The disruption of the past 18 months has no doubt had an impact on your plans for the future. Now more than ever, you may be wondering if you’ll have enough to retire, or whether your retirement will be comfortable. And that’s when it gets a bit tricky, as the answer depends on your definition of ‘comfort’.
In this article, we’ll look at what a comfortable retirement might look like and how recent changes to super rules may help you grow your super balance.
The Association of Superannuation Funds Australia (ASFA) defines a ‘comfortable’ retirement lifestyle as one that “enables an older, 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.”
The Association also suggests that a couple will need to own their own home, have a super balance of $640,000 and receive a partial aged pension to meet this definition of ‘comfort’.¹
The Government’s MoneySmart² website suggests another rule of thumb. They say “two-thirds (67%) of your pre-retirement income is required to maintain the same standard of living in retirement”. Importantly, this ‘rule’ also assumes home ownership.
Of course, these are simply guidelines. The key to understanding whether you will have enough to retire in what you define as comfort will depend on what you need to enjoy the retirement of your choice.
For most wage and salary earners, superannuation will be a key retirement strategy. It’s tax-effective and the government recently passed a swag of laws that make it possible to get more money into super.
On 1 July 2021, the employer super guarantee increased from 9.5% to 10%, meaning most wage and salary earners will now enjoy more in their super account each pay day.
The annual concessional (before tax) contribution caps were also increased from $25,000 to $27,500. That means in addition to your employer’s contributions, and without exceeding the cap, you can contribute via salary sacrifice an extra $2,500 per year into your super and benefit from the much lower 15% tax rate.
You can also contribute non-concessional (after tax) contributions of up to $110,000 (increased from $100,000) per year. In turn, the three-year bring forward rule now allows for contributions up to $330,000 (increased from $300,000) in a single year. This allows you to contribute extra cash, perhaps from the sale of a rental property or an inheritance, to boost your super balance.
The ‘catch-up’ rule has been around for a while, and it allows you to make the most of any unused super cap amounts for up to five years.
Recent rule changes have also included ‘stapling’ super funds to employees when they move from one employer to another. If you’ve changed jobs in the past, however, you may have super sitting in a number of different employer ‘default’ funds. Multiple funds results in multiple administration fees being deducted from each account. If this sounds like you, it’s important to consolidate all your super accounts into one as soon as possible. If you need help doing this, please ask.
Achieving your type of retirement ‘comfort’ will depend on a range of matters that need to be considered. Not least, understanding when you will have enough to fund your lifestyle when you no longer generate income from work.
In the first instance, may we suggest you check your super balance. Then consider the number of years from now until you’d like to retire. Using the SmartMoney rule of thumb (67% of your annual income now) consider whether you’ll have enough in your super savings to support your retirement lifestyle.
If it’s not looking promising or if you are unsure if you will have enough to retire in your type of comfort, we invite you to give us a call.
For help navigating superannuation and retirement planning, please contact Blue Harbour Financial Partners on 07 3821 1161 or email email@example.com
At Blue Harbour, we are known for helping everyday Australians to PLAN and GROW their personal prosperity, PROTECT what’s important, and RETIRE to the lifestyle of their choice.
Blue Harbour Financial Partners and its advisers are Authorised Representatives of Fortnum Advice Pty Ltd ABN 52 634 060 709 AFSL 519190. This article is general advice only and does not take into account your objectives, financial situation or needs. Please consider your own circumstances and whether the advice is right for you before making a decision. Always obtain a Product Disclosure Statement (PDS) before making any financial decisions.