If you’re approaching the end of your working life it’s a good idea to explore strategies that can let you leave the workforce on your own terms.
As Australians we are lucky to enjoy an average life expectancy of about 80 years. The downside is that if you plan to retire at age 65 you could need a retirement nest egg that will last 15, maybe even 25 years.
Many of us will fall short of the mark, and when that happens, the age pension is the likely fall back position. At the current rate of about $776 per fortnight for a single or $1,171 for a couple, the pension will keep the wolf from your door though that’s about as far as it goes.
That’s why it is important for workers aged in their 50s to consider ways of making up any shortfall in retirement savings without taking on unnecessary risks that could jeopardise the nest egg they already have.
One key resource we often overlook is our ability to work for longer. Sure, some of us can’t hang up our work boots soon enough, but staying in the workforce just a few extra years can dramatically pump up your super as well as providing valuable mental and social stimulation.
I appreciate that it can be difficult to secure employment as an older worker, however a 2014 report by the Financial Services Council (FSC) found that many employers now recognise the depth of experience that mature people can bring to an organisation. The same study confirmed that older workers often feel more financially secure. As a guide, over 70% of the survey’s working respondents aged 65-plus believed they had enough savings to retire comfortably.
Nonetheless, if you would rather wind down your working life than extend it, it may be worth thinking about a ‘transition to retirement pension’ (or TRP). These let you tap into your superannuation from age 55, drawing a private pension from your super savings to supplement your wage or salary.
TRPs are primarily designed to bolster your regular income if you reduce your workload from full-time to part-time. For this reason TRPs can only deliver a steady flow of payments from super – you cannot withdraw a lump sum.
A TRP can also be a means of giving your super a last minute boost. To do this, you need to salary sacrifice large chunks of your wage or salary, and use the income from a TRP to subsidise your remaining take-home pay.
This salary sacrifice strategy may sound simple but it should be approached with care. Annual limits apply to before-tax super contributions – for the 2014-15 financial year, the annual limit is $30,000, or $35,000 if you were aged 49 or over on 30 June 2014. Your employer’s super guarantee contributions count towards these limits, so if you are aged 52 and the boss is adding $10,000 to your super, you’re limited to salary sacrifice contributions of $25,000.
Professional financial planning advice can be the key to growing your super, and making the most of it in retirement. Some super funds provide a low cost, basic advice service, or to learn more saving for retirement take a look at my book Making Money.