I’m worried I don’t have enough super, how do I overcome this?

September 24th 2019 | Categories: Retirement |

More than half of Australians over 65 today are self-funding their retirements, while only 25 per cent draw a full Age Pension, reports Challenger[1]. The same research shows average super balances are on the rise, and the typical household super of people retiring today sits around $400,000.

As more Australians enter retirement with an appropriate nest-egg, you should be thinking about where you stand and what your retirement will look like. If you feel like you don’t have enough in your super to achieve your desired retirement lifestyle, read on to learn how you can give your nest-egg the boost it deserves.

Understand how a financial planner can support you with your need for financial security. Get in touch.

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Funding your retirement – super, pension & more

Your super fund will likely be a significant source of income in your golden years – but it doesn’t have to be your only one. Your retirement income can come from a variety of sources outside of superannuation, such as:

• Age Pension.
• Investments outside super.
• Downsizing (selling the family home).
• Part-time or contract work.

All of these income sources can be combined to help you live your desired lifestyle in retirement. However, it’s important to note some sources may be affected by others – for example, your income from super or employment may limit your access to an Age Pension.

So, planning for your retirement isn’t just about how much you have in your super – rather, you need to consider the whole picture of your financial situation. Sitting down with a trusted financial planner is a great first step to fully understanding where you stand ahead of your retirement. Your financial planner can work with you to paint a picture of your retirement, identifying which of your assets are working for you and what strategies you can use to get ahead before you leave the workforce.

Bulking up your super before retirement

Super is typically the first choice for retirement saving because it’s tax effective for most people. Most contributions to super are taxed at a concessional rate of 15 per cent, below the marginal tax rate for many employees. This discounted tax rate can also be taken advantage of to boost your super before you retire.

Concessional contributions & salary sacrifice

Your concessional contributions consist of employer superannuation guarantee payments, your salary sacrifice and any personal contributions claimed as a tax deduction. In the 2019-2020 financial year, concessional contributions are capped at $25,000 annually.

Assuming your ordinary time earnings are $90,000, then your employer superannuation guarantee (9.5 per cent for the 2019-2020 financial year) would be $8,550. This means you have another $16,450 worth of your concessional contributions allowance to make up in personal contributions and salary sacrifice each year. As you near retirement, you might consider scaling down your day-to-day spending and opting to take on or increase a salary sacrifice.

With salary sacrifice, an agreed portion of your payment will be put straight into your super as a concessional contribution, helping you save on tax and boost your super. You could allocate as much as $16,450 of your ordinary time earnings to salary sacrifice in the years leading up to your retirement to ensure your nest-egg gets the boost it needs.

From 1 July 2018, you may be entitled to contribute more than the cap would usually allow. If your super balance was under $500,000 on June 30 the previous financial year, you’ll be able to carry forward any unused concessional contributions cap from the previous year to help you increase your salary sacrifice, or claim any personal contributions as a tax deduction[2].

Downsizing for retirement

Eligible Australians may be able to contribute up to $300,000 from the sale of their family home to superannuation. You are eligible if:

• You are 65 years or older at the time the contribution is made.
• The contribution is made within 90 days from the sale of the home.
• The sale agreement was signed after 1 July 2018.
• You or your spouse owned the home for at least ten years prior to the sale.
• The home was your primary residence of this time.
• You have not previously made a downsizer contribution.

So, if you and your spouse sell your home of over 10 years after reaching age 65, you may each be eligible to contribute up to $300,000 from the proceeds of the sale into your respective super funds. This can be a crucial means to increase your retirement income if you feel your superannuation balance is not enough.

Downsizing contributions do not count towards your concessional or non-concessional contribution caps but do affect your eligibility for the Age Pension.

There is no requirement for you to buy another home, so you might instead begin renting, make a sea or tree change, look into retirement housing options or move in with family.

Retiring & rehiring

If you’re not sure your retirement savings will see you through retirement, know that you do have the option of returning to the workforce after retiring.

Retirees are legally able to work up to 10 hours per week while still being classified as “retired”. Once you’ve returned to work and make over $450 a month, your employer will be required to make super guarantee payments. Note that simply reducing your hours to less than 10 per week doesn’t count as retiring – you must fully withdraw from the workforce first, after which you may be rehired up to 10 hours per week without penalty.

Provided you had the genuine intention to retire from part-time or full-time work, you will usually be allowed to return to the workforce with no penalty or impact to your superannuation income. Anything between 10 and 30 hours a week is considered part-time, while more would be viewed as full-time work.

You will need to discuss your options with your super fund to determine any limitations on your superannuation income.

It’s a good idea to consider how you’ll wind down your working life ahead of retirement as well. Read our article “Reaching work-life bliss before retirement” for more guidance on this.

Seeking financial planning advice

As you near retirement, it’s important to have a financial plan in place. Speak with an adviser at Invest Blue to discuss how you’ll shape your retirement. Working alongside you, we’ll help you assess your financial standing and carve a plan to increase your savings and make your nest-egg go as far as possible.

We strive to understand your goals and priorities and create a bespoke strategy that not only saves you money but helps you live life in a way that makes you happiest. With an intimate understanding of financial concepts, products and markets, Invest Blue financial planners bring experience and compassion to turn your retirement dreams into reality.

For more information about our retirement and financial planning services, reach out to the team today.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.

[1] https://www.challenger.com.au/-/media/Challenger/Documents/Reports/37693-Update-on-balances-paper-2019-FINAL.pdf

[2] https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Concessionalcontributionscap#Concessionalcontributionscap