Wealth ManagementSuperannuation and SMSF

Making the most of your superannuation: tips for pre-retirees

Matthew Swieconek
15 March 2023
7 min read

For many people, retirement has a habit of sneaking up on us and catching us unawares. If your retirement years are closer than you’d like to admit, this is a shout out to you!

Retirement planning has many facets, but one key aspect is superannuation and finding a way to get the most out of it in preparation for your golden years. In this article, we’ll cover some valuable superannuation tips that you can employ right now – while you’re still earning regular income – so you can start to secure your financial future.

Why superannuation matters before retirement

Pre-retirement is a big deal. It’s the period of time in which you make the switch from years of hard work to having the freedom to enjoy your lifestyle in full. When it comes to planning how your life could look during retirement, superannuation could make the difference between living your life free of compromise or living more cautiously.

Here are a few ways in which superannuation could benefit you.

1. Tax efficiency

Superannuation offers pre-retirees the chance to save more for their retirement in less time, thanks to its attractive tax benefits. Contributions and investment earnings are taxed at a maximum rate of 15%, significantly lower than most marginal income tax rates - allowing individuals to benefit from favourable taxation on their super fund savings without sacrificing potential returns.

2. Flexibility

Superannuation provides pre-retirees with a flexible and low-cost way to manage their retirement savings. It offers an array of investment options attuned to different risk profiles, as well as the choice between lump sum payments, Account Based Pensions payments or annuities for accessing these funds when you reach preservation age.

3. Low cost

Most superannuation funds are a savvy investment option due to their low-cost fees and charges. This is because they're managed on an extensive scale, creating economies of scale that help keep the costs associated with managing your investments down.

One of the benefits of working with a financial advisor, is that they are able to offer superannuation and investment advice so you don’t have to go it alone - which is great news if you’re struggling to find the time to learn everything you need to know.

How much super should I have?

One of the most common questions financial advisors get asked is 'how much super should I have?'. And it's not as straightforward as you'd hope. However, as a general guideline, experts suggest aiming for a super balance that can provide approximately 70-80% of your pre-retirement income to maintain a similar standard of living after retirement. By your 50s, it's recommended to have a substantial superannuation balance accumulated through regular contributions, investment growth, and potential employer contributions.

Here is a general breakdown of recommended superannuation balances by age range, based on guidelines from the Association of Superannuation Funds of Australia (ASFA) for a comfortable retirement lifestyle:

  • Age 40-49: In your 40s, target a super balance ranging from approximately $151,000 to $265,000 to stay on track for retirement.

  • Age 50-59: By your 50s, aim for a more substantial super balance of around $297,000 to $466,000 to prepare for retirement and cover future expenses.

  • Age 60-69: As you approach retirement age, target a super balance ranging from approximately $430,000 to $640,000 to support a comfortable retirement lifestyle.

These figures serve as general guidelines and can vary based on individual circumstances. It's important to regularly review and adjust your superannuation strategy to ensure you're on track to achieve your retirement objectives. Consulting with a financial advisor specialising in retirement planning can provide personalised guidance and support.

Superannuation tips for when you're nearing retirement

Superannuation tips

For pre-retirees, superannuation is a powerful tool for building up financial security. But with all the options available, it can be difficult to know which wealth management strategies are most suited to your situation and goals. To make informed decisions about your future, here are some essential superannuation tips to maximise the potential of your super fund:

  • Check the rules for accessing your super. Once you reach your 50s, it's time to think about just how much of your super fund you'll be able to keep in retirement. Reaching this milestone may bring important conditions for accessing your fund, therefore, with so many different rules at play, make sure you're informed on when, where and how to access your money.

  • Understand the different superannuation plans. For example, accumulation funds is where you and your employer contribute funds over time, which are then invested into various strategies, generating returns that can gradually increase the total payout in distributions once it's time to retire. On the other hand, defined benefit funds use predetermined criteria such as years spent employed and salary history to calculate monthly income distributions upon retirement.

  • Set a goal for your retirement savings. Setting goals is a crucial part of achieving your financial objectives. To get an idea of what kind of retirement lifestyle could be yours one day, think about key questions such as: How long might I live? What will my big costs in retirement look like? According to the ASFA, current guidelines suggest $68,014 per year is needed for couples aged between 65-84 seeking a comfortable standard of living post-retirement [1]. However, with thoughtful goal setting and smart planning, this amount can vary.

  • Consolidate your funds. Pre-retirees can take charge of their retirement savings and maximise returns by consolidating multiple superannuation funds into a single account. This will not only reduce fees, but also make managing investments easier. Simplification is key in getting the most out of your superannuation.

  • Consider your investment options. Superannuation funds offer a range of investment options tailored to different risk profiles and financial objectives, from growth-oriented investments that aim at generating long-term returns to balanced portfolios that offer steady performance over time.

  • Review fees and charges. Before reaching retirement age, it's important to take the time to research and evaluate all fees associated with your super fund. From administration charges and investment costs to insurance premiums, researching low-cost options could help you build up those crucial retirement funds faster.

  • Take advantage of government incentives. The Australian Government offers a range of incentives including the co-contribution scheme and low-income superannuation offset, which could provide an opportunity to make the most of retirement savings and reduce tax liabilities.

Superannuation not only provides tax advantages and value for money, but also an array of options that you can tailor to feed into your retirement plan. Remember to consolidate funds where possible, assess investment opportunities carefully, stay on top of fees and charges, and take advantage of government incentives where applicable. By following these superannuation tips and by seeking ongoing financial advice, you can create a strategy that maximises your benefits.

Retirement planning with Findex

Super tips and advice with Findex

Findex’s experienced wealth management team are here to help get you closer to your retirement goals and can provide superannuation advice designed specifically with retirement objectives in mind.

Work closely with a professional financial advisor to help build a secure financial future for your family and to help ensure any legacy you leave behind is protected when it transfers to the next generation.

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[1] ASFA, Retirement Standard, September 2022

Author: Matthew Swieconek | Head of Investment Relations