The key to life is living, not retiring. However, there may come a time in your life when you want, or need, to change what you’ve been doing. To either stop working completely, or take a long holiday and work out what’s next.
To be able to have this choice, it’s imperative that you plan ahead, even if you think retirement is for everyone else.
As a rule of thumb, it’s suggested to aim for a retirement income of between 50% and 70% of pre-retirement salary/wages. Based on this premise, it’s estimated you will need to save around 15% of your income for 40 years. The problem here is that your employer is only compelled to provide superannuation contributions for you at the current rate of 10% of your income each year.
How might this be done? You can start contributing to super earlier in your working life, raise the combined rate of your super contributions to 15% by making personal contributions (keeping under the annual limits of course), and take heed of the following tips throughout your working life.
Young, single and independent
- Retirement is something your parents may be enjoying, but starting small and early lays the foundations for future choices.
- Maximise your government co-contributions—they can potentially add thousands to your super.
- If appropriate, take out disability insurance through your super fund. It is often the cheapest and most tax-effective way of providing insurance cover.
- Choose an investment strategy that suits your long-term risk profile.
A family and a mortgage
- Your focus may be on repaying the home loan, but don’t forget your super entirely.
- A mortgage and young children mean insurance is a top priority. Taking out life and disability insurance can be a sound decision at this stage.
- Check eligibility for a tax offset on spouse superannuation contributions and government co-contributions.
- Review your investment strategy and risk profile.
The ‘in between’ years
- A higher income and a smaller mortgage open up the opportunity to boost your super, but take care not to exceed contribution and Total Superannuation Balance limits.
- Find out if salary sacrifice or personal deductible contributions could boost your super savings and reduce your personal tax liability while you are working.
- Review your insurance cover and your investment risk profile.
Retirement is looming (maybe)
- With the mortgage nearly paid off and children leaving home, you may have more money to contribute to superannuation, but keep an eye on your contribution amounts and Total Superannuation Balance.
- Consider combining salary sacrifice with a transition to retirement pension if beneficial.
- Review your insurance cover as you may not need that much cover, and your investment strategy and risk profile.
- Start comprehensive retirement planning, strategies to ease into retirement, or perhaps a new career focus.
Down tools or start anew
- You’ve made it. For retirees over 60, lump sum withdrawals and pension payments are generally tax free!
- Review your investment risk. Keep enough growth in your portfolio to help ensure your money lasts as long as you do.
- Review your insurance needs.
- Stay active and enjoy life – or launch into your next career. There are no rules!
Remember, it’s never too late – or early – to start…