Changes to super legislation have altered the retirement landscape. It's never been so important to plan for your life in retirement. Life expectancy for the average Australian has increased significantly and because we live longer and retire earlier, many Australians now spend a lot more of their lives in retirement. That's good news, but it has now become even more important to plan ahead.
You no longer have to take your money out of super at age 65. If you were aged between 65 and 74 you could keep your money in super provided you met a work test and gave details of hours worked each year to your super fund. However, now you can choose how and when you start enjoying the money that you have accumulated in super. You can keep your money in super for as long as you want.
Can I afford to retire?
Once you reach your preservation age you can access your super, so you have a number of options available to you, for example:
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You can stop work and use your super to maintain your lifestyle. |
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You can work part-time and convert all or part of your super to a 'pre-retirement pension'. |
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You can carry on working full-time and continue to accumulate money in super. |
Once you're over age 60, lump sum withdrawals and pension income payments are tax free.
 Do I have enough super to stop work?
The decision to retire permanently largely depends on whether you have the financial resources available to fund your retirement (which could be over twenty years). Working out how much super you need to retire on is a good idea. Try out our super calculator to get an idea. If you think you might have enough and want to retire soon, there are some strategies you can use to save some tax.
You might consider delaying your retirement until age 60, as all super payouts will then be completely tax free (from 1 July 2007).
Retirement checklist to help get it right
Retirement may be a long way off, but it could represent as much as 25% of your life. The sooner you start planning, the better off you will be.
Complete the simple checklist below which should give you an idea of what you have and haven't already organised.
What do I need to know about retirement?
The government is trying to encourage people to fund their own retirement. Once you reach 55, they're offering you lots of tax benefits if you convert your super into a retirement income stream such as an account-based allocated pension. The tax benefits are even greater when you reach 60. Some of the rules are quite complex so it's a good idea to discuss your options with a financial adviser. Need a financial adviser, Click Here
Here are a few suggestions to get you started.
Think twice before cashing out your super now
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If you are age 65 to 75 you won't be able to put it back in unless you satisfy a work test. |
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If you are over 55 and under 60, there is no tax on the first $140,000 of the taxable component you withdraw. You will have to pay 16.5% tax on any amounts over this figure. |
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Once your money leaves the super environment and is transferred to another investment, such as a term deposit, any income it generates is taxable at normal marginal tax rates (up to 45% not including Medicare levy). Rolling it over into a pension product gives you many tax benefits. |
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Once you reach age 60, lump sum withdrawals and pension income payments are tax free. Further, investment earnings in an allocated pension are tax free. |
Consider an allocated pension
Generally, it is much more tax-effective to convert your super into an allocated pension (also known as an 'account based pension') or annuity. The main reasons are:
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there is no tax on lump sums or income payments from age 60 |
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you receive a 15% tax offset on any taxable income if over 55 and under 60 (if under age 55 conditions apply) |
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any investment earnings within your pension are tax free. |
Pension investments are also quite flexible;
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you can make lump sum withdrawals whenever you wish (not from pre-retirement pensions) |
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You must take a minimum percentage as income each year based on your age (there is no maximum amount unless you commence a pre-retirement pension, in which case the maximum is 10% pa) |
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your dependants can receive any remaining account balance when you die. |
Claiming personal deductions
You might use this strategy if you sell an asset which triggers a capital gain. If you are eligible to make a personal concessional contribution (eg you are self employed), you can offset any assessable capital gains up to your concessional cap.
If you are under age 50 your concessional cap is $50,000 pa (indexed). If you are 50 or over you are entitled to a $100,000 pa cap until 30 June 2012.
Small business Capital Gains Tax concessions
If you own a small business and plan to sell that business to fund your retirement, you may be able to minimise (and possibly completely avoid paying) any capital gains tax on the sale of your business, if you contribute the proceeds into your super. This can be a complex strategy and we strongly recommend you seek professional advice.
Work part-time and access your super at the same time
If you don't have sufficient money to permanently retire or you want to keep working, a pre-retirement pension is an option if you're over 55 and under 65. It allows you to convert your super into a regular income stream, but doesn't allow you to take lump sum withdrawals until you're fully retired. You can also continue to contribute (using salary sacrifice) back into your super to maintain or even grow your super balance for when you retire permanently. For more details on Transition to Retirement Pensions, click here.
Building up your super
If you decide to continue working, there are several strategies you can use to get your super working harder. Download a copy of five ways to boost your super here.
Why is estate planning important?
The main reason you need to plan your estate is to make sure your money and assets are inherited by the people you want to receive them. Another important reason is to make sure they attract as little tax as possible. Your Will plays a large part, so you need to make sure it is up-to-date, and correctly reflects your wishes. Even if you don't have many assets, having a Will can save your beneficiaries, family and friends a lot of trouble and heartache. Otherwise it could take months to sort out your affairs.
Things to consider when drawing up your Will include
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How to put your Will together - the safest way is through a reputable solicitor. There are cheaper alternatives, such as Will kits, but you need to ensure that your wishes are properly recorded and that your Will is made and witnessed properly. |
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Choose an executor and ask them beforehand if they are happy to do it. |
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Put together an information sheet listing all your investments and valuable assets. This can make your Will much easier to administer. |
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Include clear instructions for how you wish the assets and/or property to be administered. |
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Funeral arrangements - organising funerals can be traumatic so the more instructions you leave the easier it should be for your family. |
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Keep your Will in a safe place but where it can be easily found if needed. |
Some things to consider outside your will
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Superannuation - You should consider providing a binding death nomination to the trustee of your superannuation fund. |
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Small business or partnership - this may be subject to a buy/sell arrangement with the other partners. In these circumstances, your share of the business would automatically pass to the remaining partners (usually in exchange for the proceeds of an insurance policy). |
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Power of Attorney - This is a legal document that appoints another person to make legal and/or medical decisions on your behalf. It is particularly useful should something happen where you are temporarily unable to sign documents, such as a bad accident. |
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Do you need a Testamentary Trust? -This is a trust created in a person's Will, which is activated upon the death of that person. Instead of assets passing directly from one person to another, the assets are passed to the Testamentary Trust and then administered by the designated trustee - usually a family member, a trustee company, accountant or a solicitor. |
It's important that you seek financial advice before you decide what to do with your super, to ensure you are making the right choice. Your super might be taxed differently, depending on how you choose to receive it. Since 1 July 2007, if you are aged over 60 when you receive a benefit it is now tax-free, whether it is a lump sum or pension payments from a taxed super fund.
If you already receive an income stream you should still talk to a Financial Adviser to see if the new changes affect you. Need a Financial Adviser? Click Here |