As retirement gets closer, it’s important to start planning – so you’re financially and emotionally prepared. Planning early is the best way to ensure you’re working towards the retirement you want, and it can help to start with a retirement goal and plan to make sure you’re on track for your retirement needs.
For most Australians, superannuation is a set and forget thing. Their employer pays some of their income into it for them, and they get a statement once a year. And because legislation seems to change all the time, it starts to get a bit complicated. So most people chalk it up as “I’ll look at it when my next statement arrives”. But it really pays to give your super some serious thought. Especially if you’re 10-15 years off your retirement age. It’s worth thinking about the “building for retirement strategy”.
You could start taking advantage of your super savings now
The Building for Retirement strategy is a way you may be able to use your super to reduce your tax and either build more wealth so you can live your ideal retirement or, to help you move into part-time work or semi-retirement. Which means you could be working less without necessarily reducing your take home pay. To use this strategy, you need to have reached your preservation age, which is the age you can start accessing your super. For those born before the 1st of July, 1960, your preservation age is 55. And for those born after this date, preservation age can be up to age 60.
Your super is money set aside for your retirement, and the building for retirement strategy lets you draw an income from your super whilst your still working, then you can start salary sacrificing some of your pay back into your super. In effect, what you’re doing is swapping the income you get from your employer with an income from your super. The benefit of this is that income you get from your super may be taxed at a lower rate. If you were simply receiving an income from a job or business, you’d be paying up to 46.5% tax. Whereas income you get from your super receives a 15% tax rebate if you’re between the ages of 55 and 60. Then, once you’re over age 60 it’s completely tax-free. So, it’s really worth thinking about.
There are limits on how much you can contribute into your super, and those limits may vary depending on how much money you have in your super and your age. Obviously, the more you salary sacrifice into super or top it up with additional contributions, the more money you could have for your retirement. Now this doesn’t take into account your personal situation, so you’ll need to consider your own circumstances before making investment decisions. That’s a great reason you should speak with your financial planner to make sure you have the right investment mix for what you need.
But, don’t be put off by the complexities, because actually, the time before retirement gives you plenty of opportunities. In fact, the building for retirement strategy lets you do one of three things:
- You may be able to reduce your tax while increasing your super balance.
- Or you may be able to use it to help you move into part-time retirement, by working less whilst retaining the same income.
- Or it could also be used to bump up your income and help pay off your mortgage and own your house that bit quicker.
There are a number of different building for retirement strategies that are worth talking about with your financial planner and once you get to understand them, you’ll understand that building your super before retirement isn’t about complexity, it’s all about opportunity.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.
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