What do I need to do to retire?
When you finish working, there will be some important decisions you need to make, such as how you will fund your retirement, how much money you will need and how you will manage your income.
Having a good understanding of the types of decisions you will need to make when you want to retire will help you to plan for the future.
How are you going to fund your retirement?
Most people rely on a combination of superannuation savings and money pooled from the sale of assets and other investments to fund their retirement.
You will generally be able to access your superannuation when you reach your preservation age, which is at least age 55, and permanently retire.
Depending on your circumstances, you may want to leave your superannuation untouched for a while, and take it later when you need it. You can keep your money invested in a superannuation fund for as long as you like.
If you intend to top-up your superannuation savings with money gained through the sale of assets like the family home or share investments, you need to be aware that there are limits on the amount of after-tax contributions you can make.
An annual limit of $150,000 p.a (or $450,000 in total over 3 years) applies to all voluntary (after-tax) contributions made to super up to age 65.
For members aged 65 – 74 years, an annual contribution limit of $150,000 p.a will apply, provided you meet the Work test.
Are you going to need to apply for a Centrelink benefit?
Some people will not have enough superannuation and other savings to support them for the rest of their lives and may need to apply for an Age Pension through Centrelink or the Department of Veterans’ Affairs.
It's important to note that Age Pension payments are not backdated. You should apply to Centrelink as early as possible and you can, in fact, apply up to three months before you are actually eligible.
How much money will you need?
Given the increase in life expectancy for men and women and our healthier lifestyles, you could expect to spend 20 years or more in retirement, depending on the age you stop working.
How much money you’ll need in retirement depends on the type of lifestyle you wish to lead. For some people, retirement means more time to spend on hobbies like reading and gardening and visiting family and friends. For others, it means a new car and regular overseas travel.
It is important to consider what your expenses will be in retirement so that you can develop a budget that meets your lifestyle needs. You will also need to consider the effect of inflation and the number of years that you will need to support yourself in retirement.
A qualified financial planner can help you answer these questions and take these factors into account when deciding how much you need in retirement.
How do you access your superannuation?
To access or withdraw your superannuation benefit you need to call AustralianSuper on 1300 300 273 (or your super fund where applicable) weekdays 8.30 am - 5.30 pm AEST.
In return AustralianSuper (or other fund where relevant) will send you:
- A quote of the benefit amount
- An application form to claim your benefit.
The application form needs to be completed and returned along with any documents requested.
To safeguard the security of your benefit, we will request certified copies of documents that prove your identity. To certify documents you will need to:
- Take the original documents and photocopies to a person listed below for him/her to certify that the copy is a true and correct copy of the original
- Ensure the certification includes the name, address, occupation, telephone number and registration number (if applicable) of the certifying authority.
Authorised Persons include the following:
- A Justice of the Peace or Bail Justice
- A Barrister or Solicitor of the Supreme Court
- A Police Officer
- A Councillor of a Municipality
- A Registered Medical Practitioner
- A Dentist
- A Veterinary Practitioner
- A Pharmacist
- A Bank Manager
- A Minister of religion
- A Teacher
- A Chartered or Certified Practicing Accountant
- A Commissioner of Oaths for the Northern Territory
- A permanent employee of Australia Post with five or more years of continuous service
- A finance company officer with five or more years of continuous service (with one or more finance companies)
- An officer with, or authorised representative of, a holder of an Australian Financial Service Licence (AFSL), having five or more years of continuous service with one or more licensees
- A Notary Public Officer
- A Registrar or Deputy Registrar of a court
- A person enrolled on the roll of a State or Territory Supreme Court or the High Court of Australia, as a legal practitioner
- An Australian Consular Officer or an Australian Diplomatic Officer.
How are you going to manage your income?
When you are ready to take your superannuation, you will have a few options:
- Take all or part as a one-off lump sum
- Take all or part as a regular income stream paid to you over a number of years through a pension or annuity
- A combination of the above.
Taking a lump sum
If you decide to take all or part of your benefit as a lump sum you may be subject to tax on that amount if you are under age 60.
The amount of tax levied will depend on the components of your benefit and your age.
60 and over
Once you reach age 60, you generally pay no tax on withdrawals from superannuation.
Under age 60
If you are under 60 years of age, lump sum withdrawals will be subject to income tax, plus Medicare levy. In order to calculate the tax payable, you will need to look at the tax components of your superannuation account.
There are only two components that would apply to your superannuation account: tax-free and taxable.
Tax-free component
This represents the portion of your superannuation that is not included in your assessable income and is therefore not subject to income tax. This tax-free component is the sum of:
- Your non-concessional contributions (these are your personal voluntary after-tax contributions)
- Any Government Co-contribution amounts;
- Your pre-July 1983 benefits calculated at 30 June 2007;
- Any capital gains tax (CGT) exempt component; and
- Certain amounts of disability benefits received before 1 July 2007 (post 1 June 1994 invalidity component).
Taxable component
Your taxable component represents the amount of your superannuation that will be subject to income tax if you are under age 60. It is the sum of:
- Your concessional contributions (all employer contributions, comprising Superannuation Guarantee (SG) payments and salary sacrifice contributions)
- All personal contributions where you have claimed a tax deduction
- Investment earnings.
The tax payable on the taxable component of your superannuation is as follows.
Under age 55
Taxed at 21.5%
Preservation age (between 55 and 59)
First $140,000 is tax-free; balance at 16.5%.
Age 60 and over
Tax-free
Taking an income stream
If you are under age 60 and take your superannuation as a pension or annuity, you can defer or minimise the tax you would otherwise pay if you took it as a lump sum at that time.
This may benefit you in several ways:
- Deferring tax means you have a bigger investment working for you
- Tax concessions apply to earnings on investments in certain pensions and annuities
- You may qualify for concessional treatment under the income test for Centrelink purposes.
If you are 60 or over, you pay no tax on pension payments received from a pension or annuity established with superannuation monies.
Do you need financial advice?
Tax rules can be complicated, so it may be a good idea to seek professional advice before making any decisions about your retirement income.
AustralianSuper members have access to no commission, fee-for-service financial advice through Industry Fund Financial Planning (IFFP).
They can help you determine whether you are likely to qualify for a pension, and can advise you of legitimate strategies to reduce your income and assets for assessment purposes.
To arrange a time for an initial discussion or for more information, you can contact an IFFP adviser on 1300 138 848 or go to www.iffp.com.au.
For more information on tax, visit the Tax Office website or call the Tax Office superannuation infoline on 13 10 20.
