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Welcome to the second article in our three-part series on women and super. This article focuses on issues and strategies for women who are approaching retirement.
When retirement beckons, we often have fewer financial obligations getting in the way of saving. Perhaps the mortgage has been reduced or eliminated, and the days of paying school fees have passed. You may also be enjoying your highest earnings years. Even if you’re not feeling flush, there are steps you can take to secure your future.
We know that women tend to retire with lower super balances than men and are expected to live longer on average, a double whammy that can lead to disappointing retirement income.
These tips can help women in their 50s and 60s make the most of opportunities to close the gap.
1. Boost your contributions
If you’ve got some spare cashflow, now is a great time to give your super a kickstart prior to retiring.
Concessional contributions (made via a salary-sacrifice arrangement with your employer or by claiming a tax deduction for personal contributions you’ve made from your bank account) not only boost your super balance but can also save you income tax.
The usual cap for concessional contributions is $27,500 this financial year, but if your total super balance was below $500,000 on 30 June you may have unused cap space from prior years that allows you to contribute more.
If you don’t have space under the cap to make more concessional contributions, or your taxable income is too low for them to be tax effective, you can also consider making non-concessional contributions.
Non-concessional contributions are personal contributions from your savings that you don’t claim a tax deduction for. The general cap for this contribution type is currently $110,000, but many people can contribute more using the bring-forward rule.
Non-concessional contributions can be an excellent way to move savings you have accumulated outside super into the tax-advantaged super environment, and later use them to provide convenient retirement income.
2. Consider a transition-to-retirement strategy
A transition-to-retirement (TTR) pension allows you to begin drawing income from your super while you are still working. The maximum that can be withdrawn is 10% of the pension’s balance each financial year.
When you’re over 60 this income is tax free (unless you’re in a rare untaxed super fund).
A common strategy is to use this tax-free income to increase the amount you can afford to contribute to super via concessional contributions while still meeting your living expenses. If you can also carry forward unused concessional contribution cap from prior years, this strategy can be even more powerful.
A divorce or separation later in your working life can put a real dent in retirement plans. You were planning as a couple and now need to make it alone. This is likely to increase the retirement income you need because you’re not sharing costs with another person.
Separating can be an emotionally difficult time and involve personal conflict but it is critical to get your financial affairs in order. Ideally, you don’t want to compromise on your financial settlement just to keep the peace.
Make sure you have experienced legal representation and don’t overlook super during negotiations – it is likely to be among the largest assets you shared. If you were married or in a de-facto relationship, super can be split after permanent separation or divorce.
4. Leverage your spouse or partner
For couples, the super system permits you to contribute (after tax) to each other’s accounts and to transfer concessional contributions made to one person’s account into their partner’s.
This can be of benefit if your super balance is lagging that of your spouse.
If you earn less than $37,000 in a financial year, your spouse can receive a tax offset of $540 in return for contributing $3,000 to your account. When you earn between $37,000 and $40,000 a lower tax offset is available. You don’t need to be employed to take advantage of this scheme.
In addition, spouse contribution splitting allows one spouse to transfer concessional contributions made into their super in the previous financial year into their partner’s account. This can be a valuable tool, not only to redistribute your balances in the interest of fairness, but also to ensure you both make the most of the transfer balance cap on super transferred into a super pension account or the pending introduction of additional tax on balances above $3 million.
5. Check the quality of your super fund
The last thing you need in the lead up to retirement is to be exposed to a less than stellar super fund. Make sure your fund’s fees are reasonable and its performance stacks up.
A quick and easy way to check is to look at APRA’s Heatmaps. These are available for both MySuper and choice investment options and cover 77% of Australia’s super products in the accumulation phase. Search for your super fund in the ‘RSE name’ box and check the results for fees and returns. Lighter colours indicate good results and darker colours indicate poor results. If your option is all white, you’re probably in a great place. If it’s red and yellow – it could be time to look elsewhere.
Now is also a great time to start asking your fund about how they help members with the retirement journey. What advice services are available? Are their pension products competitive? Do they have a product that is guaranteed to provide retirement income for life?
6. Run your numbers
It’s impossible to plan effectively and prepare for retirement without knowing what path you’re on. Putting your current situation into a retirement calculator is a good starting point.
The results may set your mind at ease that you’re on track for comfort or let you know that you’ll need to make some changes if you want to meet your retirement goals. Remember the output is not a guarantee, just an illustration of what is likely.
ASIC’s Moneysmart website has a simple calculator – and you can learn more about how to use it with our guide.
Your super fund may also provide calculation tools. The best calculators build in uncertainty in investment returns so you can see how this variability could affect your outcome.
7. Consider working longer
According to the Australian Institute of Health and Welfare, an Australian woman aged 65 in 2015 could expect nearly 17 more years of healthy life (and a further 5.5 years in less than full health). That’s a long healthy retirement to finance.
Working longer, perhaps part time or casually, reduces demands on the retirement savings you have accumulated and could give you time to save more.
There are no restrictions on accessing your accumulated super once you leave a job after age 60, or once you turn 65 even if you’re still working, so income from super and work can go hand in hand.
You can also receive Age Pension while working, so long as your income and assets are below the relevant limits. In fact, Age Pensioners are encouraged to work by the work bonus which disregards some employment income when calculating Age Pension entitlements.
For more on closing the gap, see Part 1 and Part 3 of this series:
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