Left your run too late to save for retirement?
The simple strategy that can boost your nest egg
By
AMP financial planner [Robert Inukihaangana]
When it comes time to finally hang up
the work boots, a lot of people face the frightening realisation that they
don't have enough retirement savings to live the lifestyle they were hoping
for.
Many people make the mistake of leaving
their run too late when building their retirement nest egg.
But if a person's retirement savings
are looking a little grim, or even if they could just do with a boost, a
Transition to Retirement (TTR) strategy is available to over 55s who are still
working to boost their retirement savings.
Although the strategy might be a little
difficult to grasp at first, once people understand it, they are often
surprised by how much it can increase their retirement savings.
There
are two simple steps involved in a Transition to Retirement strategy:
Step 1: Once a person
has reached their superannuation preservation age, they can move their super
into a specific type of account-based allocated pension to give themselves a
more tax efficient income.
Some of the income payments received from the
account-based pension may be tax-free with any taxable amount attracting a 15
per cent tax offset. For people aged 60 or over, the income payments are
entirely tax free.
In addition to that, the investment earnings within
the pension are completely tax-free regardless of age.
Step
2: After drawing down tax effective
pension payments to cover living expenses, a person can then start contributing
potentially large chunks of their before-tax salary back into super through
salary sacrifice contributions. This aggressive salary sacrificing, combined
with the above pension tax benefits, can result in a dramatic boost to the overall
retirement nest egg.
It’s important to remember that there are concessional caps limiting the
amount that can be salary sacrificed into super without incurring tax penalties.
This cap is $25,000 per year for those under 50, and $50,000 per year for those
aged 50 and over (until 30 June 2012). The amount counted towards this cap also
includes an employer’s existing contributions, such as the minimum 9 per cent
super guarantee.
As noted earlier, a person must have
also reached ‘preservation age’ before they can access their super to start a TTR
pension. The following table can be used to work out a persons preservation age,
based on what year a person was born.
Preservation
age
Date of birth
|
Preservation age
|
Before
1 July 1960 |
55
|
1
July 1960 - 30 June 1961 |
56
|
1
July 1961 - 30 June 1962 |
57
|
1
July 1962 - 30 June 1963 |
58
|
1
July 1963 - 30 June 1964 |
59
|
From
1 July 1964 |
60
|
If people are
interested in a Transition to Retirement strategy, they need to start preparing
sooner rather than later to ensure that they can get started when they reach
their preservation age.
A good first
step is to visit to a qualified financial planner who can advise on the best
strategy to suit their individual needs.
You may wish to
consider some of the new 'one-stop-shop' super products which can take a person
from working life right through to retirement without changing products.
These
streamlined products, such as AMP's new AMP Flexible Super, also allow people
to easily transfer money from their super to their allocated pension each year
to top up their funds.
*[ Robert
Inukihaangana] is an Authorised Representative of AMP
Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given
is general only and has not taken into account your objectives, financial
situation or needs. Because of this,
before acting on any advice, you should consult a financial planner to consider
how appropriate the advice is to your objectives, financial situation and
needs.
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