How can I fund my retirement? - Birds eye view of super
How you choose to fund your retirement depends on a number of circumstances, and we suggest you seek advice from a financial planner .
If you are retiring, you can:
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Take action so you will qualify for the age pension.
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Use your super in a number of different ways.
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Use your non-super investments.
Let’s take a look at these options.
The age pension
In most cases, the age pension is not enough to fund a comfortable retirement on its own. However, it can still play an important role by qualifying you for the pensioner concession care, which saves money on prescriptions, utility bills, council rates and other expenses.
Centrelink, which oversees the age pension on behalf of the Government, applies strict rules around who can get it and how much the benefit will be.
Centrelink eligibility rules
You must meet the following 3 criteria to qualify for the age pension:
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Australian residency – you must be an Australian resident and have lived in Australia long enough to satisfy qualifying residence periods.
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Your age – males must be 65 to be eligible. The female eligibility changes depending on your date of birth.
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Means test – this test consists of an Income Test and an Assets Test. These tests consider areas such as the level of assets you have, where you invest those assets and the income these assets are deemed to earn.
Take action so you qualify
Take these steps to make sure you are on track to qualify for the age pension:
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Understand the eligibility criteria.
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etermine if you currently qualify. If not, find out why (eg you do not pass the means test).
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Put plans into place to ensure you pass all 3 eligibility criteria.
A financial planner can help you work through these issues. They will assess your personal needs and circumstances, and help you to maximise your Centrelink entitlements.
Maximising your Centrelink entitlements
The ’Means Test’ determines how much of the age pension benefit you’re entitled to. By reducing your total assessable assets, you may be able to maximise the benefit. A financial planner can help develop strategies to assist with this.
Government changes to superannuation and social security.
Recent changes to superannuation and social security from 01 July 2007 and 20 September 2007 respectively benefit retirees by reducing tax and improving age pension entitlements. Click here for more details on the proposed changes.
Using your super
You basically have 3 options for using your super to fund retirement. These are:
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Income stream – you may use your superannuation money to purchase an income stream for retirement. There are 2 main types of retirement income streams: pensions and annuities.
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Lump sum – you could take your money out of your superannuation fund as a lump sum payment, then live off the lump sum.
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Lump sum and income stream – you may also take some money out of your superannuation as a lump sum and use the remaining balance to purchase an income stream. This gives you access to a lump sum amount now, as well as an ongoing income.
The way you choose to use your super can affect the amount of tax you have to pay and also your Centrelink entitlements. Before making a decision, talk to a financial planner , who can assess your individual situation and help you make the most of your retirement benefit.
Learn more about pensions, annuities and lump sums.
Using non-super investments
Similar to super investments, you can purchase certain income stream products or choose to withdraw the investment to live off.
However, non-super investments are more tricky because:
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Investment earnings outside of super are treated as part of your total assessable income and normal marginal tax rates apply. In some cases, this may be as high as 45% plus the Medicare levy. Capital gains tax generally applies on sale of the asset.
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Some income stream products won’t let you invest funds other than your superannuation benefit.
We strongly recommend seeking the help of a financial planner before you go down this path.