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The new financial year is fast approaching and this may be a good time to put some plans in place to stay on track for your retirement.
If you’re starting to get an idea of the sort of retirement you’d like, a new financial year can be a welcome event to gather your thoughts, look into suitable strategies and open up conversations for advice and guidance.
AMP research into retirement trends[1] indicates today’s retirees are trying to live life to the full. Whether it’s a tree change or a sea change, a Great Ocean Road trip or the cruise of a lifetime, retirees want to enjoy their independence for as long as possible. At the same time, they want to give back by playing an active role in their grandchildren’s lives or by getting involved in voluntary services to share their expertise with the community.
Your finances need to be in shape to support your ideal retirement lifestyle, whatever that vision may be. This is a great time to plan for the financial year ahead and make sure you’re building your nest egg the smart way.
The changing face of retirement
It all used to be so different. Retirement was short and expectations about life in retirement were minimal. In 1960, the average Australian man retiring at age 65 could only expect to live another 12.5 years, while an Australian woman could expect to live another 15.7 years.2
Fast forward to the present and the picture has changed drastically. With medical advances and healthier lifestyles, Australians are enjoying longer, more active retirements than ever. The latest figures suggest that a 65-year-old man can expect to live another 18.3 years on average, while a woman can expect to live another 21.5 years.[2]
But our retirement incomes from super aren’t keeping up with these changes.
The latest AMP Retirement Adequacy Index[3] reveals that although super balances increased by 7% over the course of 2012, thanks to a rebound in the sharemarkets and salary increases, those Australians closest to retirement are putting less money into our super savings, with potentially negative consequences for their retirement dreams. Reduced contribution rates have seen projected retirement incomes from super for workers older than age 55 fall between 3% and 5% from the previous index (December 2011).
Time for some resolutions
Now may be a good time for you to think about setting some new ‘financial’ year resolutions to keep your super on track for the retirement you want. Here are a few ideas:
The superannuation regime has some incentives to boost your super savings and help you reach retirement in the best possible shape.
You can contribute up to $25,000 a year into super from your pre-tax salary on a concessionally-taxed basis. These ‘concessional’ contributions are only taxed at 15% (or up to 30% if you earn more than $300,000 a year[4]), which stacks up well against many people’s marginal rate. If you’re 60 or over, from 1 July 2013, you can make up to $35,000 of concessional contributions each year without going over the concessional contributions cap.
You could wait until the end of the financial year to make concessional contributions. But come next June will you have enough spare cash? Instead, you could enter into a salary sacrificing agreement with your employer to make smaller, regular contributions into your super out of your pre-tax pay and avoid making a large lump sum contribution at the end of the financial year.
And don’t forget about the ‘non-concessional’ contributions cap. You can put up to $150,000 of your after-tax funds into super each financial year, or $450,000 over three years.
Investment earnings from your super are only taxed at 15%. And once you retire and start a super pension, the earnings are tax free. However, you may also want to note that the government is proposing to introduce legislation to only allow $100,000 per year of pension earnings to be tax free.
The closer you get to retirement, the more you want to protect your nest egg. That’s only natural. But with interest rates currently on the way down, you could struggle to keep pace with inflation if all your savings are in defensive investments like term deposits.
So you might want to retain some growth investments such as shares and property.
You can’t just tread water. You’ll need your capital and income to continue growing to make sure your money lasts the distance into retirement. Some financial services companies have been developing new investment solutions to cater for this need, by offering protection for market downturns, while retaining exposure to growth assets.
It’s also a good time to check your insurance. You can start by having a look at how much you’re earning and how many people depend on your income.
If the kids have left school, don’t assume that you no longer need insurance. With adult children staying in the family home for longer and elderly parents needing a helping hand, many Australians are still the main breadwinner well into their 50s. So you may want to think about retaining some level of cover for a while yet.
Call us today to talk about setting your goals for the upcoming financial year and beyond to make sure you’re on track to retire when you want, how you want.
What you need to know
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP Group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.
