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Retirement

Retirement, whether planned or forced upon you, can be daunting and stressful, so good planning before you retire will make your retirement and the transition into retirement a lot easier.

When you retire from the workforce most people would like enough money to live on and set a standard of living for the rest of their lives.

Therefore one of the first things you will need to consider is what sort of income you will require to meet your retirement needs. You will also need to look at your current living expenses and work out how they will change when you retire. Once you have determined your income needs in retirement, you will then need to work out how much capital you will need to achieve this.

Below are a number of the more important areas for you to consider when retiring or preparing to retire:

How much money will you need to live the lifestyle you want?

While this will generally depend on your expenditure requirements and the length of your retirement and investment return, as a guide, to provide an income of $30,000 per annum you’ll potentially need to accumulate a retirement lump sum of around $510,000 for a 55-yearold, $450,000 for a 60-year-old and $390,000 for a 65-year-old.

Are you able to reduce your working hours closer to retirement?

Yes. Under the current transition to retirement rules if you are over the age of 55 you can access your super on a limited basis in the form of an income stream, without having to retire. You are therefore able to supplement your income with an income stream while reducing your working hours and maintain your standard of living.

Do you have any health concerns that you need to consider?

Older Australians are now spending more than ever on their health. While there are some government concessions available such as PBS prescriptions, you may need to keep a pool of money in reserve to provide for your future health.

At Retirement

Another important area is to arrange your available finances (government age pension, cash at bank, superannuation and other available assets or income) so that you maximise your retirement income stream in an appropriate manner for you.

Cashing out your superannuation?

Cashing out benefits is a complex area and lump sum tax can vary according to the components within your superannuation benefit. Note that if a lump sum is withdrawn you may miss out on the tax effectiveness of an income stream from your superannuation. Therefore advice from a Financial Planner should be sought before taking this option.

What are retirement income streams?

Apart from cashing out your super, you can also take an income stream from your super in the form of an account based pension (ABP) or an annuity. Some of the benefits of account based pensions include: no tax on the investment earnings; pension payments are very tax-effective; you retain access to your capital in the event of unforeseen expenses or emergencies; and benefits can also be paid tax-free to dependants in the event of death.

An annuity is different in that it is a fixed interest product that has no potential for growth but provides a guaranteed income for a fixed term or the rest of your life. Like ABP’s an annuity can be useful to qualify for Centrelink benefits, which enhances the “return” from an annuity investment.

What types of government support can I get in my retirement?

The most common form of government support available to retirees is the Centrelink age pension. Over 70% of 65 – 69 year olds rely on this benefit. The amount of age pension you may be entitled to depends on your income and assets and the way in which they are assessed.

Generally, the more assets and income you have the lower your entitlement. Be aware though that you can structure your assets in a way that can increase your entitlement to government support.

Will you pay tax in retirement?

The level of tax payable in retirement will depend on your income level, structure of your assets, the source of your income and your age. There are a number of tax offsets (rebates) available to retirees in specific circumstances. Some of the tax offsets include the senior Australians tax offset and low income tax offset.

Tax offsets (rebates) are designed to directly reduce the amount of tax payable. Note that superannuation is an effective vehicle to assist a taxpayer in reducing tax and you can use your superannuation to buy a range of retirement income products offered by superannuation funds.

Will you stay in the same house or will you upgrade/downsize?

If children have left the family home, it might be wise to consider downsizing your home and free up some capital. These funds may provide for a cash reserve, provide for any capital upgrades or upcoming expenditures, or to ensure the longevity of your retirement income.

Should I organise a will?

A will is a legal document that sets out your wishes for how your assets are to be divided up after your death. It can also cover other matters such as who should take care of your children. Having a will allows you to decide what happens to your assets when you die. If you die without a will, your assets will be distributed according to state law, which may not be consistent with your wishes.

To help you clarify and answer these and many more questions you should obtain advice from your local CleaView Financial Planner.