Money and Life
(Financial Planning Association of Australia)
You might think there’s not much you can do to increase the value of your superannuation in retirement. But with Australians now spending close to 30-years in retirement on average, our super needs to last longer than ever.
As a consequence, the federal government has proposed some changes to superannuation that will make it easier than ever to grow your balance following retirement. Here’s a look at some of the strategies you can use to maximise your super savings.
Leave funds invested longer
If you’re a retiree and your superannuation took a hit during to the COVID-19 pandemic, there is good news. Markets largely recovered recently and the federal government has extended the superannuation minimum drawdown rate for a further 12-months.
That means eligible retirees drawing certain superannuation pensions and annuities have until 30 June 2022 before they’re forced to withdraw the full pre-COVID-19 amount.
If you have sufficient cash flow to get by, it’s worth taking advantage of the reduced minimum drawdown and leaving your assets invested until they return to pre-COVID-19 levels.
Adding to your super
Think you can’t add to your super after you retire? That’s not strictly true. If you’re aged 67 to 74 years old, you can make personal contributions, spouse contributions or salary sacrifice contributions to your super provided you meet the work test. That means you must have worked at least 40 hours over 30 consecutive days in a financial year.
Importantly, the federal government has proposed removing the work test altogether from 1 July 2022. That would allow individuals aged 67 to 74 to make or receive non consessional (after tax) contributions or salary sacrified contributions, subject to the existing contribution caps.
If you’re aged 65 years or over (and meet all the eligibility requirements) you can make a one-off contribution of up to $300,000 to your super from the proceeds of selling your home. If you’re part of a couple, each spouse may be able to contribute up to $300,000 each.
The federal government has also proposed reducing the age for making a downsizer contribution to 60 years.
It’s important to note that selling your main residence can affect your eligibility for income entitlements such as the Age Pension. So it’s best to seek professional financial advice if you’re considering making a downsizer contribution to your superannuation.
Accessing government benefits
If you’re eligible for government benefits like the age pension, carer’s allowance or a disability support pension, this can really help your retirement income stretch further. It’s worth investigating your eligibility when you’re planning your retirement, as government payments are subject to income and asset tests.
Nothing chews up your income stream as fast as debt repayments, so aim to clear any outstanding debts before you enter retirement. By starting your retirement debt free, you’ll be able to use your retirement income for things that really matter, like living expenses, health, leisure and travel. If you’re already retired and you’re still carrying debt, such as a mortgage or credit card, speak to a financial planner and put a plan in place to become debt free.
Read more: Smart strategies for paying down debt
The right investment strategy
Finally, while it’s important to protect your super balance once you’re retired, it’s probable that you’ll still need to earn investment income for some time. Christine Lusher CFP® says it’s worth considering how long your superannuation needs to last when planning your investment strategy.
“Beware of going too conservative at retirement as your super still needs to last your remaining lifetime, which for someone aged 65 could be another 20 years,” she says. “Consider different pools of superannuation money, such as one that pays your income and another that’s invested for the long term.”
Everyone’s circumstances are different, and the right strategy for you will depend on things like your total super balance, your tolerance to risk and how you plan to fund your retirement. Always seek professional financial advice before making any changes to your super investments.
Related: The superannuation health check
If you’re looking for other ways to grow your retirement income, speak with a financial planning professional. They can give you tailored individual advice to help you achieve financial freedom in retirement.