Six steps to boost your super as you near retirement
It's likely that many of today's retirees will spend at least a quarter of their life in retirement
With women now expected to live to an average age of 89 and men to 86, it’s likely that many of today’s retirees will spend at least a quarter of their life in retirement.
Understandably, if you’re one of the many Baby Boomers who didn’t benefit from having superannuation guarantee contributions throughout your entire working life, you may be concerned you’re not going to have enough in your super fund to be comfortable throughout this long retirement.
According to the Association of Superannuation Funds of Australia Limited (ASFA), the average super balance at the time of retirement was $270,710 for men and $157,050 for women in 2015-16.
Both figures fall well short of the $545,000 needed for a comfortable retirement for a single person, according to the ASFA Retirement Standard.
ASFA defines a comfortable retirement lifestyle as one that allows a “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”.
But, like most things in life, the amount you will need in retirement depends on your personal situation and life goals. Some financial planners put the bare minimum requirement at a whopping $1 million. On the other hand, Scott Pape, a financial adviser well known as the Barefoot Investor, reckons a couple with a paid-off home can be comfy on a combined super balance of $250,000, while an individual needs $170,000.
If you do look at your income needs and are worried you may not have enough money for a comfortable life, the good news is that you can still take steps to boost your super savings as you approach retirement, and even potentially after you retire.
Here are six ideas to consider:
1) Review your existing fund
It’s worth reviewing both the investment performance and fee structure of your super fund at least every couple of years. These key elements can have a substantial impact on the balance of your super savings over the long term
Your financial adviser or super fund provider can help you to do this, or you can use a free comparison tool to do your own research.
The Compare Funds tool, owned and run by independent research provider SuperRatings, for example, can help you compare super funds by letting you run side-by-side comparisons of different industry super funds against retail funds.
According to SuperRatings, industry funds on average outperform retail funds, with the median gap between industry and bank-owned retail funds above two per cent per year over the past seven years.
Over the long term, this difference in performance can make a big difference to how long you stay at work and your lifestyle in retirement. Industry SuperFunds estimates that over the past 10 years, the average industry fund has delivered about $15,000 more to each member in returns than the average retail fund*.
2) Move to a more aggressive fund
It’s worth thinking about where you sit on the risk spectrum.
Some people are natural risk-takers and are prepared to invest their super in higher risk investments to achieve a higher return, while others are more risk-averse, and would rather keep their money in more conservative investments and accept lower returns.
Moving your savings into a more aggressive super fund or mix of asset classes could potentially boost your super, but this strategy typically requires investment over a longer timeframe than more conservative investments. It also doesn’t necessarily guarantee you a correspondingly high return in the time frame you need it.
Your financial adviser or super fund provider can help you work out whether your fund choice best reflects your risk appetite while potentially delivering the returns you need.
3) Consider making pre-retirement, concessional catch-up contributions
If you’re able to make extra contributions to super through salary sacrificing in the years leading up to retirement, you can take advantage of several tax benefits. But it’s important to also remember that there are limits to the concessions available.
For anyone with an adjustable taxable income of less than $250,000, you’ll be taxed at a concessional rate of 15 per cent on any contributions you make on top of your employer’s super contributions, any additional employer contributions or other contributions where you’ve claimed a tax deduction. You can pay in up to $25,000 a year at this reduced tax rate.
If you’re under 65, you may also be able to average out your contributions up to a cap of $300,000 using the ‘bring forward’ rule, which can be helpful if you come into a windfall.
4) Consider a transition-to-retirement plan
Women, particularly those over 60, could look at working part time for longer while using a tax-effective transition-to-retirement (TTR) income stream.
A TTR strategy allows you to start taking some super as income to make up the difference between your former full-time wage and your new wage as a part time employee.
It means you can work less but enjoy the same standard of living you had when you were working full time. You can even continue adding to your super by salary sacrificing – which, as mentioned previously, can bring added tax benefits.
5) Take advantage of the downsizing rule
For those over 65, downsizing your family home could allow you to boost your super with the surplus funds from the sale. The government is encouraging older homeowners to downsize their family home by offering reasonable after-tax incentives for them to do so.
According to independent financial adviser and superannuation expert, Trish Power’s SuperGuide site, “from 1 July 2018, Australians aged 65 years or older will be able to 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).”
Such a move should be discussed with a financial adviser, however, as an increased super balance could impact your eligibility for the Age Pension.
6) Get advice from an expert
There’s no doubt that superannuation rules can seem difficult to navigate. With rules changing each year and so many different variables to consider, it’s best to discuss any concerns you have about how to make the most of your super with a trusted financial adviser or your super fund provider.
“It’s never too late to boost your super,” David Whiteley, CEO of Industry Super Australia (ISA) said. “But everyone’s retirement circumstances are different. Talking to an independent financial adviser could help you make a plan for your future.”
Have you reviewed your super strategy recently?
Keep your super invested when you retire and grow your income. Turn your super into an income stream when you retire and you can receive a regular income to top up the Age Pension, while the balance stays invested. Find out more here.
*Past performance is not a reliable indicator of future performance. Assumes starting balance of $50,000 and initial salary of $50,000. Comparisons modelled by SuperRatings, commissioned by ISA. Modelled outcome shows 10 year average difference in net benefit of the main balanced options of 16 Industry SuperFunds and the 77 retail funds tracked by SuperRatings, with a 10 year performance history, taking into account historical earnings and fees – excluding contribution, entry, exit and additional advisor fees – of main balanced options. Outcomes vary between individual funds. Modelling as at 30 June 2017. See www.industrysuper.com/assumptions for more details about modelling calculations and assumptions. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision. 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.
This article was first published on Starts at 60 in May 2018. The information referred to may change from the date of publication and care should be taken when relying on such information.