You might often hear the term ‘retirement planning’ but might not be familiar with the term ‘retirement income planning’. When discussing retirement with a financial adviser, retirement income planning is a key pillar to ensure a successful and worry-free retirement.
Income in retirement: how much will you need?
When seeking financial planning advice, this is a fundamental question. Without knowing how much you need, it won’t be possible to determine what your super balance should be and choose between investment options and determine your overall retirement savings requirements. Part of any plan for retirement needs to determine how much income you’ll need each year to maintain your desired standard of living.
Each person will have different wants, needs and lifestyle expectations for retirement. The Association of Superannuation Funds of Australia (AFSA) recommends around two-thirds of your annual working income for a comfortable retirement. The AFSA definition of comfortable includes the basis for living, exercise and leisure activities, occasional restaurant meals, and the ability to travel. For retirees between 64 and 84 years old who own their own homes, AFSA’s current minimum income for a comfortable retirement is $68,014 for couples and $48,266 for singles. Of course, this amount will increase each year with inflation.
Another factor to consider is life expectancy. Life expectancy for 65-year-olds is 84 for males and 87 for females, so many retirees will live well beyond the average life expectancy. When estimating life expectancy, the average 65-year-old generally underestimates their life expectancy by five years.
Determining how much you’ll need to retire is something that a specialist financial adviser like Finextra Wealth can help you determine.
Your super fund and retirement
For most Australians, superannuation is the centrepiece of their retirement savings. When considering retirement income planning, there are many options inside and outside of superannuation. If withdrawing funds from super, there are many factors to consider, such as a lump, an income stream, or a combination of both. You will also want to consider the tax and government benefit implications of how and when you access your super. With the complexities involved, consulting a financial adviser can help you maximise your income and benefits while minimising your tax in retirement.
Accessing your super
When you access your super is another important topic that a financial consultant can help with. When you reach the age that you can access your super – called the ‘preservation age’ – is determined by your date of birth as follows:
|
Date of birth |
Preservation age |
|
Before 1 July 1960 |
55 |
|
1 July 1960 – 30 June 1961 |
56 |
|
1 July 1961 – 30 June 1962 |
57 |
|
1 July 1962 – 30 June 1963 |
58 |
|
1 July 1963 – 30 June 1964 |
59 |
| From 1 July 1964 |
60 |
When you reach the preservation age, you can choose to leave your super where it is and continue making contributions. For example, if there is a downturn in the share market when you reach preservation age, you might choose to wait for it to recover.
It’s important to note that the preservation age when you can access your super is not the same as the Centrelink Age Pension age, which is determined by your date of birth as follows:
|
Period in which you were born |
Pension age |
Date pension age changes |
|
From 1 July 1952 to 31 December 1953 |
65 years and 6 months |
1 July 2017 |
|
From 1 January 1954 to 30 June 1955 |
66 years |
1 July 2019 |
|
From 1 July 1955 to 31 December 1956 |
66 years and 6 months |
1 July 2021 |
|
From 1 January 1957 onwards |
67 years |
1 July 2023 |
Account based pensions
An account-based pension is a popular option and most people transfer their super balance into a pension account. The pension received from this account as well as earnings from it are usually tax free after the age of 60. There are minimum drawdown rates and you can choose to receive payments monthly, quarterly, half-yearly or annually. How long your account-based pension will last depends on several factors, including:
- The amount of your superannuation you choose to transfer to your pension account
- How much you choose to take in pension payments each year
- Your pension investment earnings
- Fees
There are pros and cons of using an account-based pension. On the plus side, it’s tax effective because you don’t pay tax on income after the age of 60 and investment earnings are tax free. On the minus side, account-based pensions form part of the income and assets test for age pension eligibility, and investment earnings depend on the market and may decrease.
An experienced financial adviser will be able to discuss the pros, cons and suitability of an account-based pension as part of retirement income planning.
Annuities
These are another option for retirement income planning. Annuities are paid by life insurers in return for a lump sum payment from superannuation funds and other types of savings. Payments from the annuity can usually be set up to be received monthly, quarterly, half-yearly or yearly for a certain period or the rest of your life.
As with any financial product, annuities have advantages and disadvantages, so it’s important to get financial advice to ensure it fits with your goals and financial situation.
Getting started with retirement income planning
There are many factors and risks to consider when beginning retirement income planning. It’s important to keep in mind that it’s an ongoing process as market conditions, your financial circumstances and goals change.
If you’re asking, “Are there financial advisers near me who can help?” Finextra Wealth offers a broad range of financial services, including retirement income planning.
If you need assistance to determine the retirement income you’ll need to suit your lifestyle needs and how to maximise it, contact Finextra Wealth today.
Retire with Confidence by Minimising the Risks! Get the expert advice you need to both save and spend well by contacting Finextra Wealth.
Book a free breakthrough strategy call with Heath Hebenton to find out more.
