Sonny Rahim
Updated Dec 19, 2022
Mate Checked
Depending on where you are in your life, saving for your retirement can be a bit of a daunting thought. At SMSF Mate, we want to make your retirement planning a more straightforward and enjoyable feeling. Retirement planning is not all that complicated but like most things, requires some planning and preparation.
In order to accurately determine how much in superannuation you need to save for your retirement, you might want to consider what type of lifestyle you hope to live when you retire, as it is no longer dictated by the job you have but rather the retirement plan you put in place all those years ago.
Crunching the numbers will help you create a retirement plan you can count on, and it will also force you to think about the lifestyle you want to live. You can then work backwards and implement the steps needed to achieve your retirement savings goal.
Without a doubt, the sooner you start thinking about your retirement plans, the better. Still, most of our financial positions usually become a bit clearer in the later stages of our lives (after we have paid off the mortgage and the kids have moved out). It pays to think about ways to boost your retirement savings in your last 15-20 working years, so we have made a list of the five most common questions relevant to try and achieve this goal.
Have a chat with your employer or payroll department about making additional contributions via salary sacrifice. Essentially it’s when a portion of your (gross) salary is directed to super before your tax is taken out. In turn, reducing the amount of tax that you pay each pay cycle. You can also make contributions to your super out of your post-tax salary (which is the money you receive in your bank account). This kind of super contribution is taxed at 15%, and there are annual contribution limits to consider.
Reviewing and at the very least, understanding what your super is invested in is a great start. Funnily enough, most of us will have no idea or interest in how our super portfolio is positioned in the market and will be using a default of balanced investment strategy.
What investment strategy you choose should largely depend on your age and your risk appetite. Someone in their early 20s might be better off in a growth or aggressive investment strategy because they have a long time until retirement and can afford to take a bit more risk, compared to someone who is in their late 50s.
When you start getting close to retirement, you should consider changing the investment strategy to be more defensive and ready to be drawn down upon. The last thing you want is to lose a substantial part of your portfolio due to a market correction and be forced to sell. Discussing what is best for you and your personal circumstances can be discussed with a licensed financial planner.
A self-managed super fund (SMSF) is a DIY super fund, as the name suggests and it can provide real benefits to the members of the fund by allowing you to have more options on how your super is invested and much more control over your assets. Before you decide to start an SMSF, it’s worth considering if you have a balance which justifies the additional cost of running and administering the SMSF.
Running a fund of your own can be a very involved task, similar to running a business, so determining if you are up for the challenge is a decision not to take lightly.
Being a trustee of an SMSF, you are responsible for ensuring that the fund follows the rules and regulations which include super and taxation laws.
If mowing the enormous front lawn doesn’t excite you as much as it once did, then downsizing the family home to a smaller property might be worth considering. The transaction costs to do this and most notably stamp duty on your new home must be factored into the equation, but in most cases, it makes sense.
By downsizing to a smaller property, you could unlock any potential home equity, reduce home maintenance costs, and potentially be closer to your loved ones.
There are some other options worth looking at, such as a ‘home equity release’ which lets you access equity in your home while you continue to live in it.
Once you reach the age of 65 or older, you might be eligible to make a non-concessional (after-tax) contribution into your super of up to $600,000 for a couple and up to $300,000 for an individual from the proceeds of selling your principal home.
Typically, there is a contribution limit of $100,000 per year which does not apply in this instance and to make the deal even sweeter; it doesn’t matter what your super balance is (usually you would only be allowed to make concessional contributions if your super balance is less than $1.6 million in total). For this to work for you, you must have purchased the principal home over ten years prior to selling it.
