With super changes taking effect from 1 July 2017, now is a great time to give some thought to questions like… Will I have enough to retire on? Is there a better option than super?
Everyone’s personal and financial circumstances are different and so we should all be asking ourselves these questions.
How much? An indication…
But there is no right answer to these questions. As an indication, the Association of Superfunds of Australia regularly publish approxiamate figures on what they consider to be a comfortable income to live-off. Their latest figures published in December 2016 discuss a modest lifestyle and a comfortable lifestyle for those aged around 65 who own their home and are relatively healthy.
A modest retirement lifestyle is considered better than simply receiving the Age Pension, but still only able to afford fairly basic activities. Annual income per year:
For singles - $24,100
For couples - $34,700
A comfortable retirement lifestyle enables you to be involved in a broad range of leisure and recreational activities and to purchase things such as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.
For singles - $43,500
For couples - $59,800
The time to act is now
The Age Pension alone will not be enough to support a "comfortable retirement lifestyle" so where does super fit in?
There is no doubt that superannuation is one of the best ways to save for retirement, largely due to the current tax concessions. For example, the maximum tax rate on superannuation earnings is only 15% before you retire but there is no tax payable on earnings after you retire when your superannuation pension is being paid.
From 1 July 2017 the reduced concessional (before-tax) contributions limit of $25,000, means that you will not be able to contribute as much to super via salary sacrifice. This may be a good opportunity, if you have a bit of a cash buffer, to consider salary sacrificing as much of your income as possible in the lead up to July.
Similarly from 1 July 2017, the ability to make large one-off non-concessional (after-tax) contributions using savings (e.g. from an inheritance) is being limited. This may be a one-off opportunity to make the most of topping-up your superannuation before retirement because the earnings on those contributions will not be taxed once you retire.
Achieving your maximum super balance
The maximum balance that an individual can have in the superannuation pension phase will be limited to $1.6M; for a couple that is $3.2M. We know that for many people these amounts are unrealistic based on average income and standard Super Guarantee contributions. All the same it is increasingly important to start salary-sacrificing sooner in your working life if possible, to provide a better opportunity to benefit from compound growth on super savings. Let us show you how you could benefit from just modest salary sacrifice.
If you are already retired and now need to reduce your superannuation pension accounts down to $1.6M, then there are a number of questions you should be asking: Do I keep the excess amount in super as an accumulation account? Can I cash the excess amount out? What tax will be paid at that time? What tax will be paid by my estate/beneficiaries on my super benefits, when I die? If I cash-out some of my super then where should I invest that amount? Should I help out the family? Does my defined benefit pension from the government count in the calculation of my existing super pension balance?
To make the most of the current opportunities, whether you have a modest superannuation balance or one that is over $1.6M, you really need to be considering what options are available and to act quickly. We would be happy to assist. So if you want to discuss what you should be doing about your situation, please don’t hesitate to contact us.