Sunday, 25 March 2012

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
1 July 1960 - 30 June 1961
1 July 1961 - 30 June 1962
1 July 1962 - 30 June 1963
1 July 1963 - 30 June 1964
From 1 July 1964

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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