Super for a super life

The key to life is loving it, not retiring from it. However, there may come times in your life when you want, or need, to change what you’ve been doing: to either take a break, to work out what’s next career-wise, or indeed, to stop working completely. ‘Super’ for a super life is the single most likely source of income for that final stage.

To be able to have these options, serious forward planning is called for – even if you think retirement is for everyone else, or at least a long way off. Financial considerations are always high, but never of more importance than when the regular funds that come in from business or employment endeavours are not flowing. So whilst this article is focusing on super for life in retirement, financial plans also need to be made for those periods when ‘gap years (terms)’ are taken.

As a rule of thumb, a retirement income of between 50% and 70% of pre-retirement salary/wages¹ will be required for most of us. Based on this premise, it’s estimated you will need to save around 15% of your annual income consistently, for 40 years². The problem here for employees is that employers are only compelled to provide superannuation contributions for you at the rate of 10% of your income each year³.

To overcome the significant gap in contributed savings, you could start contributing to super earlier in your working life, and you could raise the annual contributions to your super to 15% by making personal contributions (if eligible to do so), and pay attention to the following tips during the relevant stages of your working life:

Whilst young, single and independent

• Retirement is something your parents may be enjoying, but starting small and early lays the foundations for future choices.
• Maximise available government co-contributions—they can potentially add substantially to your super.
• Seek advice and if appropriate to your personal financial circumstances, take out disability insurance through your Super fund. It may be the most affordable, and the most tax-effective way of providing insurance cover.
• Choose an investment strategy that suits your long-term risk profile.

Having started a family and coping with a mortgage

• Your focus may be on repaying the home loan, but don’t forget your Super entirely.
• A mortgage and young children mean insurance is a top priority. Taking out life and disability insurance can be a sound decision at this stage.
• Cashflow permitting, check eligibility for a tax offset on spouse superannuation contributions and government co-contributions.
• Review your investment strategy and risk profile.

Dealing with the ‘in between’ years

• A higher income and a smaller mortgage open up the opportunity to boost your Super but take care not to exceed contribution and Total Superannuation Balance limits.
• Find out if salary sacrifice or personal deductible contributions could boost your Super savings and reduce your personal tax liability while you are working.
• Regularly review your insurance cover, your investment portfolio, and your investment risk profile.

When retirement is looming (or at least seen on the horizon)

• With the mortgage nearly paid off and children leaving home, you may have more money to contribute to superannuation, but keep an eye on your contribution amounts and Total Superannuation Balance. If contemplating downsizing towards retirement, consider eligibility for making Downsizer Superannuation Contributions (see more in the January 2023 eNews).
• Consider combining salary sacrifice with a transition to retirement pension if beneficial.
• Review your insurance cover as you may not need that much cover, your investment strategy (and portfolio), and your investor risk profile.
• Start comprehensive retirement planning, strategies to ease into retirement, or perhaps a new career focus.

When all is done and dusted: down tools or start anew

• You’ve made it. For retirees over 60, lump sum withdrawals and pension payments are generally tax free!
• Review your investment risk. Keep enough growth in your portfolio to help ensure your money lasts as long as you do.
• Review your insurance needs.
• Stay active and enjoy life – or launch into your next career. There are no rules!

Remember, it’s never too late – or early – to start, so call your ContinuumFP financial planner and ensure that your plan, your strategy, is appropriate to your financial resources, goals and objectives – and to your investor risk profile. You can contact us on 07 34213456, and by using this contact form on our website.

¹ The appropriate percentage of previous income will be determined by the stage of life you are at, your financial commitments, and your goals and aspirations. These are calculations that our financial planning team are experienced in making.

² The annual rate and term of the accumulation is presuming full-time employment until retirement at around age 65: obviously, individual circumstances will affect this, as will the amount determined in the calculation above.

³ The annual rate of the superannuation guarantee amount has progressively increased from 3% per annum on eligible earnings, through the current 10% and heading to a cap currently prescribed, of 12%.