Get the most out of your retirement income
Whether you’re already retired or looking to retire within the next couple of years, it’s important to get your finances sorted. Here are a few options to make the most of your money.
Retirement is supposed to be enjoyable but without a stable or sustainable income, you may need to compromise on doing the things you always imagined when you finally got to retire from the workforce.
With Australians living longer, you may need to plan for 20 to 30 years without the security of regular employment. This means it’s important to make the most of the income sources available to you from things like your superannuation and age pension.
However, to maximise all of your money, a combination of these and a few other options could see you living the retirement life you’ve always imagined.
Super
This will play a big part in your retirement income. Generally, most people pay less tax with super than if they had invested outside of it. Plus, you can keep your money in your super fund for as long as you want and withdraw funds when you need it.
Joshua Stega, director of Sydney-based boutique wealth management firm Jas Wealth, says in his business they come across many pre-retirees and retirees who are not taking full advantage of the benefits available to them, especially when it comes to super.
“Everyone knows about superannuation but few take the time to closely review their financial strategy to ensure they are utilising this structure to its full capacity,” he said.
To get the most out of your super, Mr Stega suggests a few options. One is tax effective investment selection, which can add thousands of dollars to a retirement income annually.
“The superannuation structure has a maximum tax rate of 15 per cent, therefore if you invest in companies that pay fully franked dividends you can expect a tax credit at the end of the year,” he explains. “Most of my clients around this age receive significant refund cheques from the ATO due simply to investment selection.”
Another option is through one of the various pension strategies, which allow pre-retirees and retirees the opportunity to take advantage of the super structure.
One such strategy is the transition to retirement strategy, which would allow a person over 60 years to access a tax free income stream from super, while at the same time continuing to make further contributions. This strategy could add thousands to a standard over 60 retirement income if properly executed.
When it comes to withdrawing your super funds, there’s a few ways you can do it. You can take it out as a lump sum payment and deposit it into a high-interest bearing account, paying low or no tax on sums up to $175,000 depending on your age. While you might be able to earn a bit by investing your super funds, you will have to pay tax on any income generated.
Mr Stega says that once you’re over the age of 60, the super environment is fully accessible so it’s important to be fully engaged with it. People should also realise that super is simply a trust structure, not an investment.
“This means that like a family trust, there are certain advantages to using the structure that can be accessed if they take the time to engage with their overall financial strategy,” he says.
Age pension
For most retirees, their retirement income will comprise a mix of their super funds and the age pension from Centrelink. You may also be eligible for other pensions, including disability support, wife pensions and bereavement allowances.
To be eligible for the age pension, you’ll need to reach preservation age and undertake the assets and income tests. These work out how much income you get and how much your assets are worth, with the test result showing the lower pension rate the one that will be applied.
Once you turn 60, you’ll also be eligible for the Seniors Card scheme. It’s a free card providing transport concessions and participating business discounts on a range of goods and services.
Chris Cornish, principal financial adviser at Perth-based financial planning firm Avant Financial Services, says that reducing costs via discounts and specials was the same thing as maximising retirement income. “Anyone eligible for the seniors card should have it,” he said.
On top of being 60 years or over to be eligible for the card, you also can’t be working more than a set number of hours per week in paid employment. You’ll need to apply for the card through your state or territory government office.
Investments
Diversity is the key in life and there’s a world of investments outside of super. If you’re at retirement age, security is going to be top of mind for you. There are shares, managed funds and term deposits.
Arguably the safest of the three is a term deposit, which is a cash investment into a financial institution, like a bank, for a specified amount of time. The same interest rate is guaranteed for the term of the deposit. Generally, the longer you have your money in the account, the better the yield.
Property and shares are ideal options if you’re looking to invest for the long term, about seven years or more. The upside with shares is their liquidity, which means they’re relatively easy to buy and to sell. It can take longer for your money to be freed in property investment.
The only problem with holding significant investment assets outside of super is the exposure to “a lifetime of tax”, according to Mr Cornish.
“Most of my clients do all they can to get the assets into the super environment prior to retirement,” he reveals.
These income streams can be combined to give you a sustainable income during your retirement, but be aware that they can have an impact on one another. You may want to seek professional financial advice to see how you can make the most of your retirement money.
“The most important thing for someone planning their retirement is to seek professional advice, and I would suggest advice from a financial or retirement planner who has no ties to product providers,” Mr Cornish says.
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