In retirement, there are two forms of income that may be accessible to fund your lifestyle: tax-free income from your financial investments via your super, and the aged pension.
In Australia, the minimum age to obtain an Age Pension is currently 65, but is gradually increasing to 70. While many will continue to receive at least a part-pension, it is unlikely to be enough to maintain a comfortable, or even modest lifestyle into retirement.
If you want to give yourself the best chance of retiring earlier, you may need to maximise your retirement savings, especially your superannuation investment.
Here are the 4 things you can do now to prepare.
1. Check you’re saving enough
Firstly, you need to understand how much you’ll need to have the retirement you want.
According to the Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, a couple in Australia require $34,064 for a modest retirement, or $58,922 for a comfortable retirement. For singles, these figures are $23,651 and $42,893.
This means the lump sum needed to support a comfortable lifestyle for a couple is $640,000 (or $545,000 for a single person) assuming a partial Age Pension.
To calculate the lump sum you’ll have in your superannuation fund at retirement, use MoneySmart’s Superannuation calculator.
If this figure is too low, you may want to consider adding or increasing your own savings to your superannuation, so you have the lump sum you need in retirement.
2. Do the maths on your mortgage
The cash rate in Australia is at now the lowest level since the Reserve Bank was established in the 1960s. If you’re a mortgage holder, this is a very good time to be reviewing the rates your lender is charging.
For those on a fixed rate, it can be worth finding out the savings to be had by switching to a variable rate, however, consider any break costs.
Even modest interest rate decreases on your mortgage can save tens of thousands of dollars on the life of your loan. These savings can then be used to add to your superannuation.
3. Boost your Super
As well as contributing funds to your superannuation, there are a number of other ways to boost your super.
One option is to work longer. As unappealing as it may seem, if you choose to continue working even a few years longer, you can significantly grow your super balance, and delay drawing down on your retirement savings.
Another is to use salary sacrifice. By asking your employer to deduct extra money from your (before tax) pay, and put it into your super account, you can boost your super.
4. Review your investment strategy with a Financial Planner
Financial planners aren’t just for millionaires or those going through a divorce. In today’s economy, they’re the go-to adviser for everyday people who want to take control of their financial situation.
A financial planner will create tailored strategies to grow and protect your money, while also considering the lifestyle you want to lead both now and into retirement.
Do you have a strategy in place to fund your retirement? If not, book a FREE consultation with the experts at Superannuation Property to discuss ways you can boost your retirement savings.