com.au.This material provides general information, current at 16.07.13, which Retirement Planning Specialists believes to be reliable at the time of publication. However, we are not the author of this information and therefore do not confirm its content.
Work less by using your super
These days many Australians are continuing to stay in the workforce for longer, on a part-time basis. More than two in five Australians who work full time and intend to retire are looking to reduce their hours first*. The good news is that you can use your super to provide an income stream to make the transition and set a retirement date that suits you.
The following example shows how a transition to retirement strategy can help reduce working hours. Keep in mind that your personal situation will be different, so you may have different results.
David's Story
David, age 57, needs to cut back his working hours due to health reasons, and he cannot afford to retire.
He has looked at reducing his workload from 35 hours a week down to 25 hours which will reduce his salary from $75,000 to $53,500. David has $250,000 (all taxable component) accumulated in his superannuation account. By using a TTR allocated pension, David finds he can maintain his annual income and work fewer hours. Let's look at the impact that David's partial retirement will have on his income position:
Using TTR to meet income needs
| Before | After | |
|---|---|---|
| Salary | $75,000 | $ 53,500 |
| TTR Allocated Pension | - | $ 17,519 |
| Gross Assessable Income | $75,000 | $71,019 |
| Income Tax | ($17,047) | ($13,066) |
| Take home pay | $57,953 | $57,953 |
As you can see, by using a TTR strategy, David has been able to keep his after-tax income at the same levels, despite reducing his work hours. It does however come at a price - David's superannuation account balance will reduce over time as he continues to draw down pension payments.
This example is illustrative only and is not an estimate of the returns or benefits you will receive or taxes, fees and costs you will incur. The figures are in respect of the financial year ending 30 June 2013 and are based on applicable pension drawdown limits and tax rates for the 2012-2013 financial year.
* Australian Bureau of Statistics
Key retirement milestones
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Email Us: info@retirementspecialist.com.au
