Retirement financial insecurity is affecting more than one in three Australians aged 65 and over, with many fearing their savings will not last, according to an AMP survey.
The concern is even more widespread among people approaching retirement, says Jonathan Philpot, a wealth management partner at HLB Mann Judd. “Of the clients I see who are approaching retirement age, the clear majority are worried they’re going to run out of money,” he said.
Philpot said planning should begin as early as possible, although he added: “It’s never too late.”
When can Australians access their superannuation?
People can generally access their superannuation when they turn 60 and retire, or automatically when they reach 65.
Under transition-to-retirement rules, those who have reached the relevant age may also be able to receive regular super payments while continuing to work, provided they reduce their hours.
There is no single figure that guarantees a comfortable retirement, but Scott Montefiore, a wealth advisory partner at William Buck, said a two-person household would typically need between $50,000 and $70,000 a year if its mortgage had been paid off.
For someone retiring at 65, multiplying that annual household income by 20 can provide a broad guide to the amount needed in superannuation. Montefiore said this reflected the requirement to withdraw at least 5 per cent of super each year between the ages of 65 and 74, with higher withdrawal rates applying later.
Those who remain in good health into their 80s may be able to direct some of their super income into savings, or rely on other investments or the Age Pension after the age of 85.
Managing super investments before retirement
Superannuation can be invested across assets including cash, property and shares. Shares carry greater risk than cash but may produce stronger growth when markets perform well.
Philpot said a common approach was to use more aggressive investments early in a person’s working life, then gradually move towards lower-risk assets as retirement approached.
Taking greater investment risk while there is a long period before retirement can allow savers to withstand market fluctuations and benefit from long-term growth. Moving towards safer assets later can provide greater certainty about the money available.
Once a person retires and applies to access their super, the accumulated balance can be converted into a regular, tax-free income stream. The money remains invested and can continue to grow, while investment earnings are not taxed during the retirement phase, compared with the 15 per cent tax applied during accumulation.
Montefiore said retirees with several asset classes could choose which investments to draw from first. Some people keep around two years of retirement income in cash so they can rely on a safer asset while waiting for riskier investments to recover or reach stronger values.
Paying down debt, particularly a mortgage, was another important step for older workers, Montefiore said. Those who could afford it might also consider increasing their super through concessional and non-concessional contributions.
He said super remained a tax-efficient structure, with investment earnings taxed at 15 per cent while a person was working.
Montefiore urged people in the five to 10 years before retirement to remain closely engaged with their super, saying that period could have a significant effect on its eventual value. Any financial decision should take account of individual circumstances and be considered with professional advice.
