How do I Create a Retirement Income Plan?
Retirement Income Plan: Securing Your Financial Future
Planning for retirement is one of the most important steps you can take to ensure a financially secure future. After working for many years, you want to enjoy your retirement without worrying about running out of money. But how can you ensure your income lasts through retirement, especially with unexpected expenses and the rising cost of living in Australia?
At LIFE Financial Planners in Perth, we’re here to guide you through the most important steps in creating a simple retirement income plan. Let’s work through it together.
Step 1. Understand How Much You’ll Need
Firstly, you should understand how much money you will need. While everyone has different retirement goals, a good foundation is about 70-80% of your yearly pre-retirement income. For example, if you earned an annual salary of $100,000, to maintain a similar lifestyle in retirement, you would need $70,000 to $80,000 per year.
Some factors that should be considered in how much you may need include:
· Basic Living Expenses: Housing, food, utilities, and transport. For example, with Perth’s sprawling urban area, transport costs – including public transport or car maintenance- should be budgeted for in your plan.
· Healthcare: Costs tend to rise as we age, so don’t forget private health insurance and medical expenses.
· Lifestyle: Hobbies, travel, and social activities you plan to enjoy in retirement.
· Unexpected Costs: Home repairs, family support, or other unplanned expenses.
Step 2: Identify Your Income Sources
The second step is identifying where your income will come from in retirement. This can come from a variety of sources. For Australians, this includes a combination of superannuation, the Age Pension, and other investments.
1. Superannuation
When you reach retirement age, you can access your super through:
· Lump Sum: This is when you withdraw all your super in one transaction; however, this may not last long
· Account-Based Pension: This converts your super into an income stream, providing regular payments over time. This helps manage your income and potentially allows your super to grow.
2. Age Pension
Age pensions are available to eligible retirees. The amount you receive on the Age Pension is determined by a means-test based on your income and assets. This form of income is usually not enough to cover all living expenses; therefore, it is essential to have other streams of income.
3. Other Investments
Other investments besides super such as property, shares, or personal savings can provide additional income. For example, having a property you can rent out or sell can contribute to additional funds.
Step 3: Plan Your Withdrawal Strategy
How you access your retirement plan is important. If you withdraw too much too quickly, you run the risk of exhausting your money. While withdrawing too little may cause you to not enjoy your retirement to the fullest. Here are some strategies:
· The 4% Rule: This strategy entails withdrawing 4% of your retirement savings each year. For example, if you have $500,00 in your super, this will equate to $20,000 per year.
· Minimum Drawdown: With an account-based pension, you must take a minimum percentage of your balance each year. This increases as you age (e.g., 4% at 65, 5% at 75).
· Flexible Withdrawals: Adjust your withdrawals based on your needs, especially if you have other income sources.
Step 4: Factor in Tax and Investment Growth
It is important to understand how tax and growth may impact your retirement income. After turning 60, withdrawals from your super using an account-based pension become tax-free. Although, other income such as rentals, dividends, or interest may be taxed, so be sure to account for this in your financial planning.
Additionally, consider how investments will continue to grow in retirement. This may require maintaining a balanced portfolio to ensure your super holds up with inflation.
Step 5: Plan for Longevity and Unexpected Costs
Retirement can last 20-30 years or more, so it is important to plan for the long-term future. Also, it is essential to prepare for unexpected costs, such as healthcare, home repairs, or family support. Here are some ways to prepare:
· Diversity: Spread your retirement savings across different investments to reduce risk.
· Health Insurance: Health care costs are rising therefore, it’s critical to consider out-of-pocket medical expenses and health insurance
· Flexibility: Life can change, so building some flexibility into your plan is important. For example, if you need extra funds, downsizing your home will help provide that.
Step 6: Seek Professional Advice
It is beneficial to seek professional advice to ensure your future is well set up. A qualified financial planner can help you navigate the rules, tax implications, and strategies that best suit your goals. At LIFE Financial Planners, we tailor our advice to each person, ensuring you get the right plan for your circumstances.
Your Retirement Income Plan
Retirement income planning does not have to be overwhelming. By understanding your needs, income sources, and withdrawal strategies, you can create a clear path to a secure financial future. Located in Perth, LIFE Financial Planners is here to help you every step of the way.
If you’re ready to start or need help reviewing your retirement strategy, contact us today. Together, we’ll create a plan that will allow you to enjoy your retirement with peace of mind.
Your retirement, your plan –let’s make it a reality.
Should You Be Topping Up Your Super?
We often get asked, “Should I be topping up my super?” It’s a common question among many of our clients here in Perth, particularly as they begin to plan for a comfortable retirement. The primary motivation behind this question is ensuring you’re on track to build enough retirement savings for the kind of life you want to enjoy later on. But there’s also the tax angle to consider—superannuation has several attractive tax benefits that you don’t want to miss out on.
So, how do you know if it’s the right time to top up your super? And more importantly, is it the right decision for you?
Before we dive in, let’s take a moment to remind you that this information is general in nature and doesn’t account for your specific circumstances. Superannuation can be complex, and the rules are ever-evolving, so it’s always a good idea to seek personalised advice from our team at LIFE Financial Planners, where we tailor every recommendation to your unique financial situation and goals.
Why is Super So Attractive?
Let’s start by making sure you understand why Australia’s superannuation system is such an appealing vehicle for retirement savings.
The ultimate benefit of super is that once you reach retirement age—currently 67 years old—you can access your super income tax-free. That means every dollar you withdraw from your super in retirement is yours to spend, without the tax ‘leakage’ you experience on your regular salary. For example, if you’re currently earning $120,000 a year, after tax, you’ll have around $88,000 to spend. But in retirement, if you want that same $88,000, you only need to withdraw that amount—tax-free—from your super. This means the amount of wealth you need to accumulate for a comfortable retirement is significantly lower within the super system than it would be if you were relying solely on non-super investments.
But that’s not the only tax benefit. During your working life, any earnings in your super fund are taxed at just 15% on income and 10% on capital gains—often much lower than the rates you’d pay if you held these investments in your name.
And let’s not forget, that superannuation is also tax-free when passed on to a spouse after you pass away, which can make it a very effective estate planning tool.
So, Should You Be Topping Up Your Super?
The Drawback: Preservation
Of course, no system is perfect, and superannuation has its limitations. The main drawback is something called “preservation”—your super savings are inaccessible until you’re at least 55-60 and retired. This means the money you contribute to super should be funds you’re confident you won’t need until later in life. It’s vital to weigh this against other financial priorities, like your mortgage or more immediate financial goals.
Contribution Caps
Another important factor to consider when topping up your super is contribution caps, particularly concessional contribution caps. These are limits on how much you can contribute to your super and still claim a tax deduction. The current concessional contribution cap is $30,000 per year, which includes the compulsory 11.5% employer super contributions.
If you’re thinking of topping up your super, your first step should be to check how much of your contribution cap is already being used by your employer’s contributions and how much “headroom” you have left within the cap.
How Does Tax Come Into Play?
While super’s tax advantages are attractive, they may not always benefit everyone equally. For instance, if your taxable income is under $45,000, you may not gain much from making top-up concessional contributions. The preservation of your money could outweigh any potential tax savings. In some cases, it may even be more beneficial to retain these funds in your own name or to explore after-tax contributions as retirement approaches.
What Are Your Alternatives?
Here in Perth, where we see a range of property market fluctuations and living expenses rising with our growing city, it’s essential to think about how best to allocate your funds. One common alternative to topping up super is focusing on paying off your mortgage. While this approach doesn’t offer immediate tax savings, it provides guaranteed returns—whatever your mortgage rate is, typically around 6% right now. Paying down your home loan early can save significant interest over time and free up more disposable income for later.
For those planning to retire early, investing outside of super can offer greater flexibility. Since super is locked away until at least age 60, putting savings into personal investments can give you access to those funds sooner if needed.
Topping Up Later in Life
It’s also worth considering that you can make larger lump-sum contributions to super later in life. The non-concessional contribution cap currently sits at $120,000 per year, and there are even provisions for larger downsizer contributions if you sell your home in retirement.
This flexibility allows you to focus on other financial priorities earlier in life—like paying off your mortgage—before turning your attention to super in the lead-up to retirement. This might be the best approach for many Perth families who are juggling multiple financial goals.
How Much Super Do You Actually Need?
Ultimately, the question of topping up your super depends on how much you’ll need in retirement. It’s a good idea to start by estimating your desired retirement income and then use calculators like those on MoneySmart to figure out how much super you’ll need to generate that income. Once you have a target in mind, look at your current super balance and projected employer contributions to see if you’re on track.
If you’re not sure where you stand, we’re here to help. At LIFE Financial Planners, we specialise in helping clients like you plan for a financially secure retirement—tailored to your needs and the unique financial landscape here in Perth. We’ll provide you with personalised advice, and the support you need to make informed decisions about whether topping up your super is the right move.
Superannuation vs. Age Pension: What’s the Difference?
As you approach retirement, understanding the differences between superannuation and the Age Pension becomes vital for your financial planning. These are two primary sources of income for Australian retirees, but they function very differently. At LIFE Financial Planners, based here in Perth, we often guide clients through these complexities to help them make informed decisions about their future.
Superannuation vs Age Pension
Superannuation is a savings plan you contribute to during your working life. Both you and your employer make contributions, which are then invested to grow your nest egg. Once you reach your preservation age (usually around 60), you can start accessing your super. Superannuation gives you flexibility—you control when and how much you withdraw. Additionally, the remaining balance stays invested, allowing it to potentially grow even while you draw from it. This makes superannuation a powerful tool for maintaining your lifestyle throughout retirement.
In contrast, the Age Pension is provided by the government as a safety net for retirees who may not have sufficient super or savings. Available from age 67 (subject to income and assets tests), the Age Pension provides a fixed, fortnightly payment with no option for lump-sum withdrawals. It’s a valuable support for many, but it’s typically not enough to cover all living expenses, especially for those looking to maintain a more comfortable lifestyle. Additionally, Age Pension payments are taxable, although many retirees can receive tax offsets to minimise or eliminate their tax burden.
One of the main differences between these two income streams is flexibility. With superannuation, you decide how much to withdraw, and your funds remain invested, continuing to generate returns. Meanwhile, the Age Pension provides set payments with no investment growth potential. Many retirees rely on a combination of both superannuation and the Age Pension to meet their financial needs, but it’s important to understand that superannuation is generally designed to be your primary source of income, while the Age Pension serves as a supplementary safety net.
When it comes to taxation, superannuation withdrawals after the age of 60 are generally tax-free, making it a highly efficient way to fund your retirement. In contrast, the Age Pension counts as taxable income, although many retirees are eligible for tax credits that may reduce or eliminate any tax owed.
Superannuation and Age Pension: Working Together
Many Australians use a combination of both superannuation and the Age Pension to fund their retirement. How much you’ll rely on each depends on your savings, investment returns, and eligibility for the Age Pension. Our role as your financial planners is to help you strike the right balance between these two income sources, ensuring you can enjoy a secure and comfortable retirement.
Here in Perth, living costs, lifestyle choices, and the availability of services can also impact your retirement strategy. With our expertise in retirement planning, we can help you develop a plan that maximises your superannuation and, if eligible, supplements it with the Age Pension.
Common Misconceptions
- “The Age Pension will be enough.”
While the Age Pension provides a basic level of income, it’s generally not enough to support the kind of lifestyle most retirees desire. That’s where superannuation comes in – to provide more flexibility and financial security.
- “I don’t need to worry about super if I qualify for the Age Pension.”
Even if you’re eligible for the Age Pension, having super gives you control over your retirement income. It allows you to live more comfortably and avoid solely relying on government support.
- “I’ll get both my super and the full-age pension.”
It’s important to understand that your super and other assets may reduce your Age Pension payments. Our job is to guide you through these complexities, helping you manage both your superannuation and your potential Age Pension entitlements effectively.
Let’s Plan for Your Retirement
Whether you’re wondering how to make the most of your super or whether you’ll qualify for the Age Pension, at LIFE Financial Planners, we’re here to help you navigate your options. Our team in Perth is dedicated to crafting retirement strategies tailored to your individual circumstances, ensuring you get the most out of your savings.
Contact us today to start planning your retirement, and let’s work together to secure the lifestyle you deserve.
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How to Grow Your Superannuation
Superannuation, or simply “super,” isn’t just a savings plan—it’s your key to secure and fulfilling retirement plans. At LIFE Financial Planners in Perth, we recognise the significance of making informed decisions about your super, and we’re here to guide you every step of the way.
Super Contributions
Super contributions play a significant role in building your retirement savings. There are various types of contributions you can make to your super fund, including employer contributions, voluntary contributions, government co-contributions, spouse contributions, and downsizer contributions:
- 1. Employer Contributions: Your employer is required to contribute a percentage of your earnings into your super account. This compulsory contribution, known as the super guarantee, must be at least 11% (increasing to 11.5% on July 1st 2024) of your ordinary time earnings.
- 2. Additional Voluntary Contributions: Making extra contributions to your super can significantly accelerate its growth. You can contribute additional funds through salary sacrifice arrangements or by making after-tax contributions.
- 3. Government Co-contributions: Eligible individuals making after-tax contributions to their super may qualify for government co-contributions. The government matches a portion of your contributions, providing a valuable boost to your retirement savings.
- 4. Spouse Contributions: If your spouse earns a low income or is not working, you may be eligible to contribute to their super account and claim a tax offset. This can be a tax-effective way to bolster their retirement savings.
- 5. Downsizer Contributions: If you’re aged 65 or older and have owned your home for more than ten years, you may be able to contribute up to $300,000 from the sale of your home into your super. This one-time contribution can enhance your retirement nest egg.
Investment Strategies
Investment strategies involve determining how you allocate your superannuation funds across different asset classes, such as stocks, bonds, property, and cash. The primary goal of an investment strategy is to achieve the optimal balance between risk and return based on your financial goals, risk tolerance, and investment time horizon:
- 1. Asset Allocation: Diversifying your super investments across different asset classes, such as stocks, bonds, and property, can help manage risk and optimise returns over the long term.
- 2. Risk Management: Assessing your risk tolerance and investment time horizon is essential for selecting appropriate investment options within your super fund. If you’re a conservative investor, you may prefer lower-risk options, while oppositely, if you’re an aggressive investor, you may opt for higher-risk, higher-reward investments.
- 3. Regular Review: Monitoring and periodically reviewing your super investment portfolio is essential for ensuring it remains aligned with your financial goals and risk tolerance. Adjustments may be necessary based on changing market conditions or personal circumstances. Regular reviews with a financial planner can provide valuable insights and adjustments to keep your investments on track.
Determining Your Retirement Needs
- 1. Retirement Lifestyle: Consider the lifestyle you envision for your retirement years, including housing, travel, healthcare, and leisure activities. Estimating your expected expenses can help determine how much super you’ll need to support your desired lifestyle.
- 2. Superannuation Gap: Calculate the gap between your projected retirement expenses and your expected super balance. Identifying any shortfall early allows you to implement strategies to bridge the gap, such as increasing contributions or adjusting investment strategies.
- 3. Age Pension Considerations: Factor in any potential Age Pension entitlements when estimating your retirement income. Understanding your eligibility for government benefits can impact your overall retirement planning strategy.
At LIFE Financial Planners, we’re dedicated to helping you take control of your financial future and utilise the full potential of your superannuation benefits. Don’t leave your retirement savings to chance—let us empower you to achieve a secure and prosperous retirement with our expert superannuation advice. Reach out to Marijana or Mei today at (08) 9322 1882 to schedule a consultation at our West Perth office.
Understand Super: How a Perth Financial Planner Can Help You
In Australia, superannuation, or simply “super,” is not just a savings plan—it’s your ticket to a secure and prosperous retirement. At LIFE Financial Planners, we understand the importance of making informed decisions about your super, which is why we’re here to empower you every step of the way.
Understanding Superannuation
Superannuation is a long-term savings plan designed to provide for your retirement. It operates on a simple premise: your employer contributes a percentage of your earnings into your super account, which is then invested by your super fund until you retire. These contributions, along with potential investment earnings, form the basis of your retirement income.
Choosing the Right SuperFund
Superannuation is more than just a savings account; it’s a long-term investment in your future. Your employer contributes a percentage of your earnings into your super account, which is then invested by your super fund until you retire. These contributions, along with potential investment earnings, form the foundation of your retirement income.
Types of Superannuation
In Australia, super funds generally fall into four main categories: retail, industry, public sector, and corporate. Each type of fund has its unique characteristics and target audience:
- Retail Super Funds: Run by banks or investment companies, retail funds offer various investment options and cater to you regardless of industry and background.
- Industry Super Funds: These funds are typically run to benefit members within specific industries, such as healthcare or education. They often offer competitive fees and profit-for-member structures.
- Public Sector Super Funds: Reserved for government employees, public sector funds provide modest investment choices and low fees, with profits reinvested into the fund for the benefit of members.
- Corporate Super Funds: Arranged by employers for their employees, corporate funds vary in structure and offerings. Larger companies may operate with their own funds, while others may opt for retail or industry fund options.
How a Perth Financial Adviser Can Help You
At LIFE Financial Planners, we understand the importance of your recommended superannuation funds—it’s not just another account; it’s your future. With the ever-changing landscape of super in Australia, having experts on your side is crucial. Here’s how we can help:
- 1. Track down your lost super. There is over $18 billion worth of lost super in Australia. Some of it may be yours.
- 2. Choose the right fund for your needs.
- 3. Tailor an investment strategy for you.
- 4. Work out how much you need to contribute to your working life to live the retirement you want.
- 5. Boost your super! We can show you how to make the most of various tax-saving concessions such as salary sacrifice and contribution strategies.
- 6. Use your super to tax effectively provide for you and your family in the event of misfortune.
- 7. Ensure your super goes to the right people at the right time in the event of your passing.
- 8. Stay up to date with legislative changes, so you’re not disadvantaged.
At LIFE Financial Planners, we’re committed to helping you take control of your financial future and grow your superannuation benefits. Don’t leave your retirement savings to chance—let us empower you with the full potential of your super. Together, we’ll create a tailored strategy to ensure your super works its hardest for you, paving the way for a secure and prosperous retirement. Contact Marijana or Mei today at (08) 9322 1882 to schedule a consultation in our West Perth office.
Your Guide to Self Managed Super Funds
A one-size-fits-all approach rarely applies to retirement, and understanding, if a Self-Managed Super Fund (SMSF) is the right choice for you, depends on your individual circumstances, needs and wants for the future. In this guide, we take a look into the world of Self-Managed Super Funds (SMSFs), sharing how they work while our experienced Financial Planner Perth provides clear and supportive insights to help you plan a retirement that works for you.
Understanding SMSFs: A Clear Distinction:
A Self-Managed Super Fund (SMSF) distinguishes itself as a private fund, allowing you to take the reins of your retirement destiny. It stands apart from industry and retail super funds, providing you with the freedom to shape your investment advice and make choices aligned with your unique aspirations.
Benefits of SMSFs:
Choice and Freedom:
SMSFs empower you with a broader spectrum of investment options, allowing you to venture into assets like real property, art, and collectibles. The flexibility to borrow for property investment further expands your horizons.
Control Over Your Destiny:
As a member-trustee, you hold the strings to your retirement investments both during your working years and when you decide to retire. This level of control extends beyond the offerings of traditional super funds.
Tax Benefits:
Enjoy reduced tax rates on investment returns within SMSFs, capped at a maximum of 15%. Post the age of 60, you can enjoy the tax-free status of your received payments, providing a valuable financial advantage.
Scalability:
The ability to bring together up to six members enhances your capacity to access investment opportunities that may elude individual investors. This scale may also contribute to keeping fees at bay, potentially amplifying your investment growth.
Estate Planning Flexibility:
SMSFs offer a unique advantage in estate planning, allowing for flexible distribution of death benefits in accordance with the trust deed and super law.
Considerations on the SMSF Journey:
Responsibility:
Autonomy of power requires significant responsibility. Managing an SMSF is a meticulous process to ensure you are in accord with regulatory compliance, with penalties for non-compliance ranging from fines to potential legal proceedings.
Expertise:
SMSFs are complex, and it is best to rely on someone to help you navigate both financial and investment expertise. Trustees must stay abreast of market changes, ensure a diversified portfolio, and remain vigilant to legislative updates.
Time Commitment:
The administration and management of an SMSF demand time and dedication. While the workload is substantial, many find a sense of purpose and involvement in running their own fund.
Insurance Costs:
It is essential to be aware that SMSFs may entail higher insurance costs compared to public super funds, which negotiate bulk premiums with insurance providers.
Outsourcing Options:
Recognising the demands, trustees can consider outsourcing management to professionals such as investment managers or financial advisers.
Minimum Amount Consideration:
While there is no rigid minimum for setting up an SMSF, costs can escalate based on the fund’s complexity, structure, and associated fees.
Frequently Asked Questions:
Can I Borrow for Property Investment?
Indeed, SMSFs can leverage Limited Recourse Borrowing Arrangements for property investment, unlocking a pathway to diversified portfolios.
Penalties for Non-Compliance:
Understanding the potential consequences of non-compliance is crucial, ranging from the loss of concessional tax treatment to fines and legal ramifications.
Suitability of SMSFs:
SMSFs are not a one-size-fits-all solution. Determining their suitability requires carefully assessing individual circumstances, financial goals, and investment knowledge. Seeking advice from a financial adviser is a prudent step.
Crafting a fulfilling retirement involves understanding the nuances, committing to the responsibilities, and seeking the guidance of SMSF financial planner in Perth who are dedicated to finding the most appropriate retirement strategy for you. Remember, planning the route to retirement is as unique as you are. With informed decision-making and thoughtful planning, your SMSF can become a powerful asset driving you towards the retirement you deserve.
Your Self-Managed Super Fund
While they are vastly rising in popularity, SMSFs are still complicated to implement and maintain, requiring the right planning and expertise. Our team of SPAA Accredited SMSF Specialist Advisers will bring a wealth of experience and skill to ensure that your SMSF requirements are met and upheld from inception to finalisation. For more information, contact us via phone 08 9322 1882 or email admin@lifefinancialplanners.com
PHONE 08 9322 1882