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Fast-track to the good life: How to move towards an early retirement

Your retirement is still a few years off, but you’re already looking forward to a comfortable one. How can you maximise your superannuation savings to fast-track retirement? We look at your options for ensuring a comfortable retirement, such as using tax benefits and working part-time.

Superannuation, including a DIY fund, can be a very tax-effective means of saving for retirement. It makes sense to make the most of the tax concessions available. One of the key ways to boost your super is through the ‘bring-forward’ rule.

How to move towards an early retirement

‘Bring-forward’ rule

First, let’s talk about non-concessional contributions. These are contributions sourced from your after-tax income, which means no further tax is deducted when they reach your super fund. Currently there’s an annual cap on non-concessional contributions. For 2017–18 it’s $100,000.

The bring-forward rule applies if you’re under 65, and allows you to bring forward up to two years of non-concessional (after-tax) contributions depending on your total superannuation balance on 30 June of the previous Financial Year. This means it’s possible to make up to $300,000 non-concessional contributions in a single year (based on the 2017–18 cap).

The aim of the rule is to maximise your superannuation savings before you’re no longer eligible to contribute to super. For example, if you sell your assets, such as a property, shortly before you retire, you can put the proceeds into your super fund.

Keep working

By continuing to work you can start drawing down on your super while still adding to it. The government actually has incentives to encourage people to work past pension age. You don’t have to work full-time – even with part-time work you can continue to contribute to your super.

If you have reached your preservation age, you may be able to take advantage of a ‘transition to retirement’ strategy. This allows you to supplement your pay by drawing down from your super. For example, when you reach 60 you may decide to work three days a week rather than five, and use your super to soften the drop in salary. At the same time you’re still contributing to your super while you work, so it continues to grow. Plus you’re saving in tax every year as the pension you draw is tax free.

You can actually start work again after you retire. Even if you’ve signed a retirement declaration, your circumstances change or you genuinely change your mind, you can return to part-time or full-time work. Even if you’re over 75 your employer can still make SG (compulsory) contributions on your behalf.

A higher-growth strategy

Because we now live longer, the traditional wisdom of taking a more conservative strategy with your savings as you reach retirement may no longer apply. Both men and women can now expect to live well into their eighties, which means your investment time frame could easily be thirty years.

For such a length of time a more aggressive investment plan may be appropriate. One option is a self-managed super fund that puts you in control of your super savings. So, instead of winding down as you approach retirement age, you rev things up.

With an SMSF you can invest in ways that often aren’t available through large super funds. For example, an SMSF can hold Australian and International shares, direct property, metals and other exotic investments. Under strict conditions SMSFs can also borrow to invest.

If you want to learn more about SMSFs, download an information pack today.

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