Simple ways to boost your retirement at any age, even if you're already retired
Chances are your retirement will be a long one. According to the Australian Institute of Health and Welfare the current life expectancy is 84.5 years for a man; and for a woman it’s 87.3 years. That means even if you only live to be the average age, and you retire on your 65th birthday, you will need your retirement savings to last between 20 to 23 years.
If you’re near the end of your working life and the prospect of making your money last seems daunting, don’t despair. There are ways you can ensure a more comfortable retirement, no matter how old you are, or even if you’ve already retired.
In your 40s: time to start planning
When you’re in your 40s, and even your early 50s, planning for retirement often takes a back seat to more pressing financial commitments such as your mortgage and school fees. But the sooner you start planning for retirement, the easier it will be to live the retirement you want.
1. Work out what you’ll need
If it seems difficult to work out how much you’ll need in retirement, the Association of Superannuation Funds of Australia (ASFA)’s guides may help. ASFA estimates that to support a modest lifestyle, an individual who owns their own home will need an annual income of $24,506; and a couple will need $35,189.
If you’re looking to enjoy some comforts in life, then plan on needing $44,011 and $60,457 a year, for singles and couples respectively.
ASFA also estimates that to provide the amount required to support a comfortable lifestyle in retirement, a couple would need at least $640,000 in assets outside their family home, while an individual would need $545,000. These amounts assume you’ll also receive a partial age pension.
2. Sort out your super
Many Australians rely on their superannuation for their retirement income. So, if you haven’t been taking super seriously, now is the time to start.
While your employer may already be making compulsory super contributions of 9.5% of your income, now is a good time to top that up through salary sacrificing.
You can contribute up to $25,000 a year to super, including your employer’s compulsory super contributions, all of which is taxed at the concessional rate of 15%. If your partner earns less than $40,000 a year, you may be able boost their super by making a spouse contribution to their super fund and receive a spouse contribution tax offset of up to $540.
And, if you have multiple super accounts, now is the time to consolidate them into one fund to avoid paying multiple fees.
3. Manage your debt
If you’re still making mortgage repayments or renting after you retire, it will eat into the amount of money you have to live on. So it’s often a good idea to pay off your home loan before you stop working. This may mean making extra contributions into your home loan above your minimum monthly repayments.
A financial adviser can help you with a cost/benefit analysis on using extra money to pay off your home loan sooner, versus making extra super contributions or investing in other assets.
If you're aged between 55 and 65: transitioning to retirement
The good news is that for many people this age, the kids have now left home and become financially self-sufficient; the mortgage has been paid - or is nearing the end of its life - and there is more spare money to hand. That said, you’re probably spending more on travel and other hobbies, and chances are you’ll want to start working less as well.
4. Work out a practical retirement plan
Giving up work doesn’t always have to be all or nothing. Many people choose to ease into their retirement rather than making a clean break. If you’re between 55 and 65, a Transition to Retirement (TTR) pension could help you reduce your hours without reducing your income.
A TTR pension works by letting you transfer some of your super to a separate pension account and then withdraw a certain percentage of it as income, which will be either tax free or taxed at the rate of 15% less than your marginal rate.
A financial adviser can help you work out a TTR strategy that delivers maximum income with minimum impact on your super savings.
5. Boost your super
Your late 50s and early 60s can be the best time to boost your super balance. That’s because until you turn 65, you can continue to make extra non-concessional (or post-tax) contributions of up to $100,000 a year.
If you have additional funds available to invest - for instance, if you’ve sold a property or another asset - you may be able to use the ‘bring forward’ rule to make up to three years of non-concessional contributions in one go.
This is generally available if your super balance is under $1.4 million and you’re under 65 at the beginning of the income year. After that, but before you are under 75, you’ll generally need to be working about 40 hours a month before you can make super contributions.