News

Making super go the distance

Retirement

21/09/2015

If you’ve got a mortgage, you’ll be enjoying Australia’s current low interest rate climate. But if you’re investing outside bricks and mortar, your investment returns may feel the pinch of lower medium to long term rates.

Those looking to retire may be wondering if their super will go the distance. Here are some insights on navigating a lower rate environment.

Investing well

Interest rates have been falling, but life expectancy is rising. Figures released by the Australian Bureau of Statistics in February this year saw male life expectancy pass 80 years for the first time.

Consulting firm Towers Watson found that taking into account socio-economic status and longevity improvement, life expectancy for a current 65 year old could increase to close to 87 years for males and 90 years for females.1

Longer life potential means even at retirement, an investment may need to last 20 or 30 years. Given growth assets such as shares and property have historically outperformed conservative assets over longer periods, people need to consider adequate exposure to growth assets.

Otherwise trying too hard to avoid risk today could expose them to a greater risk – running out of super tomorrow. Towers Watson found retirees will generally benefit by maintaining a meaningful exposure to growth investments in their drawdown period.1

Delaying retirement

Some people might consider delaying retirement or adding part-time work to their retirement plan.

Each additional year working boosts contributions and potential for investment earnings and means one less year of drawing on super.

Productivity Commission research found if access to super was delayed until age 65, those that delay their retirement are likely to do so by around two years. This could see them enjoy super balances around 10 per cent larger in real terms when they retire.2

Increasing contributions

Super’s tax advantages make it an attractive way for individuals to save extra for retirement, particularly if they are on one of the top couple of income tax tiers.

Contributions to super are taxed at just 15 per cent and super investment earnings are taxed at a maximum of 15 per cent. This is considerably lower than many people’s marginal tax rates.

Workers may also consider setting up an arrangement with their employer so they can salary sacrifice into super to help grow their super and save tax.

A clever transition

If you’re at least 55 and still working, you might consider setting up an account based pension with some of your VISSF super and start what is called a Transition to Retirement strategy.

People using this strategy can continue to work and salary sacrifice greater amounts into their super account – while topping up their salary by drawing from their pension. Due to the tax advantages, this has potential to make a super nest egg last longer.

Super as an income stream

Most retirees use some form of an account based pension2, giving them freedom to choose their investment options and, subject to minimum requirements, to vary the amount they draw from their pension each year.

An account based pension also offers tax advantages, with investment earnings from the pension tax free, payments to members aged 60 plus tax free and there are usually tax concessions on payments for members under 60.

VISSF members have access to an account based pension that has produced consistent long term returns, delivering a reliable income to retiree members. To find out more call our Client Services Team on 1300 660 027 or explore our website.

Spending carefully

Towers Watson state that an individual’s spending strategy is one of the biggest factors determining whether or not they will achieve financial success in retirement3. It is important people have realistic lifestyle expectations, in line with their life expectancies and financial resources.


1 Investing and spending in retirement, http://www.towerswatson.com/en/Insights/IC-Types/Survey-Research-Results/2015/03/Beyond-thehorizon-Delivering-better-retirement-outcomesOpens in new window

2 http://www.pc.gov.au/research/completed/superannuation-postretirementOpens in new window

3 http://www.towerswatson.com/en-AU/Press/2014/11/Spendingstrategy-crucial-to-financial-success-in-retirementOpens in new window

Find & combine

Consolidating your super into one account makes your money work harder because you save on paying multiple sets of fees.

Learn more