With women now expected to live to an average age of 89 and men to 86, it’s likely that many of today’s retirees will spend at least a quarter of their life in retirement.
Understandably, if you’re one of the many Baby Boomers who didn’t benefit from having superannuation guarantee contributions throughout your entire working life, you may be concerned you’re not going to have enough in your super fund to be comfortable throughout this long retirement.
According to the Association of Superannuation Funds of Australia Limited (ASFA), the average super balance at the time of retirement was $270,710 for men and $157,050 for women in 2015-16.
Both figures fall well short of the $545,000 needed for a comfortable retirement for a single person, according to the ASFA Retirement Standard.
ASFA defines a comfortable retirement lifestyle as one that allows a “healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel”.
But, like most things in life, the amount you will need in retirement depends on your personal situation and life goals. Some financial planners put the bare minimum requirement at a whopping $1 million. On the other hand, Scott Pape, a financial adviser well known as the Barefoot Investor, reckons a couple with a paid-off home can be comfy on a combined super balance of $250,000, while an individual needs $170,000.
If you do look at your income needs and are worried you may not have enough money for a comfortable life, the good news is that you can still take steps to boost your super savings as you approach retirement, and even potentially after you retire.
Here are six ideas to consider.
It’s worth reviewing both the investment performance and fee structure of your super fund at least every couple of years. These key elements can have a substantial impact on the balance of your super savings over the long term
Your financial adviser or super fund provider can help you to do this, or you can use a free comparison tool to do your own research.
The Compare Funds tool, owned and run by independent research provider SuperRatings, for example, can help you compare super funds by letting you run side-by-side comparisons of different industry super funds against retail funds.
According to SuperRatings, industry funds on average outperform retail funds, with the median gap between industry and bank-owned retail funds above two per cent per year over past seven years.
Over the long term, this difference in performance can make a big difference to how long you stay at work and your lifestyle in retirement. Industry SuperFunds estimates that over the past 10 years, the average industry fund has delivered about $15,000 more to each member in returns than the average retail fund.
It’s worth thinking about where you sit on the risk spectrum.
Some people are natural risk-takers and are prepared to invest their super in higher risk investments to achieve a higher return, while others are more risk-averse, and would rather keep their money in more conservative investments and accept lower returns.
Moving your savings into a more aggressive super fund or mix of asset classes could potentially boost your super, but this strategy typically requires investment over a longer timeframe than more conservative investments. It also doesn’t necessarily guarantee you a correspondingly high return in the time frame you need it.
Your financial adviser or super fund provider can help you work out whether your fund choice best reflects your risk appetite while potentially delivering the returns you need.
If you’re able to make extra contributions to super through salary sacrificing in the years leading up to retirement, you can take advantage of several tax benefits. But it’s important to also remember that there are limits to the concessions available.
For anyone with an adjustable taxable income of less than $250,000, you’ll be taxed at a concessional rate of 15 per cent on any contributions you make on top of your employer’s super contributions, any additional employer contributions or other contributions where you’ve claimed a tax deduction. You can pay in up to $25,000 a year at this reduced tax rate.
If you’re under 65, you may also be able to average out your contributions up to a cap of $300,000 using the ‘bring forward’ rule, which can be helpful if you come into a windfall.
Women, particularly those over 60, could look at working part time for longer while using a tax-effective transition-to-retirement (TTR) income stream.
A TTR strategy allows you to start taking some super as income to make up the difference between your former full-time wage and your new wage as a part time employee.
It means you can work less but enjoy the same standard of living you had when you were working full time. You can even continue adding to your super by salary sacrificing – which, as mentioned previously, can bring added tax benefits.
For those over 65, downsizing your family home could allow you to boost your super with the surplus funds from the sale. The government is encouraging older homeowners to downsize their family home by offering reasonable after-tax incentives for them to do so.
According to independent financial adviser and superannuation expert, Trish Power’s SuperGuide site, “from 1 July 2018, Australians aged 65 years or older will be able to make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years.
“The legislated rules indicate that the property sold must be the person’s home (main residence and be eligible for the main residence exemption for capital gains tax).”
Such a move should be discussed with a financial adviser, however, as an increased super balance could impact your eligibility for the Age Pension.
There’s no doubt that superannuation rules can seem difficult to navigate. With rules changing each year and so many different variables to consider, it’s best to discuss any concerns you have about how to make the most of your super with a trusted financial adviser or your super fund provider.
“It’s never too late to boost your super,” David Whiteley, CEO of Industry Super Australia (ISA) said. “But everyone’s retirement circumstances are different. Talking to an independent financial adviser could help you make a plan for your future.”