Get ready, get set: Retirement’s just around the corner
If retirement is just around the corner, here are ways to boost your super. Photo: Getty
Are you in your mid-60s? Which means you’re approaching pension age in the next few years?
In a previous article we considered the many things you can do to super charge your savings between the ages of 50 and 60.
But you may now be fast approaching your actual age of retirement. And prey to some doubts about how to manage your money as well as your exit from the workplace.
This is entirely common. It’s important not to underestimate how emotional this can be. So the first steps for those aged 60 to 65 are to sort out the personal aspects and questions.
It will help to think through:
- Do you wish to work part-time if you can, or would you rather leave entirely?
- How will you maintain your sense of purpose and contribution?
- Have you had a thorough health check and are you on top of health issues that may need managing?
- How do you plan to fill your days?
It’s also worthwhile to conduct a relationship check.
Work offers many social benefits that are easy to overlook. Understanding where your social interaction will come from is important to ensure that you avoid becoming isolated. And then there’s the significant ‘other’.
Are you on the same page about moving to this next life stage?
If not, it may help to book a date night to share your plans and dreams and see if there is a middle course.
Now let’s talk money …
At age 60 to 65 you are at the pointy end of super – the move from accumulation to decumulation.
Many people struggle with this concept as it feels as though however much they have, they’re bound to run out.
Let’s look at how decumulation (a technical word for drawing down) actually works and why you’re unlikely to run out.
There are many different ways of accessing your super. These are the main ones:
- Withdrawing a lump sum
- Starting an income stream with all or part of your super
- A combination of both of the above.
We’ve mentioned in previous articles that the vast majority of Australians do not ‘run out’ of money as the safety net of fortnightly age pension payments kick in when your savings dip below the asset limit for eligibility.
In the early years of decumulation, many retirees choose to draw down the minimum mandated amount for their age.
It is important to seek the right advice as you transition to retirement. Photo: Getty
This is how the sums worked for Lynn and Judy#
Lynn and her friend Judy are both 72 and both retired in the same year at age 67.
Lynn and Judy were both paid super during their working lives and each saved $200,000 with their Industry SuperFunds.
Before she retired, Lynn spoke to her Industry SuperFund’s financial planner about how to maximise the money she had saved.
Her adviser recommended that she open an income stream account with her Industry SuperFund and start drawing down on her money gradually.
This meant she could still access the government age pension while the balance of her saved money continued to grow during the early years of retirement, before she gradually draws down on all of it.
She knows she has the flexibility to withdraw some additional money for emergencies (or holidays!) if she needs to.
Judy on the other hand, switched to a retail super fund.
Both Lynn and Judy withdrew 5 per cent of their balance each year for the first five years of retirement and also accessed the age pension to top up their incomes.
After the first five years of retirement Lynn had a balance of $217,490 in her Industry SuperFund income stream account, while Judy only had $204,184 in her retail account.
That’s an additional $13,306 for Lynn, simply by sticking with her Industry SuperFund.
Other considerations
Transition to retirement
This strategy does not suit all retirees, but it can be helpful for those who have reached Preservation Age (generally 60) and are still working.
A TTR allows you access to your super as an income stream while you continue to work.
This means you might cut back hours but maintain the same income through a mix of salary and a retirement income stream.
Age pension eligibility
There are a few top-level rules that can affect your potential eligibility.
It’s important that you check the likelihood of receiving an age pension a few years beforehand.
This will not only set your mind at rest that you will be able to rely on these regular payments. But it will also help guide your decision making in a couple of other ways; gifting and if you have a young/older spouse retiring at a different time.
Briefly, Centrelink considers money loaned or gifted for a period of five-years prior to age pension age (67) as an asset that will be deemed for income purposes. So it is important you understand any possible effect this could have on your ability to qualify.
Separately, Centrelink will treat you and a partner as a couple. If your partner is younger but has money in a decumulation account, your joint assets will include these funds.
But if your younger partner’s super is still in accumulation, it will be viewed as exempt.
This is a very top level description of this rule, but it is important you check on any such rules before making decisions about moving funds from accumulation.
Importance of seeking the right advice
This brings us to the value of having the right ‘bite-sized’ advice before you take the leap into retirement.
The common myth is that advice is unaffordable.
It’s reassuring to know that there are many types of advice.
Regardless of how modest your savings are, knowing the rules that apply to your own individual situation can save you many thousands of dollars and help to maximise future entitlements.
As with so many other aspects of life, it’s those who commit for the long haul who usually reap the greatest rewards.
Your long-term investment in your Industry SuperFund means you can maintain control and flexibility while watching your savings continue to grow.
Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.
Read more of the Road to Retirement series
Part 1: It’s time to take control of your super
Part 2: What you need to know about using your super
Part 3: Tackling the FORO… why this won’t happen
Part 4: Trigger points in retirement: What to do between 50 and 60
This content is sponsored by Industry Super Australia.
This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.