We’re living longer than ever before, so how much super do you actually need and can you make it last longer?
According to the ABS, the average life expectancy of a child born today is 82.5 years (80.4 years for newborn boys and 84.5 years for newborn girls) – this is more than a 30-year increase since the late 1800s.
Yet, in 2014-2015, the average retirement age was 65 : 65 years for men and 64.5 years for women.
That's 17.5 years that the average Australian plans to use their superannuation to fund their living expenses and retirement plans – or face accepting Centrelink's modest Age Pension.
It’s a long time between paychecks, whichever way you look at it.
But here’s the good news: it’s not too late to make a difference to your retirement. Here are three simple ideas to help you on your way to a more comfortable 17.5-year retirement:
Try spouse splitting
Effective spouse splitting can fast-track financial comfort in your later years. It occurs when couples transfer part of their tax-deductible contributions to one another.
The strategy is great for couples where:
there is an age difference – the younger spouse can contribute a portion of their funds to the older spouse’s super account.
What’s fantastic about this arrangement is that the income generated by the contributions made is exempt from tax if the older spouse has commenced a retirement phase pension, and ultimately the couple ends up with a larger pool of funds for retirement.
one spouse earns more – the spouse with a higher income can contribute a portion of their funds to the spouse with a lower income.
This arrangement helps to even out the account balances between partners and allows the lower-income earning spouse to access pension payments at a lower tax rate.
To apply, you just need to fill out this Contributions Splitting form on the ATO website.
Don’t discount long-term investment potential
…in favour of shorter-term yields. Yes, that’s right. Good things come to those who wait!
Managed funds have the potential to favour impressive annual yields over long-term returns.
And for good reason; they rely on consistent, year-on-year growth to keep existing customers and attract new ones.
So consider using your initiative and backing your own investment decisions, and be patient with your superannuation for a greater return on investment.
Be strategic about how much you withdraw over the year
Withdrawing large lump-sum payments from your SMSF after you retire can attract higher taxes than withdrawing smaller amounts regularly.
The ATO’s super lump sum tax table nominates the maximum lump-sum amount you can withdraw from your superannuation, to help you avoid the higher tax rates relevant to your age and circumstance.
Provided you don’t exceed these maximum withdrawal thresholds, withdrawing lump-sum amounts from your SMSF is an option for retirees needing easy access to cash.
It can make budgeting harder, though – particularly if your used to receiving a monthly or fortnightly income – so you might want to adjust your budget period from monthly to annual, so that you can plan your spending and living expenses in-line with (or supplement) the amount you withdraw.
If you want to learn more about SMSFs, download an today.