Superannuation is the first thought when it comes to self-funding retirement. Yet it is hardly the one and only option for doing so.
Just as we have choice in how and where we work to earn a living, so too do many people have choices in how to fund their retirement.
It is possible and sometimes preferable to leave your superannuation untouched, allowing it to continue growing. Some or all of your income can come from alternative sources instead.
With that in mind, have you considered:
1. Downsizing your home?
For many who own their own homes, the equity accrued over decades can eclipse the funds in superannuation. However, it’s theoretical money only until it is unlocked.
Selling up the family home and downsizing – or rightsizing – for retirement allows you to pocket those gains tax free and simultaneously relocate to a more suitable home with lower upkeep costs.
A downsizer contribution of up to $300,000 from the proceeds can be made to boost your super, and the remainder used to fund living expenses or actively invested.
Remember that while the sale proceeds of your home are tax free, any future profits or interest earned from that money will be taxable.
2. Part-time work?
Semi-retirement allows you to step into retirement gradually. You continue earning income and super while working part time, and keep a foot in the workforce while testing the waters of your new-found free time.
Doing so also offers scope to move into different roles, such as passing on your skills to future generations by teaching/training others in your field of expertise, or taking employment in a new area that interests you and is closer to home.
3. Self-employment?
Retirement from a full-time position presents a good opportunity to pursue self-employment. With more time and fewer commitments on your hands, you have greater scope to turn your hobby into a business or leverage your professional skills and reputation as an external consultant.
Also for the self-employed and those with a family business, director’s loan repayments from the company are typically tax free – offering a potentially lucrative source of income and a means of extracting previous investments into the business without selling your ownership stake.
4. Investments?
Rental property income (from residential or commercial properties) can supplement or even provide a generous source of income. The same applies to dividends from shares.
These are likely to be more profitable if you own them well before retirement.
Income that is surplus to your everyday needs can be reinvested using tax-effective strategies to grow your future returns.
5. Family trust?
A family trust could be used to house investments for yourself and other relatives, building intergenerational wealth.
Trusts allow funds to be allocated to beneficiaries to manage marginal tax rates and stretch the money further, you have control over how income is split between different family members and have flexibility for changing circumstances.
6. Selling collectables?
You may not realise the value in items you have collected over the years: wine, artwork, jewellery, vintage cars, antiques, etc.
Rather than have them collect dust or pay to store them, they could be sold to fund your living costs or new investments.
Where possible, avoid selling growth assets in a depressed market – wait until you can extract maximum value.
7. Obtaining a part-pension?
Part-pensions are not only possible but valuable in making your superannuation stretch further. And they still entitle you to a concession card with its benefits for healthcare, transport and more.
Take these savings even further by requesting pensioner discounts with other companies, on everything from utilities to travel and insurance to eating out.
Also, don’t overestimate the value of your assets as part of the means test. It’s a common mistake that can wrongly deny you a full or part-pension.
Plan ahead
However you ultimately fund your retirement, planning is crucial. Advice would hopefully pay for itself.
Understand your spending and how those habits will change before and during retirement, then look to investments that offer the best fit.
Consider a mixture of strategies to diversify your risk, manage your tax liabilities and ensure ongoing income.
Above all, timing is key. The further ahead you plan, the more time you have to embrace additional opportunities and do things at the right time to maximise their value. You’ve worked hard, and now is your chance to enjoy the fruits of your labour!
What else are you doing to fund your retirement? Have you done any of Helen’s tactics? Let us know in the comments.
Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1 per cent of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
