Smart.Happy.Money 5: 3 steps you can take to improve your retirement
Even though retirement may seem like a long way off for many of you (closer for some!), have you ever asked yourself, “how am I going to retire”? It is a common question, especially for those who have passed the age of fifty. Fifty seems to be a turning point in the way people think about retirement. Although still 15 years or so away, it seems to be the time that people start to think about how it is going to work. We find more 50+ people want to start adding to their superannuation to boost their retirement savings, and this may also be the trigger to find and consolidate their superannuation funds.
So, how do people actually retire? It happens in one of a few ways.
1: Gone are the days that people leave work with no retirement savings. We have had compulsory superannuation since the 90’s and most people now have at least some super in an account somewhere.
The truth is the majority of people are retiring on a mix of their superannuation (which becomes an account based pension) and the age pension.
This does create problems if you want to retire before you’re eligible for the age pension to be paid.
The following shows when you can get the age pension (according to the current rules).
If your birthdate is; You’ll be old enough at;
1 July 1952 to 31 December 1953 65 years and 6 months
1 January 1954 to 30 June 1955 66 years
1 July 1955 to 31 December 1956 66 years and 6 months
From 1 January 1957 67 years
So, this might give you a good goal to set for your retirement age, especially if you are going to rely on the age pension to subsidise your income.
You can of course, and many do, access your super earlier than this if you retire. Some people choose to do this, access their super and eat into the balance while they wait for the age pension to kick-in. There is nothing wrong with this as long as you understand that your super won’t last as long.
You will find that over time as your account based pension is used up that the age pension you receive increases. This is because as your assets deplete you are eligible for a higher age pension payment. Your retirement income may begin with 90% coming from your superannuation paid as an account based pension and 10% coming from the age pension. Over time this will move to a 50/50 and will end up with the majority of your retirement funds being delivered from the age pension.
2: Other people retire with too many assets to receive an age pension at all. This is a great position to be in, you will find that you have a greater level of freedom in retirement.
Depending on the level of assets that you have you may also find that over time you fall below the age pension asset test and will start to receive a small age pension. Or possibly not. However, the management of those assets, to ensure that they are producing an appropriate income is very important and should be taken seriously. We need to weigh up risk and return, liquidity and ease of access to the funds needed.
3 steps you can take to improve your retirement outcomes
1: Consolidate your superannuation
Holding multiple super accounts is hard to manage and can be expensive. It takes more of your time to figure out what is going on and when you hit retirement, trust me, you will be happy to only have one account to deal with.
Your employer is putting money into super for you, but are you also adding to this? You can contribute to your superannuation fund and receive a tax break on what you put in. Are you on a low income? You can take advantage of the government's co-contribution and low-income tax offsets, both of which add money to your super.
3: Pay attention
Where is your super and how is it invested? Receiving advice and looking after your super is very important. It is real and it is your money.
Superannuation focuses on growing an asset that you can use to retire comfortably. Once you hit retirement we change mindset from growth to cash flow. How do we get a good mix of income into your bank account every month to make sure that you get the retirement that you deserve? With strategic advice and careful planning, it is possible. Retirement may seem like a dream, we can help make it a reality.
Book a session with a financial advisor today at www.bgnfinancial.com.au
Have a great day and happy retirement planning!
Ben Graham-Nellor is an advisor, coach, blogger and speaker who has worked in the financial services industry for over 15 years.
BGN Financial Management Pty Ltd is a Corporate Authorised Representative 468796 of Professional Investment Services Pty Ltd AFSL 234951 ABN 11 074 608 558 www.centrepointalliance.com.au
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