Super in your 40s and 50s
Super in your 40s and 50s should be taken as an opportunity to make meaningful progress in preparation for retirement. In this age-focused series of articles, we address the relevance of superannuation in the retirement funding process. The two decades of your forties and fifties are financially crucial in this process. We provide some tips and strategies to help achieve the retirement goals you are keen to achieve. We conclude this article highlighting the urgency of working to a strategy/financial plan.
A generalised scenario
Statistically, it is likely that you are secure in your career and stable in a relationship. This suggests that you have a home with a mortgage that is manageable (or perhaps paid out). Also, that the education costs of your family is budgeted. With all of this, careful control of your lifestyle costs might also now leave some surplus funds for discretionary spending.
In your forties, you have around 24 years +/- to accumulate funds for the retirement you would like to have. The annual cost of a ‘comfortable retirement lifestyle’ at age 67, is $120,000 in estimated 2045 dollars. That amount is based on a current amount of around $62,800, indexed at a steady 3% per annum for 22 years. Keep in mind the current estimate that many of us will live more than 20 years in retirement. Taking say 25 years as the lifetime beyond a 67-year-old’s retirement, a retirement fund (in 2023 dollars) of 25 x $62,800 will be required. By our calculations, again – in 2023 dollars, that will require $1.57 million. Will you be ready for that?!
In your fifties, the above time frame is reduced by 10 years. You will require just under $1 million to fund your retirement. With only 15 years left, will you be ready for that?!
Superannuation for retirement
Growing superannuation accounts to fund retirement can happen in a number of ways, including by –
- super guarantee contributions
- salary sacrificed contributions
- personal contributions which can be either
- concessional (tax deductible) contributions, or
- non-concessional contributions
- government co-contributions – and/or
- investment earnings.
In the years that you have left from this age range until retirement, the super guarantee amounts contributed by your employer will be the most consistent source of funds, but not necessarily the greatest. It is open to you to add to your super by those personal contributions – but how are they sourced?
Some ways that might present themselves include –
- excess cashflow from your regular earnings (whether by salary sacrifice or irregular lump-sum)
- capital gains (sale of assets) and/ or windfall gains (winnings, bequests, settlements)
- gifts.
Growing super in your 40s and 50s
Whether these are made as concessional or non-concessional contributions you will need to consider in the light of your circumstances. All superannuation contributions are subject to various caps (limits on the annual amount allowed to be contributed). For concessional contributions, these caps take into account the contributions by employers as well as personally. Breaching caps can lead to significant tax consequences. You can read more about concessional and non-concessional superannuation contributions in the following articles in our website library: concessional contributions; non-concessional contributions.
Your superannuation account funds will be invested by either a default or a selected method. The default method means that the trustee of your fund will apply an age-based generalisation to your investment. If you take the time and care to select the investments in your fund, you will address your personal investor risk profile. (You can read more about in this article from our website library: Investor Risk Profiling.)
Government co-contributions are provided for low-income earners. Eligibility is annually assessed and is subject to account balance caps. Any co-contribution received in this way, is not subject to contributions tax. (Contributions tax is generally at the rate of 15 cents per dollar contributed concessionally. For members whose earnings exceed prescribed limits, this may be at a rate of 30 cents per dollar.)
A super alternative to consider
Some superannuation account holders react to the volatility of investment markets by choosing an alternative to contributing to their account. These people generally follow one (or both) of two courses of action –
- as mortgage holders, paying down their (variable rate) mortgage early, or
- saving and investing outside of the superannuation tax-protected environment.
Either of these courses of action can be effective, it depends on personal circumstances.
The role of Life Insurance
Throughout the superannuation process, sustainable earnings are required. Indeed, throughout the process of accumulating for a ‘comfortable’ retirement by any means includes this requirement. One of the strategies that wealth accumulators adopt is the use of personal life insurance. There are many aspects to life insurance and its use to benefit each individual requires careful consideration. And once an insurance strategy is adopted, it should be reviewed regularly to avoid either under- or over-insurance.
Most personal life insurance can be obtained through a superannuation account, as well as directly. When a superannuation account is used to hold an insurance policy there may be a tax benefit. There will be a cashflow benefit – but that comes at a cost to the accumulation of funds in the superannuation account.
Get a Financial Plan in place!
Optimising the growth of your superannuation will be enhanced by advice from an experienced, licensed financial planner. It is a complex area and strategies that benefit some people may harm others. Superannuation investment strategies, alternative investments, risk attribution and life insurance are all in the sphere of our experience.
To benefit from advice with a Continuum Financial Planners experienced adviser, call our office (on 07-34213456), or Contact Us Online or Book A Meeting to meet with us at our office
