What type of retirement lifestyle would you like to have? What type of retirement lifestyle can you afford?
Those are the two big questions to answer when you’re looking forward to your retirement years.
But where on earth do you begin?
We’ve taken this big topic and broken it down so you can get a better understanding of subjects like:
- Superannuation preservation age
- Transition to retirement
- The aged pension, and
- Government incentives to encourage downsizing
It’s important to note that retirement is a big step, so it is wise to seek professional and legal advice before committing to any decision.
A little background on the Australian Superannuation Guarantee
Since 1 July 1992, Australia has had the Superannuation Guarantee, in which employers were obliged to make superannuation contributions on behalf of their employees’ compulsory superannuation.
Since 1992 the Super Guarantee has risen from 3 percent to 11.5 percent as of 2024 – and as the percentage increased over the years, so too has the preservation age.
Let’s take a closer look:
Do you know your superannuation preservation age?
Your superannuation is preserved throughout your working life. You’re not allowed to touch it except for very specific circumstances, but for most of us, our super will unlock when we’ve reached a specific age determined by your year of birth.
Preservation Age
| Birth year | Age you can access super |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 to 30 June 1961 | 56 |
| 1 July 1961 to 30 June 1962 | 57 |
| 1 July 1962 to 30 June 1963 | 58 |
| 1 July 1963 to 30 June 1964 | 59 |
| 1 July 1964 or after | 60 |
Be aware of people who tell you that they have a scheme that lets you dip into your self-managed superannuation fund before your preservation age. Many of these schemes are illegal.
Is there tax to be paid on super contributions?
Super contribution payments made by your employer have already been taxed at 15 percent, as are any salary sacrifice contributions you’ve made. If you decide to add to your super with money you’ve already paid tax on (such as extra payments from your post-tax salary), then there is no other tax to be paid.
What about tax on superannuation withdrawals?
If you have reached the preservation age, there is no tax to pay whether you choose to take your superannuation as a lump sum or regular drawn down amounts. Just be sure that the fund has already paid the tax on the contributions.
It’s important to remember that programs such as Transition to Retirement and annuities purchased with your super may be subject to tax. This is why it is important to discuss your retirement income options with a professional financial advisor.
When do I qualify for the Australian Aged Pension?
Should you decide to retire when you can access your super, it’s worth keeping in mind that you’ll also need to wait another seven years before you can access the Australian aged pension.
Ever since the federation of Australia in 1901, there has been an aged pension that Australians could access from the age of 65. However, with so many of us living longer, qualifying age has increased to 67 years.
Qualifying Age
| Birth year | Age you may qualify for Age Pension |
|---|---|
| From 1 July 1952 to 31 December 1953 | 65 years, 6 months |
| From 1 January 1954 to 30 June 1955 | 66 years |
| From 1 July 1955 to 31 December 1956 | 66 years, 6 months |
| On, or after 1 January 1957 | 67 years |
Age is not the only factor that governs your eligibility for the Australian aged pension.
Other things to discuss with your financial advisor are:
- Residency
- Assets tests, and
- Income
How much is enough money in retirement?
The answer to that question is dependent on your current financial position and the lifestyle you’d like to lead.
And that leads to more questions that you’ll need to find the answers for. They include:
- How much debt are you carrying? (mortgage, loans and credit cards)
- How much money do you need for daily living expenses in retirement?
- What do you intend to do in retirement? (local and overseas travel, entertainment, hobbies)
- What is the state of your health? Are there medical conditions that will need more support in later years?
- How long are you expected to live?
- How much should you put aside for a rainy day?
That’s a lot to take in. And it doesn’t answer the chief question, how much is enough money in retirement?
Fortunately finance and retirement industry experts have already given this weighty matter a great deal of thought and they’ve come up with a figure of about two-thirds – rounded up to 70 percent – of your pre-retirement income.
If you’re looking for more concrete figures, The Association of Superannuation Funds of Australia (AFSA) did some number crunching as of June 2024 and have worked out the magic number for a comfortable retirement lifestyle, which is $73,337 per year for a couple and $52,085 per year for a single.
Their definition of comfortable assumes that you own your home outright, plan to go on holidays occasionally – including an overseas holiday every seven years, have private health insurance, and own a reliable car.
A modest retirement, in their view, means subsisting a little above the aged pension rate.
What are ways you can manage your retirement income
Your retirement income is likely to come from a couple of different sources.
Work with a financial advisor to see if you are eligible for at least a partial pension or other government benefits. You may have investments other than your superannuation and can draw on dividends.
You may also choose to take your superannuation as a lump sum or reinvest into an account-based pension or annuity.
Did you know that you can still work and earn an income and still receive the aged pension? The Work Bonus is a Federal Government program where the first $300 of your earnings per fortnight is not assessed for your pension.
Incentives for downsizers
The one thing we’ve not really spoken about is the one significant asset that most of us have – and that’s the family home.
Downsizing to a home that is sized right for your retirement plans is a great way to enjoy a better lifestyle without the time and money spent on expensive upkeep. And, as an additional incentive, the Federal Government allows you to put up to $300,000 per single and $600,000 per couple from the proceeds of the sale of your larger home into your superannuation.
If you are already retired and are claiming the aged pension, proceeds from the sale of your home are exempt from the assets test for two years and the deeming rate on those proceeds is calculated at the lower rate of 0.25 percent.
A word of warning on retirement living options
Retirement living means retirement village, right?
No, not necessarily. While ‘retirement village’ is a catch-all term, it is important research your options to ensure that your financial nest egg is protected in retirement.
Retirement villages can have hidden costs which can eat into the value of your new downsized home, with fees including exit fees, deferred management fees, capital gains fees, maintenance fees and more. Also keep in mind that you may not actually own your home but are simply leasing it.
Land lease communities for over 50s allow you to own your home and lease the land that it is on. The site rent pays for community facilities and the resort’s maintenance – similar to a body corporate fee, except that it also includes council rates. There are no exit fees or deferred management fees.
More ways to grow your super
While the government’s Downsizer Super Contribution Scheme is a great way to increase your super balance, it’s not the only way.
Here are a few more tips:
- Do a once-a-year check to ensure that your employer is paying the correct amount of superannuation into your account.
- If you have more than one superannuation fund, be sure to roll it into one to pay fewer fees and earn greater interest on a larger balance.
- Consider opportunities such as salary sacrifice or making post-taxable income payments to boost your balance.
- Talk to your financial planner about switching up your superannuation investment profile.
Why downsizing makes sense in retirement
We’ve touched on a couple of reasons why downsizing in retirement can add to your superannuation. These included spending less time and money on maintaining a large home and taking advantage of the Australian government’s downsizer scheme.
But they’re only two of the factors you should consider. Others include:
- Spending more time on what’s important – downsizing gives you the opportunity to relocate to an area that better suits you. That might mean living closer to family and enjoying those close connections more often.
- Enjoying more leisure time – whether it is trying a new sport or returning to a hobby that has taken a back seat during your working life. Living in a community with leisure facilities at your doorstep is ideal.
- Do more travel – living in a secure, gated community means you can head off on extended holidays without worrying about your home.
- Support when you need it – Enjoy making new friends with likeminded people who you can call on for help.
Why Living Gems is simply lifechanging
If you’re looking for a retirement lifestyle that doesn’t charge exit fees or deferred management fees, then look at a Living Gems over-50s lifestyle resort.
Located in desirable locations around Queensland, Living Gems resorts offer quality rightsized homes that are thoughtfully designed for modern, low-maintenance lifestyles. And if you are active and independent, Living Gems resorts offers a great range of on-site amenities including a Country Club, swimming pool, ten-pin bowling, lawn bowls, games room, fully-equipped gym, and sports courts.
Information in this article is general in nature and is based on current information at the time of writing. Before making any financial decisions, seek professional advice.
