Steps to Strengthen Superannuation for a More Secure Retirement

Superannuation is supposed to deliver peace of mind, but research shows that many Australians still worry about supporting themselves in retirement.

AMP’s recent Retirement Confidence Pulse survey found that more than 1 in 3 Australians aged 65 or over feel financially insecure, worried their savings won’t last.

Among pre-retirees, financial anxiety is even more prevalent, says HLB Mann Judd wealth management partner Jonathan Philpot.

“Of the clients I see who are approaching retirement age, the clear majority are worried they’re going to run out of money,” he says.

The good news is that there are steps you can take in your later working years to help you greet retirement with greater clarity and confidence.

“The sooner you start thinking about these things, the better,” Philpot says. “But it’s never too late.”

When can I access my superannuation?

You can access your super when you turn 60 (known as the preservation age) and retire, or automatically when you turn 65.

Under the government’s transition to retirement rules, you may also be able to access regular super payouts if you reach the preservation age and decide to keep working but reduce your hours.

How much money should I accumulate in super?

“There’s no one-size-fits-all answer to this question, but there are figures you can use as a guide,” says William Buck wealth advisory partner Scott Montefiore.

“To maintain a two-person household, accounting for everything from groceries to private health insurance, you’ll typically need between $50,000 and $70,000 per year between you. That’s assuming your mortgage is paid off.”

If you plan to retire at 65, multiplying the annual figure for your household by 20 will give you a good idea of how much money to amass in super, Montefiore says.

“That’s because you need to withdraw at least 5 per cent of your super each year from age 65 to 74, and greater percentages after that,” he explains.

If you’re still in good health in your 80s, you can divert some of your super to a savings account as you receive it, or rely on other investments or the Age Pension to support yourself beyond 85.

What should my asset allocation be in the lead-up to retirement?

Your superannuation balance can be invested in one or more asset types, such as cash, property and shares.

Each asset type carries a degree of risk: investing your super in shares, for example, is riskier than keeping it in cash, but could grow your balance significantly if the stock market does well.

“As a general rule, your super should be in the most aggressive investment option at the start of your career, and you should slowly wind it back as you approach retirement,” Philpot says.

Allocating your super to higher-risk, higher-reward assets early in your working life allows you to ride out any market fluctuations and reap the benefits of long-term growth, while moving into safer assets near retirement provides certainty, Philpot says.

When you retire and submit a request to access your super, your accumulated savings are converted into a regular, tax-free income stream (often referred to as a pension).

Your balance remains invested in the assets of your choice and can grow during the retirement phase. Even better, you pay no tax on investment earnings, whereas you pay 15 per cent tax during the accumulation phase.

If your super is invested across multiple asset classes, you can choose which portion to withdraw from first, Montefiore says.

“Quite often, people will have at least a couple of years’ worth of super invested in cash when they first retire, so they can draw on a safe asset class and have more scope to withdraw from riskier asset types when they’re at highs,” he says.

How else can older workers prepare for retirement?

Montefiore says paying down debt – particularly your mortgage – before you retire is the best way to minimise uncertainty and anxiety about your finances in your retirement years.

He also encourages comfortably-off Australians to maximise their super balance through concessional and non-concessional contributions.

“Super is a very efficient tax structure,” he says. “You’re only taxed 15 per cent on investment earnings while you’re working, so it’s the most favourable investment environment you can choose.”

Finally, he recommends older workers stay engaged.

“The five-to-10 years before retirement can make a huge difference to the health of your super, and the best way to achieve results is to keep it front of mind.”

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