It’s important that you plan for the life you want to live in retirement, and take steps to make sure it becomes a reality.

Life expectancy for the average Australian today is almost 20 years longer than it was at the beginning of the 1900s. Because we live longer and retire earlier, many Australians now spend more than a quarter of their lives in retirement. It’s good news, but it also shows how critical it is to plan for your retirement so it’s a secure, rich and rewarding experience.

It’s never too soon to start planning, and the sooner you start, the easier it is.

Your options

You have several options when you stop working.

• You can keep your money in super. Until recently most people had to take their money out of super at age 65. If you were aged between 65 and 74 you could keep your money in super provided you met a work test and gave details of hours worked each year to your super fund. However, now you can choose how and when to draw down benefits in retirement. You can keep your money in super for as long as you want.
• You can use your super money to buy an income stream, such as an allocated pension or an annuity, that will provide you with income during your retirement.
• You can take your super as a lump sum payment.
• You can take your super as a combination of a lump sum and an income stream.

It’s important that you research your options and seek financial advice before you decide what to do with your super. Your super might be treated differently from a taxation perspective depending on how you choose to receive it. From 1 July 2007, if you are 60 or older when you receive a benefit it will be tax free. This applies to both lump sum and pension payments from a taxed super fund.

Your questions answered

How much do I need to retire?

How do I fund my retirement?

When can I access my super?

How do I make the most of my super?

When should I start planning for my retirement?

Who can help me plan for my retirement?

What are my income stream options?

What is estate planning?

What happens to my superannuation when I die?

How much do I need to retire?

The Investment and Financial Services Association (IFSA) estimates that most people need approximately 65% of their pre-retirement income to maintain their current lifestyle in retirement. In other words, if you earn $60,000 a year while you’re working, it’s estimated that you would need approximately $39,000 a year to maintain your current lifestyle in retirement.

So how much does this mean you need to save for your retirement? This calculator helps you work out your estimated superannuation savings target (in today’s dollars) to support a given level of income in retirement, and shows whether your current superannuation balance and contributions are on track to meet your personal target.

Click here to access My super simulator.

How do I fund my retirement?

Two popular ways of funding your retirement are through super, or other investments such as managed funds, direct property, shares and cash.

Superannuation

Super is one of the most tax-effective ways to save for your retirement. You have the potential to generate greater retirement income than would be possible with most non-super investments because you’re paying less tax on your super earnings, therefore you’re able to invest more.

However, in return for these tax concessions, the government doesn’t allow you to access your super until you have reached your 'preservation age'. Refer to the table below.

Non-superannuation investments

An alternative approach is to fund your retirement by putting money into non-super investments. These can be ‘direct’ investments, such as cash, property and shares, or ‘indirect’ investments, such as managed funds.

Normal tax rules apply to these investments – no special tax concessions specific to retirement savings are available. Unlike super, though, there is no restriction on the age you have to be to access your money from these types of investments. Also, you may benefit from a broader range of investment options than superannuation can provide, and you can also magnify your returns through gearing (borrowing money to invest). However, remember that gearing magnifies both positive and negative returns, and increases the risk of your investment. For more information about gearing, contact a financial planner.

When can I access my super?

Super is an investment that’s intended to support you in retirement, so there are restrictions on when you can access it. Generally, you can take your super once you’ve turned 65, or reached your ‘preservation age’ and retired from the workforce.

Your ‘preservation age’ is the minimum age at which you can access your superannuation after you’ve retired. Your preservation age depends on when you were born, as shown in the table below.

You may be able to access your benefit prior to reaching your preservation age in special circumstances, such as if you suffer from financial hardship or become permanently incapacitated. The Australian Prudential Regulation Authority (APRA) can approve the release of your super on compassionate grounds. For more information about early release of superannuation benefits, contact your financial planner.

How do I make the most of my super?

The amount of super you’ve accumulated by the time you retire will set the tone for the remainder of your retirement. So, understanding how you can maximise your superannuation benefit is crucial. For more information check out the super strategies on this site.

When should I start planning for my retirement?

It’s better to start planning sooner rather than later, but if you’re close to retirement this is especially important.

Who can help me plan for my retirement?

If you’re at the beginning of the planning process, it’s important for you to find a financial planner you can trust. A good financial planner can provide advice and offer guidance on retirement planning issues. The financial aspect of retirement planning covers a number of complex areas, such as investment strategies, taxation and social security, and it’s valuable to have someone guide you through these issues.

What are my income stream options?

An income stream can be a pension or an annuity. A pension can only be purchased with superannuation money. An annuity can be purchased with either superannuation and non-superannuation money.

There are four main types of pensions and annuities.

Allocated pension

An allocated pension enables you to draw a regular income from your superannuation after you’ve retired. Allocated pensions are market-linked, and how long the pension lasts may vary depending on investment returns and the size of your regular income payments. There are no guarantees that your allocated pension will last for your entire lifetime.

The income you get from an allocated pension is called a pension payment. It's taxed favourably, and you can access your capital any time if you need to. When you die, the balance of your allocated pension account is paid to your estate and/or your dependants, according to the rules of the particular product.

Term allocated pension (also known as a market-linked pension)

A term allocated pension pays you a regular income over a fixed term. It's calculated according to your life expectancy using payment factors specified by the government.

Your income from a term pension is called a pension payment and is taxed favourably. The annual level of income is calculated based on the plan balance, the remaining term and the payment factors.

A term pension meets the eligibility requirements for a ‘complying income stream’. This means it meets the criteria for the pension Reasonable Benefit Limit (note that limits of benefits will no longer apply from 1 July 2007) and social security asset test 50% exemption (the 50% asset test exemption will not apply to new pensions or annuities purchased from 20 September 2007). Generally, you can't make lump sum withdrawals from a complying pension.

Lifetime pension or annuity

A lifetime pension or annuity is a guaranteed income stream payable for the rest of your life. In some cases, it may also be payable to your spouse if you die.

Income from a lifetime income stream is guaranteed, and can be increased each year in line with the Consumer Price Index, or by a fixed nominated rate up to 5% per year. This type of income stream can be structured as complying to meet the criteria for 50% assets test exemption for social security purposes (the 50% assets test exemption will not apply to new pensions or annuities purchased from 20 September 2007), or to qualify for the higher pension Reasonable Benefit Limit (note that limits of benefits will no longer apply from 1 July 2007). Generally, you can’t make lump sum withdrawals from a complying income stream.

Life expectancy or fixed term pension or annuity

This is a guaranteed income stream payable for a fixed term that you choose, which can be based on your life expectancy.

Income from a life expectancy or fixed term income stream is guaranteed, and can generally be increased each year in line with the Consumer Price Index, or by a fixed nominated rate up to 5% per annum.

This type of income stream can also be structured as complying to meet the criteria for 50% assets test exemption for social security purposes (the 50% assets test exemption will not apply to new pensions or annuities purchased from 20 September 2007), or to qualify for the higher pension Reasonable Benefit Limit (note that limits of benefits will no longer apply from 1 July 2007). Generally, you can’t make lump sum withdrawals from a complying income stream.

The rules about different income streams are complex, and you should consult a financial planner before you invest in an income stream.

What is estate planning?

Your family’s well-being and financial security after you’ve passed away can depend on how well you plan for it today. Good estate planning is a critical part of any retirement plan and gives you some control over what will happen to your assets when you die.

Estate planning is about more than just making a will – it gives you the power to decide how your assets will be managed and distributed when you die, or if you become mentally incapacitated. It also enables you to choose who will make decisions on your behalf if you’re unable to.

Why estate planning is important

• It gives you peace of mind, knowing your loved ones will be well looked after if anything happens to you.
• It can greatly improve your family’s well-being, both financially and emotionally, after you’ve passed away.
• It protects your assets from disputes between family members or from legal proceedings involving your family, such as bankruptcy or divorce.
• It can help ensure your assets are distributed in the most tax-effective way.

When should I start?

Start now – you never know when you might need a plan for your estate. You should see a financial planner, or an estate planning specialist, and make sure all the components of a good plan are in place.

What estate planning issues should I consider?

A financial planner or an estate planning specialist can help you review your current situation and think about important issues like:

• whether your will is up-to-date and provides for your family's immediate cash needs
• any tax issues that could impact your estate
• whether your will could be challenged
• whether your family could face any family court or bankruptcy issues
• the timing of your bequests
• other special family circumstances.

What happens to my superannuation when I die?

With some funds you can make a binding nomination that ensures your benefit is paid to one or more of your dependants of your estate in accordance with your wishes. Other funds may allow you to make a non-binding nomination, but may require the trustee to exercise his or her discretion to determine who your benefits should be paid to. In some cases, the fund may be required to pay your benefit directly to your estate.