Planning for retirement
Retirement might be three or 30 years away, but if you have big ideas of how you'll spend your time, we can help you understand how much money you need & how you can make a difference now.
Planning for retirement is a big topic that covers the key decisions you need to make when looking ahead to the lifestyle that you hope to have after you finish working. One of the first steps in making a successful transition to retirement is to have a plan, or at least start thinking about a plan.
When can I access my super?
You can retire, or semi-retire, and draw on your super once you have reached your preservation age. Preservation age ranges from 55 to 60 years depending on your date of birth as shown below:
|Date of birth||Preservation age|
|Before 1 July 1960||55|
|1 July 1960 to 30 June 1961||56|
|1 July 1961 to 30 June 1962||57|
|1 July 1962 to 30 June 1963||58|
|1 July 1963 to 30 June 1964||59|
|1 July 1964 and onwards||60|
Super and the age pension
Many people assume that they can rely on the Age Pension when they retire. However, as part of your financial plan, it’s crucial to know if you qualify for it and how much you could receive.
To find out more about eligibility, and what you might qualify for, you can get more detailed information from the Department of Human Services website.
From 1 July 2017, the qualifying age for the Age Pension increased from 65 years to 65 years and six months. The qualifying age will increase by six months every two years, reaching 67 years by 1 July 2023. This is different to your superannuation preservation age.
Your eligibility for the Age Pension may be impacted by how you access your super – whether as a lump sum or via an income stream.
How much do I need to retire?
Lifestyle is a very personal thing —luxury living for one person is a modest existence for someone else. If you want a comfortable life in retirement, now is a good time to start thinking about what life will look like for you.
The purpose of this information is to give you an idea of the income you might expect in retirement and an overview of your most likely major expenses. This page uses information published in the ASFA Retirement Standard (June 2017 quarter), a quarterly benchmark of the annual budget needed by Australians to fund different standards of living in their retired years.
What is considered a modest, and a comfortable retirement lifestyle for retirees?
A modest retirement lifestyle is considered better than the Age Pension, but still only able to afford fairly basic activities.
A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.
Both budgets assume that the retirees own their own home outright and are relatively healthy.
Budgets for various households & living standards for those aged 65 - 85 (June quarter 2019, national)
|Annual income in retirement||$27,814||$40,054||$43,601||$61,522|
|Super balance required at retirement||$70,000||$70,000||$545,000||$640,000|
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a draw-down on capital over the period of retirement. The figures are in today's dollars using 2.75 AWE as a deflator and an assumed investment earning rate of 6 per cent.
* The lump sums needed for a modest retirement lifestyle are relatively low due to the fact that the base rate of the Age Pension, plus various pension supplements, is sufficient to meet the expenditure required at this budget level.
More information on the calculation of Retirement Standards is available here.
Our Retirement Forecaster is a helpful tool which can help you calculate how much super you might have in retirement based on your wage and savings, and how long it could last for.
Transition to Retirement strategies
You may be able to pay less tax, get more super and keep the same take-home pay.
If you are still working when you reach ‘preservation’ age (the age when you can generally first access your super), consider using a ‘transition to retirement’ strategy to reduce your income tax and increase your super, while maintaining the same take-home pay.
For those aged 60 or older, the amount you can save in tax and add to your super may be substantial.
What is a ‘transition to retirement’ strategy?
The strategy is simple: to receive a portion of your income from your superannuation, and to salary sacrifice back into super the before-tax equivalent of the income that you draw from your superannuation. This can save you money in two ways – you can pay less tax on money you pay into super, and if you are over 60, you pay no tax on payments you receive from your super. The tax that you are saving can then stay in your super as additional savings. The amount you can receive from your super using this strategy is restricted by an amount the Federal Government lets you withdraw from your super, which is up to 10% of your total super account balance per year.
Starting a ‘transition to retirement’ strategy
- Withdraw an income from your super via a legalsuper Transition To Retirement Pension.
- Pay the before-tax equivalent of your Transition to Retirement Pension income back into your super via a salary sacrificing arrangement. (Salary sacrificing can be set up through your employer.)
Future planning goes beyond retirement.
An estate plan includes your will and other documents that govern how you will be cared for, medically and financially, if you become unable to make your own decisions in the future.
You should ask a legal professional to prepare your estate plan. A good estate plan does two things:
- it will minimise the tax paid by your heirs, and
- it can offer peace of mind to you and your family.
Downsizing and super
Many Australian retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some Australians, selling the family home can be great way to release built-up equity to pay for retirement living expenses or in-home support that will allow them to stay at home longer.
Homeowners aged 65 years or over can downsize their family home and invest the surplus into their super account.
Since 1 July 2018, Australians aged 65 years or older can make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years. The legislated rules indicate that the property sold must be the person’s home (main residence and be eligible for the main residence exemption for capital gains tax).
Couples will be able to contribute up to $300,000 each, giving a total contribution per couple of up to $600,000.
Anyone considering moving into an aged care facility should seek advice about the implications of combining the downsizing policy and moving into an aged care facility.
Downsizing and super
Contact us to learn more about downsizing and super.
Transfer Balance Cap
Understanding the transfer balance cap
The transfer balance cap applies from 1 July 2017. The cap is a limit on the total amount of money that can be transferred in to what is known as the 'retirement phase' of superannuation. This refers to accounts (such as the legalsuper Pension) which receive the benefit of 0% tax on investment earnings. You can continue to make multiple transfers into the retirement phase as long as you remain below the cap. All your account balances (in the retirement phase) contribute towards the cap.
Note: Transition to Retirement income streams are not assessed against the transfer balance cap until the account holder reaches age 65, or notifies the fund that they have met the conditions of release.
Exceeding the cap
You will need to ensure the balances of your income stream accounts do not exceed the transfer balance cap. Any excess amounts will need to be transferred back to an accumulation account or withdrawn from super entirely (where eligible). Minimum withdrawals are only required from your income stream account. If this amount does not meet your cash flow needs, you will need to consider how this income will be supplemented – this could be from sources outside super, from your accumulation balance or from increasing your withdrawals from an income stream account. Different options may impact on tax outcomes for you and your estate planning.
The transfer balance cap started at $1.6 million, this will be indexed periodically in $100,000 increments in line with CPI. The amount of indexation you will be entitled to will be calculated proportionally based on the amount of your available cap space. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.
Frequently Asked Questions
For more information about the Transfer Balance Cap, read our FAQ