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Planning for retirement

There are many things to consider when planning for retirement such as the lifestyle you want, where you want to live, how much income you will need and the best way to transition to retirement. That’s why it is essential to plan to ensure you are prepared.

It is a good idea to seek expert advice as part of your preparation for retirement to ensure you are maximising your savings and assets in a tax effective way.

Things to consider

Changing places
As retirement draws nearer and dependent children leave home many people think about moving homes for lifestyle reasons, for example, to be closer to the beach. This is a major decision and needs to be carefully considered. In terms of lifestyle things that need to be considered include accessibility to family and friends, access to services like healthcare and transport.

From a financial viewpoint it may be possible to free up substantial capital by downsizing or moving to a less expensive area. If this money is invested into superannuation prior to stopping work altogether it could have significant tax advantages.

What are your plans for work?
How long you can or wish to work is up to you. The longer you work the less you will need to draw on your savings and the more you can accumulate to fund your retirement. But this doesn’t necessarily mean working flat out until you retire. It may mean gradually phasing down from full-time to part-time work. It can also be an opportunity to focus on the sort of work that interests you and is perhaps less demanding.

If you have already established a substantial asset base, simply earning enough to live on for a few more years will greatly boost your financial position in retirement as it will delay the need to draw on your nest egg and allow more time for it to grow. You may also wish to consider a transition to retirement strategy to boost your super.

When is the best time to retire?
There is no legislated retirement age. However, you can only access your preserved super from age 55 if you were born before 1 July 1960, increasing in yearly increments to age 60 for those born on or after 1 July 1964. The government pension is currently accessible from age 65 for men and 64 for women, but this will gradually increase to age 67 for both sexes for people born in 1957 or later.

There are broadly two ways to approach planning for retirement. You can decide when you wish to retire and work out how you will fund it from your accumulated assets, or work out how much you will need to retire on and plan your retirement around that target.

How much do you need to retire?
As a rough guide, depending on your investment strategy, you would need at least 12 times the amount of your required annual income to ensure you can maintain that income for the rest of your life. That is, if you wanted an after-tax income of $50,000 for the rest of your life you would need around $600,000.

Boosting super in the lead up to retirement
Superannuation’s tax concessions on contributions and earnings, and the ability to draw tax free income from the age of 60, mean it is the ideal way for most people to fund their retirement.

Anyone under age 65 can contribute to super and people aged between 65 and 74 can contribute as long as they have worked at least 40 hours in a 30 day period during a financial year. Read our tips about ways to boost super for retirement.

If you have other investment assets outside of super, such as an investment property, careful consideration needs to be given to how they work together to protect capital, minimise tax and generate income in retirement.

DIY super funds
Having your own DIY super fund allows you to control your own super for you and your family, how it is invested and the pension payments made during retirement. For example your fund can hold assets such as direct property investments and choose when to buy and sell assets to minimise tax. 

A pension from a DIY Super Fund has to comply with the same basic rules as any other fund. However, the pension component has to be structured separately. Managing your own fund carries substantial legal and reporting responsibilities, so it’s important to seek financial advice about managing a DIY super fund during retirement.

What’s next?

To seek advice about your retirement plan speak to your financial adviser or contact Perpetual Private.

Perpetual or Perpetual Group means Perpetual Limited, ABN 86 000 431 827, and its subsidiaries. Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo), ABN 42 000 001 007, AFSL 236643. This information has been prepared by Perpetual and contains information contributed by third parties. It contains general information and is not intended to provide you with advice or take into account your objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional financial, tax and/or legal advice. The information is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. However, the statements including assumptions and conclusions are not intended to be a comprehensive statement of relevant practice or law that is often complex and can change. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.