Once you’re in your 50s, it’s time to start thinking seriously about what role your super will play in your retirement. You may wish to examine how your super is invested, and think about how you intended to use your super in retirement.
Review your investment option
Your super fund invests your money for you. Most funds let you choose from a range of investment options, from conservative to growth. With fewer years to retirement it may be wise to be thinking about when you intend to access your super.
Investment returns will also play a significant role in your wealth creation and income generation in retirement. Taxation of super is different in retirement, so it will be prudent to learn about that.
You can find out about your fund’s investment options by checking its website or product disclosure statement (PDS).
Most funds allow you to change your super investment options online.
You may wish to consider how your superannuation investments complement any wealth creation you are conducting outside of super.
There are various Commonwealth entitlements and concessions available to retired persons. Most are means tested, so you may not be able to (immediately) rely upon these.
Use super to reduce your tax bill
Assuming that your employer is making SG contributions to your fund, you may wish to consider increasing these contributions via regular salary sacrifice or lump sum concessional contributions. These types of contributions are likely to be tax deductible to you. Bear in mind that you will be limited to a total of $25,000 per year combined employer and salary sacrifice contributions.
This type of contribution is taxed at 15%, which for many people will be lower than the marginal tax rate on your increasing income.
Check your beneficiary nomination
You are able to choose who receives your superannuation should/when you pass away. If you don’t choose (nominate) someone, your super fund will decide who is to receive your super money. This will include any insurance you might have.
Previous nominations may need to be reviewed in the light of a relationship breakdown, or children who are now adults.
For a beneficiary nomination to be valid, you need to choose a dependent. This can be your spouse, a child, or your estate. Check to see if your super fund offers a non-lapsing nomination, as binding nomination will expire after 3 years.
If your personal situation is complex, you may wish to seek legal or financial advice.
Evaluate your insurance cover
Super funds typically have three types of insurance for members:
– life (also known as death cover)
– total and permanent disability (TPD)
– income protection
When comparing the default insurance offered by super funds, look for:
– the premium rates
– the amount of cover
– any exclusions or definitions that might affect you
Check your cover to see whether your current cover is right for you. You should think about your personal circumstances eg your mortgage, your family, a non-working spouse etc.
You may decide that you no longer need much cover, if any. If you are now debt-free, with adult children, and a working spouse, there may be some insurance that you can reduce or cancel. If you need help deciding about this, you should seek independent financial advice.
Start thinking ahead: how do you want to access your super in retirement?
There are a number of options and products that are available in retirement. You may wish to take your super out in a lump sum, start a pension with the money, or some combination of these two. There are even superannuation annuities that will pay you a guaranteed income for your lifetime.
It is common to withdraw a lump sum if you have some significant expenses, or residual debt that needs to be paid off.
Most retirees will use at least part of their accumulated superannuation to commence a pension. This allows you to draw regular income for living expenses, keep the funds invested in the concessionally taxed superannuation environment, but still have access to lump sums if needed.
The earliest you are likely to have access to your super is 60.
You may need to get personal financial advice to help you plan
The years leading up to retirement is a good time to consider getting personal financial advice. A financial adviser can help you to plan ahead, model your likely retirement outcomes, and assist you to make any changes that are needed. You financial adviser should be an expert in superannuation strategies and retirement planning.
It is generally accepted that it is best to seek independent financial advice – advice that is free from conflict or bias.
Make a lump-sum contribution to super – if you are able
Leading up to retirement you may wish to give your super fund a final large contribution. You are able to make a large ‘non-concessional’ contribution. With the ‘bring-forward’ rule, you can make up to three years of non-concessional contributions in a single go. If you have significant cash outside of super that you can put towards your retirement savings, this can be a great way of getting larger amounts (up to $300,000 per person in most cases) into super.
If you are over 55, there are certain retirement income products that allow you to access your superannuation whilst you are still working. You may be able to start a transition-to-retirement (TTR) pension, which can supplement your income, enabling you to reduce your working hours should you need or desire.
Small business super contributions
If you are a business owner there are a number of tax concessions available if you sell your business and contribute some of the proceeds into your super fund.
There are 4 different rules that you can use to reduce or even eliminate the capital gains tax (CGT) bill upon sale.
You should seek professional tax and financial planning advice for this.