Superannuation

If you’re 55 or older, rules on when and how you can access your superannuation can provide opportunities to work part-time for the same income. Or you could choose to continue full-time work and boost your final balance.

Look at your circumstances

This best suits those working full-time who want to put more into superannuation or those who want to cut work hours but in both cases are not sure they can afford to.

The former can salary-sacrifice more into super and still maintain the same after-tax income with a transition-to-retirement (TTR) pension. Someone over 55 earning $150,000 a year wanting to put in the maximum $50,000 pre-tax contribution (including compulsory super of $13,500) may look at salary-sacrificing $36,500. This would cut their after-tax income by $22,000 a year, says David Simon, executive financial planner with Westpac Financial Planning, which they could make up with the equivalent income from a TTR pension. This is even more effective after age 60 as income from super is tax-free. Because they’re putting in more than they’re withdrawing, their super balance is growing.

Work out what extra income is needed

Do a detailed budget. You may find you can work less and live on less. Or that you can manage making higher salary-sacrifice contributions and survive on lower cash flow without a TTR pension. For those who want to pay down debt before retirement, Anne Graham, partner with McPhail HLG Financial Planning, suggests this strategy as a clever way of paying off non-deductible debt with a tax-efficient income stream.

Check your super balance

If you start a TTR pension, you will need to draw down between 4 per cent (3 per cent this year due to volatile markets) and 10 per cent of your super balance each year. These are set by government. So you need to make sure you have enough in super to do this. Westpac does the sums on 5 per cent – so using our $22,000 example, you’d need at least $440,000.

Set up the pension

Check whether your super fund offers a TTR pension, says Colin Lewis, head of technical services at ipac securities. Otherwise you may have to switch funds. Lewis says it’s worth seeking advice on keeping certain super benefits separate, depending on their tax status. Also check on fees you’re likely to be charged. Decide whether you want payouts monthly, twice a year or just once a year.

Evaluate investments

Look at your asset allocation to make sure the underlying investments can pay you an income stream. For example, if your fund is mostly invested in high-growth assets such as Australian shares, you may be forced to sell them at a bad time to fund your pension payments. Simon advises that you have at least three years of payouts held in liquid investments such as cash or term deposits.

Start the payments

Wait until the first pension payout comes in, says Simon, and then set up your salary-sacrifice arrangements. That way you won’t be caught short with income.

Organise a review

You may want to reset annually, perhaps by moving what you accumulate each year into the pension side of your fund.

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