How $50,000 in super can create a handy retirement income
More than a third of Aussie Baby Boomers fear they won’t have enough money to live on in retirement.
It’s a scary prospect they’re facing. According to the Australian Super Funds Association, the annual income a person needs for a ‘comfortable’ retirement currently stands just over $43,500.*
That’s a far cry from the roughly $23,000 a year a full Age Pension plus supplements provides, leaving people with an expectation they’ll have to give up all small comforts in their later years.
Yet research by Galaxy for Industry SuperFunds found that even people coming close to, and already in, retirement are often confused about super.
Fifteen per cent of Australians in that age group believe they will be presented with a lump sum, or are unaware that it’s possible to draw an income from super while the balance remains invested.
Doing just this is called using an account-based pension.
Put simply, at retirement part of your super balance is moved into an account from which you draw an income. The rest remains invested and, if investment returns are healthy, can continue to grow – until you need it.
That knowledge is particularly important for people with a super balance of $50,000 or less, because they’re by far the most likely to take their super as a lump sum. Less than a third of this group use their savings to create an income.**
Modelling by Industry SuperFunds shows even a balance of $50,000 can generate a little extra cash every year to cushion retirees against the very modest lifestyle the Age Pension provides.
For example, a retiree could withdraw $2,700 a year, while keeping the remainder of their balance invested.
This small cash ‘bonus’ wouldn’t cause a reduction in pension entitlement because it comes under the $4,300 threshold a single person is permitted to earn in a year. This is key because 40 per cent of Baby Boomers expect to draw the full Age Pension in retirement, Galaxy found.
Maintaining this set-up for five years would, based on some assumptions including an investment return of 9.49 per cent# allow the invested portion of the super balance to grow to more than $60,500. The retiree could then choose later in life to draw a larger annual income from their increased super savings.
More than half of Baby Boomers expect to keep working after the traditional retirement age of 65, and all but 12 per cent of the generation expect to have financial worries in retirement.
There are some ways they could give their super balance a boost, even in retirement.
Double-checking for unclaimed super is an easy one – simply search for it via AUSFund’s site*** or through the government’ MyGov portal.**** Consolidating any super savings the search uncovers is another way to make quick savings by reducing management fees.
People on a low income can also get government help to boost their super by making an after-tax contribution to their savings, which the government will then match up to a maximum of $500.*****
This government-funded boost is available to people aged 65-71 who fulfil these conditions:
- You’ve lodged a tax return for the given financial year
- You’ve made at least one eligible super contribution during that year
- Your income is below $51,021
- At least 10 per cent of your income comes from a wage-paying job or running a business.
If you’re aged 65 and over and want to make contributions to your super, remember that you can, as long as you hold employment for at least 40 hours over a period of 30 consecutive days in a financial year.
Baby Boomers who are looking for ways to increase their balance or create an income stream from their super should consider speaking to their super fund provider or financial adviser. ******
Most providers can review the fund’s performance against others in the market, looking at both fees and investment returns, to ensure the saver is getting the most bang for their buck and are in the most appropriate investment class.
Having concerns about inadequate super savings when coming into, or being in, retirement can be frightening, but the right advice can mean the ability to generate an income some people hadn’t previously thought possible.
Article first published on Starts at 60 in October 2017.
# 9.49% is the average Industry SuperFund return over the past 5 years, based on SuperRatings’ modelled net benefit outcome taking into account historical earnings and fees of the main balanced investment options of 16 Industry SuperFunds’ retirement income products. Modelling as at 30 June 2017. Capital growth will not continue throughout retirement. Past performance is not a reliable indicator of future performance. Outcomes vary between individual funds. Consider a fund’s PDS, your objectives, financial situation and needs, which are not accounted for in this information, before making an investment decision. For more details about modelling see industrysuper.com.au/assumptions. ISA Pty Ltd ABN 72 158 563 270 Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514