Retirement can be an exciting phase in your life. But all the recent changes to superannuation bring with them lifestyle and financial issues you need to be aware of as you plan your retirement.
Retirement means different things to different people. For some, it’s an opportunity to travel, to begin that project they’ve been putting off for years, or to just relax, spend time with the grandkids and dabble in their favourite hobbies. Retirement should be a time to relax and be free.
Plan smart for a stress-free retirement
Your retirement should be a time to free yourself from financial stress. Planning and good advice from a qualified financial adviser is the key to a trouble-free retirement.
If you’re considering retirement, there are issues you need to think about and plan for before you take the plunge. Here are three areas retirees commonly overlook in planning for their retirement:
Have a re-contributions strategy
Our experience in talking to prospective retirees is that few have heard about a ‘re-contribution strategy’. So, we’d like to take this opportunity to explain what it is and provide some more detail.
Your superannuation entitlements comprise both taxable and tax-fee components. A re-contribution strategy is one where you withdraw your money from your superannuation account and re-contribute that cash back into your fund.
Why a re-contributions strategy may be important
Re-contributing all or part of your withdrawn funds back into your superannuation as a tax-free non-concessional contribution increases the level of tax-free funds in your superannuation account.
This reduces the tax payable on your superannuation pension if you dip into that pension while under 60 years of age. A re-contribution strategy can also lower the tax payable on benefits paid to your beneficiaries when you direct your superannuation benefit to your non-dependent beneficiaries following your death.
A lot of retirees often forget death benefits are payable to your dependents or your estate from your superannuation fund upon your death.
There are four forms of death nominations which may be allowed by your superannuation fund.
You can make a binding death benefit nomination while you are alive. This is a written direction to your superannuation trustee establishing who you wish your superannuation death benefits to be distributed to.
Secondly, a reversionary nomination is where a superannuation fund member receiving an income stream nominates a beneficiary to whom the income stream will continue to be paid upon their death.
Thirdly, you can make a non-binding death benefit nomination guiding the trustee to whom you wish some or all of your superannuation death benefits is be paid to following your death.
Lastly, you may make a non-lapsing binding death benefit nomination directing your superannuation trustee to distribute some or all of your superannuation death benefits to your eligible beneficiaries or legal personal representative. This nomination remains in place unless you cancel or replace it with a fresh nomination or the superannuation trustee is aware your circumstances have substantially changed (e.g. you married, divorced or had a child).
Why a Death Benefit Nomination is important
If you don’t dictate how your superannuation death funds are to be distributed, the trustee of your fund has discretion who to pay your superannuation death benefit to in the event of your death.
Ensuring your money will last and maximising Centrelink
Australia’s social security system is means tested. It is designed to act as a safety net. So, the higher your income or assets you have when you are assessed, the lower your Age Pension entitlements may be.
If your income or assets exceed the set cut off limits, you will not be eligible to an Age Pension at all. Hence Australians are expected to use more of our own savings to fund our retirement.
Currently, for every $10,000 of assets above the allowable Age Pension threshold your pension drops by $390 per year each if you’re member of a couple or $780 per year for singles.
Why ensuring your money lasts is important!
The more-heavy lifting your pension does, the less you’ll draw on your retirement savings. This is important as our increased life expectancies coupled with a turbulent investment environment make it challenging to ensure your retirement savings will go the distance.
Planning your retirement can be complicated. As you can see from the above three issues, the various legislative frameworks are complex. While it pays to understand how retirement works, contact a qualified financial adviser to discuss your personal situation and retirement needs.