Tag Archives: Retirement Planning
How much can you confidently spend in retirement?
By Robert Wright /July 16,2021/
So much happiness in retirement comes from peace of mind, not money. Of course, the two are intertwined. Understanding your monthly budget, whatever it is, and not worrying about running out of cash in retirement, enables peace of mind.
But the academic research throws in plenty of other factors – good health, social connections, having a purpose, still learning whether by doing a crossword every day or playing a musical instrument, and being optimistic.
Most of the factors are controllable, to some extent, by individuals. And the sooner they think about planning for retirement, the better chance they have of achieving peace of mind. When it comes to money, figuring out how much you’ll need to spend in retirement is a good start. Achieving a ‘safe’ level of spending depends on the level of saving, investments and life expectancy.
What is a ‘safe’ spending level?
A spending level is considered to be ‘safe’ if the household has a high degree of confidence that they can continue spending their desired amount for at least as long as both spouses are expected to live (their life expectancy). You may have a different idea of the amount you can safely spend and still have confidence that your savings will last.
For example, a 67-year old person who has total retirement savings of $600,000 should be confident of being able to spend $40,000 each year. But if they chose to spend $60,000 each year, then their level of confidence would change as they’ll likely run out of money later in life.
For a couple with $600,000 each, they can be confident of being able to spend $60,000 combined and have enough money till the end of their lives. Understanding these numbers is important for peace of mind.
Using a retirement spending planner helps people understand what they need to meet basic living costs, and how much they want to cover for the discretionary, but not necessary, spending. Ideally, this combined matches closely to what an individual, or couple, can safely spend.
But what if it’s not? If the retirement planner tells you that you can safely spend more than what you are currently spending, there’s few concerns. But what if it’s the other way around?
Running out of money late in life is a big concern for many retirees. The latest research from National Seniors Australia, found that most older Australians (53%) are worried about outliving their savings, with women (59%) more worried than men (47%).
There are retirement products that can help fill the gap. While many retirees will have to rethink their spending plans, having an additional layer of protection in retirement that gives you guaranteed income for life (regardless of how long you live) in the form of a lifetime annuity, will be attractive to some.
A lifetime annuity provides guaranteed income for life. And it can help some retirees access more of the Age Pension. Combined, lifetime annuities and the Age Pension can ensure retirees can rely on guaranteed, regular income for their whole life. But perhaps the greatest benefit of all is peace of mind.
Securing your retirement income
As we’ve seen in the last year, things can change quickly and unexpectedly. Getting your retirement income sorted can help support a positive outlook in retirement.
Source: Challenger
How to save for retirement in your 60s
By Robert Wright /June 11,2021/
Your 60s are the time in which you’re most likely to retire – according to the Australian Bureau of Statistics, of the Aussies who are planning their retirement, the average age they intend to retire is 65.5 years. But just because you’re getting close to retirement age, doesn’t mean you can afford to stop being proactive about building your nest egg.
Alternatively, you might decide to follow through with your plans, and accept that your retirement income might be smaller. No matter which approach you choose, keeping an open mind and a flexible approach can make it easier to adapt to the current global economic situation.
Have a financial plan for your dream retirement
Many people love what they do and may not be looking forward to the prospect of walking away from full-time work. Others might be counting down the minutes until they can leave the office behind or be keen to scale back to part-time hours. Regardless of which category you fall into, as you start planning for retirement more seriously, now is the time to start picturing what your dream retirement will look like.
You can also use this time to turn your skills and hobbies – such as consulting or mentoring others – into additional retirement income. Whether you’re looking for part-time work or a hobby that brings in a little extra, why not get creative, keep busy, make new friends, and earn extra cash on the side, all at the same time?
Learn to live more frugally
Just because retirement is in your sights doesn’t mean you no longer need a retirement budget – in fact, retirement planning becomes essential in your final years in the workforce. To make sure your retirement savings are sufficiently healthy to support you through the rest of your life, it’s a good idea to revisit your budget and look at all the extra ways you can cut back on spending to give your finances a final boost.
Switching to online banking and shopping can be a sound way to keep track of your income and expenses so you have a better idea of where every dollar is being spent.
Now that you’re less likely to have dependants living with you, consider downsizing into an apartment or a smaller home – you’ll save money (reduced utility bills) and time (less space to clean). Think about selling furniture and other objects that you no longer need, including big-ticket items like a second car. Tightening your belt on the big things means you’ll still be able to afford the luxuries you’ve been counting on enjoying in retirement.
Fine-tune your passive income in retirement
Having a passive income stream – that is, income you earn from an investment, such as property or shares, rather than income you earn by working – is a great way to maintain your finances when you’re no longer in full-time employment.
Start by working out what style of investor you are, and then consider the type of portfolio that will best match your risk tolerance and the number of years you have left in the workforce. Talk to a financial adviser if you need more guidance on how to structure your investments.
Set up an emergency fund
Unexpected costs arise at all stages of life, whether related to your property or your health. In fact, recent research estimates that an Australian couple will spend between $4,700 and $9,500 a year on healthcare in retirement.
When you no longer have a steady income stream, dealing with these potentially hefty expenses can mean dipping into your savings. To avoid this, set up an emergency fund to cover any unplanned bills. Based on the average healthcare amounts mentioned above, you should be budgeting around $25 a day for an individual or, for a couple, $780 a month. Here’s how you can plan for unexpected healthcare costs in retirement.
Stay insured when you stop working
More than 70% of Australians with life insurance hold it through their superannuation. But in most cases, this ends when you turn 65. If you haven’t taken out separate life insurance, you may want to do it before you stop working.
The purpose of this type of insurance is to provide you and your family with financial security if you were to die or become terminally ill. Your premiums will be higher in your 60s, but you’ll have financial peace of mind knowing that things like living expenses will be taken care of if there’s an emergency.
Source: AMP
Transfer balance cap set to increase to $1.7 million
By Robert Wright /June 11,2021/
The amount of super savings that can be transferred into a retirement pension (whether you have one or more than one) will increase from $1.6 million to $1.7 million on 1 July this year, but not for everyone.
Currently you can transfer a maximum of $1.6 million from your super savings into a retirement pension (or pensions) to generate an income after you’ve finished working.
However, from 1 July 2021, this limit (known as the transfer balance cap) will increase to $1.7 million. While this is good news for some, the higher cap won’t apply to everyone, and other caps and limits will also be affected.
What is the transfer balance cap?
One of the main benefits of transferring super savings into a retirement pension is that the investment earnings within your retirement pension account are tax-free, and from age 60 onwards, so are any pension payments you receive.
The transfer balance cap is a limit on how much can be transferred from your super savings into a retirement pension, regardless of how many retirement pensions you hold. Note, these are not to be confused with the government’s Age Pension, or a transition to retirement pension.
Also, once you’ve transferred the maximum amount into a retirement pension (according to your personal transfer balance cap), you typically won’t be able to top up your retirement pension a second time, even if your balance reduces over time. If you transfer more than your relevant transfer balance cap into a retirement pension, tax penalties may apply.
Why is the transfer balance cap changing?
The reason the transfer balance cap is increasing by $100,000 to $1.7 million in the 2021-22 financial year is because changes to the cap are dependent on the cost of living, as measured by the Consumer Price Index, which recently went up.
Who does the new $1.7 million transfer balance cap apply to?
While the general transfer balance cap is changing, your personal transfer balance cap could remain at $1.6 million, could increase to $1.7 million, or it could be somewhere in between.
What that will come down to is whether you move, or have already moved, money from your super account into a retirement pension before 1 July 2021. How much you’ve moved will also have an impact.
What this means is, if you’ve never moved money from super into a retirement pension, and do this for the first time after 1 July 2021, the new transfer balance cap of $1.7 million will apply to you.
However, if you move, or have already moved, money from super into a retirement pension before 1 July 2021, this will not be the case. Instead, your personal transfer balance cap will be determined by how much you’ve already transferred into retirement pensions.
If you transfer (or have transferred) less than $1.6 million, your personal transfer balance cap will be anywhere between $1.6 million and $1.7 million.
If, by 1 July 2021 you fully use, or exceed, the transfer balance cap of $1.6 million, your personal cap will remain at $1.6 million.
These changes could affect what you do before and after 1 July 2021, so please contact us to discuss whether you may be affected.
Source: AMP
Good news – Super contribution caps to rise
By Robert Wright /June 11,2021/
On 1 July 2021, both the concessional and non-concessional superannuation contribution limits, also known as ‘super contribution caps’, will rise.
This is good news because this is the first time these limits have changed since 1 July 2017, when the concessional contributions cap was reduced to $25,000 pa for the 2017/2018 financial year and onwards.
Since that time, the non-concessional contribution cap hasn’t changed either, currently $100,000 pa.
What are Concessional contributions?
These are super contributions made by your employer, from your pre-tax income (salary sacrifice contribution) or contributions for which you claim a tax deduction. They are generally taxed at only 15 per cent instead of your marginal tax rate.
What are Non-concessional contributions?
These are super contributions made from your after-tax income. Since you’ve already paid income tax on these contributions, they are tax-free going into your super.
Due to indexation of Australians’ average weekly ordinary time earnings (AWOTE), the concessional cap will increase to $27,500 from 1 July 2021.
What are the current and new contribution caps?
| Current concessional contributions cap | New concessional contribution cap |
| $25,000 | $27,500 |
| Current non-concessional contributions cap | New non-concessional contribution cap |
| $100,000 | $110,000 |
What does this increase mean for you?
Any increase in the super contribution caps means you may increase how much you can contribute to super. The tax benefits plus the compounding of returns can make a substantial difference to your final super benefit.
Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’.
You should consider whether to make non-concessional contributions or maximise your concessional contributions.
Concessional contributions
Additional concessional contributions can reduce your taxable income and your end-of-year tax liability. Concessional contributions are subject to just 15% tax on entry to your super fund compared to your upper marginal tax rate which could be as high as 37% or 45% (plus 2% Medicare levy) if you’re in one of the highest tax brackets.
Note: an additional 15% tax may apply to concessional contributions if your income is over $250,000.
How to make concessional contributions
Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’. Both methods have the same tax benefit so the method you choose comes down to what suits you:
Salary sacrificing comes out of your pre-tax salary and reduces your net taxable income meaning you may pay less tax on your personal income.
Personal deductible contributions are paid by you, and you can then claim a tax deduction when completing your tax return. If you choose this method, you need to submit a form to your super fund by a certain time advising your ‘intent to claim a deduction’ on your super contribution.
Making the most of ‘catch up’ contributions
‘Catch up’ contributions may allow you to use up to five previous financial years’ unused contribution caps in the current financial year if you meet certain requirements. The 2018/19 financial year was the first financial year you could accumulate unused concessional contributions. Unused carried forward concessional cap amounts expire after five years.
Non-concessional contributions
Non-concessional contributions do not entitle you to a tax deduction, but you won’t pay any additional tax as you’ve already paid tax via your personal income tax liability. Earnings on the contributions are taxed at only 15% and are tax-free once you access them as either a lump sum or a pension after age 60, when you satisfy a condition of release such as retirement.
Making non-concessional contributions to super might benefit you if you are seeking to contribute larger lump sum contributions.
Making the most of the ‘bring forward rule’
If you were age 64 or less at 1 July 2020 you may be eligible to use the ‘bring forward rule’, ie bring forward and use up to two future years’ worth of your non-concessional contribution caps.
Depending on your total superannuation balance this may allow you to contribute up to $300,000 (3 x $100,000) into super this financial year. However, if you wait and the cap increases from $100,000 to $110,000, the bring forward amount will increase to $330,000 next financial year.
You generally need to meet a ‘work test’ if you are 67 to 74 years old at the time of contribution.
Legislation is pending to increase the age at which you can trigger the bring forward rule from age 64 or younger as at 1 July of the relevant financial year to age 66 or younger.
With increases in the contributions caps on the horizon, 2021 may be a good year to revisit how much you are contributing to super and make a super plan for the future.
Source: IOOF