In my experience, people don’t need a million dollars to retire comfortably. Whilst a million dollars would be nice, the fact is that few people will ever retire with this amount of money. Most people retire with less than half a million dollars (in many cases, much less) and get by quite nicely. It’s all about taking an interest in your super and doing your best with it well before retirement time comes around.
The proponents of the million dollar theory don’t take into account three (3) important factors:
- The Age Pension in retirement;
- The potential absence of taxation in retirement; and
- The absence of non-income producing debt
The combined effects of the Age Pension and taxation concessions means that a lower capital amount in retirement will stretch further. And we empty-nesters all know how sharply household expenses drop after the kids finally move out.
Based on what I see among my retiree clients, most people don’t need a lot in retirement. Generally speaking, if they can travel when they want to and pursue their interests, most appear to be happy. Whilst money is always important, good health, a sharp mind, embracing relationships and a strong sense of purpose are much more important to older people. Money can’t buy most of that.
So if you want to maximise your superannuation savings (well) ahead of your retirement, here are seven (7) strategies to consider:
Consolidate your superannuation into one account. If you have several super accounts, as is usual when you change jobs a few times, take some time to select the right one. Also make sure that you are looking at all your superannuation accounts, including any ‘lost super’. Check ATO Super Seeker on the Australian Taxation Office site. Next, drag out your statements and consider the fees you are paying on each. Check out which ones contain insurance before you cancel any of them. Inadvertently cancelling insurance could be a costly error. In the end, it may be the case that none of your existing super accounts suit your current needs. In that case I can help you choose one that does.
Check the fees you pay to your current super provider. If you may be paying fees for services you don’t use, like paying commissions to an adviser you never see. Also on older accounts, fees can be a lot higher than they are today as the retail superannuation market has become very competitive in recent years.
Understand your own innate appetite for risk and choose investment options that suit your level of risk taking. You don’t have to accept the default investment option in your employer’s fund. You can change to suit your needs.
Review your insurance. Or in many cases, become aware of what insurance you have in your super. It is quite common to acquire insurance benefits that you didn’t ask for, simply by joining your employer’s fund. So check what you have and ask yourself is it enough? My experience tells me that when all things are considered, the answer is often NO!
Nominate a beneficiary to receive your super (and insurance benefits) in the event of your death. This is such a neglected area because is sounds a bit daunting. It is one or two bits of paper and about 5 minutes work. Generally, from superannuation you can only nominate your spouse, children or someone who is financially dependent on you. Making this nomination is important because your super is not covered by your will because it does not form part of your estate.
To give your super a boost, consider salary sacrifice. This means that you put a bit more than the mandatory 9.5% of your gross ordinary time earnings into super. There is a tax concession to be had for doing so, depending on your income level, because any money diverted by your employer into your super fund is taxed at the flat rate of 15% and no longer forms part of your taxable salary on which you pay tax at marginal rates. How much to of your salary to sacrifice and the associated tax concessions will depend on your circumstances, so it is best to seek advice.
The Transition To Retirement (TTR) strategy is one of the most underused ‘super-boosting’ pre-retirement strategies. It shouldn’t be! It is a real benefit to those who use it properly. Getting the most out of it requires getting the balance right between money in and money out of your fund, given your age and the associated taxation consequences. You should seek advice on this because the cost of good TTR advice is far outweighed by the benefits.
If you have questions, please call on 0408 756 531 or email me at firstname.lastname@example.org and I will be happy to answer them.