Our finance expert Richard Shermon explains the finer points of what you can do between the ages of 50 and 75 years to retire well.
Do you remember buying your first car? Or maybe putting down that deposit on your first house? Life has many memorable milestones, so as you look forward to your retirement years, what are some of the financial events for which you need to prepare yourself? Let’s take a look.
At this stage of your life, you may want to pay attention to retirement planning. When you’re in your early fifties, you may have paid off a significant chunk of your home loan and your children may be on their way to financial independence. So, this is when you could really be saving more of your surplus income for your retirement.
One of the most tax-efficient ways to save for retirement is superannuation via concessional contributions, which includes employer super guarantee contribution (SGC) and salary-sacrifice payments. For people aged 49 or over on 30 June, the current limit for concessional contributions is $35,000. These contributions are typically only taxed at 15 per cent, rather than your marginal tax rate, making this a very tax-effective form of saving.
At this age, you have already reached, or are very close to, your preservation age. This is when you can potentially first access your superannuation, even if you are still working. This strategy is called Transition to Retirement (TTR).
Basically, a transition-to- retirement plan involves using part or all of your accumulated superannuation fund to start a pension. However, this pension – often termed an income stream in the financial industry – must be funded from your existing superannuation money.
The income received must also be above a prescribed minimum level (which is currently four per cent of the fund balance per year if you are under the age of 65) and below a maximum level of 10 per cent of the fund balance each year.
This is the age to apply for your Seniors Card, so you can obtain discounts from thousands of businesses – and you’ll never again have to pay the full fare for nationwide public transport.
If at preservation age using your superannuation fund to start a pension didn’t make financial sense – such as a high marginal tax rate or a large taxable component in your superannuation fund – then, when you reach 60, it almost always does, as the income you have to draw would now be completely tax free.
Also, with retirement fast approaching, it may make sense to top up your retirement savings over and above the $35,000 of concessional contributions. These extra contributions are termed ‘non- concessional’ and can be funded by using other savings or perhaps an inheritance.
The current annual limit for non-concessional contributions is $180,000, or you can bring forward two future years’ limits – i.e. a total of $540,000. Since this money has already been taxed at some stage in your personal name, it’s received by your superannuation fund tax free.
Also remember that once you reach age 65, you will have to meet the work test in order to make these non-concessional contributions.
This is when you reach the Age Pension age, where you might be entitled to receive a government pension and the associated Pensioner Concession Card. The qualifying age is currently 65 years for anyone born before 30 June 1952. This age increases progressively to 67, depending upon your date of birth. However, in a recent announcement, the Federal Government proposed the age may increase to 70 for anyone born after 1 January 1966.
As you approach Age Pension age, you may wish to consider a number of strategies to potentially increase any entitlement. If you don’t qualify for an Age Pension, don’t forget to apply for the Commonwealth Seniors Health Card. Finally, remember that 70 is the age limit for making any spouse contributions to boost your partner’s superannuation.
If you are still working, this is your last chance to top up your superannuation via a personal super contribution or a salary-sacrifice arrangement.
Many readers will fondly remember a time – before CDs and MP3s – when we used to listen to music on vinyl records. Someone once compared life to the classic double album with its iconic gatefold cover. As your life moves well into side three of your own double album, you’ll still have many memorable milestones ahead for which to prepare and enjoy.
This article provides general information only. It does not take the place of professional financial and taxation advice. See an accredited financial professional for individual-based advice.
Richard is an authorised representative (number 340002) of Dover Financial Advisers (AFSL 307 248; ABN 87 112 139 321)
For a guide on how transition-to-retirement income streams (TRIS) are taxed, visit the Australian Taxation Office website.