The thought of running out of money keeps many retirees awake at night, but it doesn’t have to be that way.
How long your super lasts will depend not only on the size of your balance but also on the lifestyle you want during your retirement years.
If you’re planning frequent international travel and entertaining, you will need more savings than if you intend spending lots of time pottering in the garden and playing with the grandkids.
When there is a big gap between how much money you need and your nest egg, you need to take action.
Whether it’s earning more, spending less or taking on more investment risk, making your retirement savings stretch as far as possible can be done with some simple changes.
12 tips for stretching your super dollars
1. Use money outside super first
If you have been saving into your super account for many years, your super will likely play a significant financial role in your retirement, but that doesn’t mean you need to start using it straight away.
Leaving your savings within the tax-efficient environment of the super system allows it to continue compounding as your fund earns investment returns.
When you have savings outside super or other sources of income which is taxed at your marginal rate (such as rent from an investment property or share dividends), consider leaving your super to continue growing and live on your non-super money during the first years of retirement.
2. Choose a higher risk investment option
A simple way to help make your super last longer is to select a higher risk investment option.
Selecting a less conservative investment option means allocating more of your account balance to growth-oriented assets and less to defensive assets (such as cash and fixed interest). Investing part of your savings in growth assets (such as shares and property), could help boost your super savings as these assets generally provide higher average returns in the long run.
3. Review your budget
An important step in ensuring your retirement savings last the distance is to carefully review your household budget to ensure you’re spending wisely.
Simple changes like checking whether your health, car and home insurance are still set at appropriate amounts and increasing your policy excess can help reduce your premiums.
Consider eliminating recurring expenses you aren’t using, such as gym membership, streaming services and magazine subscriptions.
Regular small expenses can add up to a lot over the course of a year and this money can be redirected to other more essential – or pleasurable – retirement expenses.
By trimming your budget you will need to withdraw less from your super savings, increasing the longevity of your nest egg.
4. Recheck your Age Pension eligibility
If you’re worried about running out of super, it may be time to recheck your eligibility for the Age Pension.
Even if you weren’t eligible when you first retired, that doesn’t mean you are still ineligible. If you’ve been spending down your savings or selling assets to help pay for your retirement, you may now be entitled to a part Age Pension.
A few dollars from a fortnightly pension payment is not only a welcome source of extra income but also makes you eligible for a Pensioner Concession Card. These cards give you access to valuable discounts and concessions, including cheaper medicines under the Pharmaceutical Benefits Scheme (PBS) and potential savings on public transport, power bills, council rates and more.
5. Add an annuity to the mix
If long-term financial peace of mind is a key goal, an annuity product could be a solution.
Annuities (or the lifetime pension products offered by some super funds) provide a guaranteed preset income stream you can use to ensure your regular expenses – like rates and insurance – are covered.
With your regular expenses taken care of, you can use your remaining savings for unexpected costs or some of the little luxuries you want in retirement.
6. Start using a bucket strategy
Once you retire and begin drawing income from your super, you need to balance competing requirements. You need both capital growth to ensure your savings last the distance and access to liquid assets for regular withdrawals.
One way to stretch your savings a bit further is to use a bucket strategy that establishes different pools (or buckets) of money with different objectives and different investment strategies.
Your short-term bucket contains liquid investments (such as cash and term deposits) for regular pension payments, while the medium-term bucket aims for some capital growth to top up the short-term bucket.
The long-term bucket is invested to create long-term capital growth and reduce the risk your retirement savings will run out.
7. Take on some part-time work
Deciding to retire no longer means you never want to work again. Many people take some time off before deciding to return to the workforce in a different way – or even in a different industry.
Although full-time work is an option, most retirees find part-time or casual work – or even consulting or project work – a more palatable option if they want more retirement income.
With extra money coming in there is less reliance on your existing savings to pay for everything, which can stretch your super a little bit further. Working even a day a week opens up new options for managing and growing your super later in life.
8. Downsize your house and upsize your super pot
If you’re worried about a lack of retirement income, consider using your other resources such as your home. For most Aussies, their home is one of their biggest assets and the equity you have built up in it can be a valuable source of additional income.
One option is to downsize by selling your home and moving to a cheaper property. In some cases, moving to a smaller or less expensive home can free up considerable capital for generating a new source of retirement income.
Before deciding to downsize, don’t forget to check how much you are likely to end up with, as there are transaction fees and taxes to pay whenever you buy and sell property.
Another option can be to sell your home and make a downsizer contribution of up to $300,000 ($600,000 for a couple) into your super account. There is no upper age limit for downsizer contributions; if you qualify, this could be a good way to get more money into the tax-efficient super system.
If downsizing doesn’t appeal, you still have options. You could rent out a room or take out a reverse mortgage.
9. Consider a reverse mortgage or the Home Equity Access Scheme
Reverse mortgages are financial products offered by banks or other financial lenders and work like regular mortgages but in reverse.
Instead of making payments, you receive either a lump sum or regular payments from the lender. Repayments are not required until you sell or pass away.
The Home Equity Access Scheme (HEAS) is a form of reverse mortgage offered by the federal government. It can provide a useful tax-free boost to your retirement income with payments available to both eligible pensioners and self-funded retirees.
The HEAS provides non-taxable fortnightly payments (or a lump sum) from Services Australia or the Department of Veterans’ Affairs (DVA) secured by a loan against your home.
10. Leave a smaller inheritance
Many retirees are keen to leave a financial legacy for their children, grandchildren or other family members. Some want to leave something for their favourite charity.
Although this is understandable, when you’re worried about whether your retirement savings will last the distance, reducing the amount you plan to leave your beneficiaries could be a simple way to stretch your super dollars.
Many children would prefer their parents enjoy their retirement years rather than going without to leave a substantial amount behind for their beneficiaries.
While leaving less in your estate may be a tough decision, it can be a simple way to ensure your retirement savings last longer.
11. Apply for a Commonwealth Seniors Health Card
Once you reach Age Pension age, even if you are not eligible for the Age Pension it’s worth applying for the Commonwealth Seniors Health Card (CSHC) issued by Services Australia.
Benefits for cardholders include cheaper prescription (PBS) medicines, bulk-billed doctor visits (at your doctor’s discretion) and access to the Extended Medicare Safety Net – Concessional benefit.
Depending on where you live, you can also access state and local government discounts such as concessions on electricity and gas bills, property and water rates, healthcare costs and public transport fares.
The maximum income threshold for the CSHC increased in November 2022 to $90,000 for singles and $144,000 for couples, allowing many previously ineligible retirees to access the card.
12. Grab a state-based Seniors Card
Once you reach age 60, you may also be eligible for a state-based concession card offering valuable discounts on your regular expenses.
Each state and territory has a free Seniors Card scheme and some have reciprocal arrangements when using your card in other states.
Seniors Cards provide a variety of concessions on public transport fares and shopping discounts with participating businesses.
In most states and territories, anyone over age 60 and working less than a set number of hours per week in paid employment is eligible for a Seniors Card, although eligibility criteria and benefits vary slightly.
How long will your super last?
If you’re worried about your retirement savings running out, it can be a good idea to explore how many years in retirement you need to fund and how long your current super balance is likely to last.
A good place to check out your possible lifespan is the Lifetime Estimator Calculator. This online tool will give you some idea of how many years you may need to stretch to stretch your existing retirement savings.