Making the Transition to Retirement
Judy is 55 years old and is currently working full time with no plans to change her employment arrangements. She wants to retire at 65. She has an annual salary of $50,000 and $300,000 in super. Assuming her 9.25% employer super contributions continue until she reaches 65, she’ll have around $493,930 in super by the time she retires, which will give her a minimum income of $24,700 pa in retirement.
After speaking to her financial adviser, Judy decides to implement a strategy that could significantly boost her retirement savings while having little impact on her day-to-day budget. She uses her $300,000 super balance to start a pre-retirement pension, drawing down the minimum payment allowed which is $12,000 a year. This gives Judy more income than she needs, so she arranges with her employer to make additional contributions to her super from her pre-tax salary under a salary sacrifice arrangement. Her adviser works out exactly how much she needs to contribute to super through salary sacrifice so that her after-tax income is unchanged.
Even though Judy is still receiving the same amount of after-tax income as before, by implementing this transition to retirement strategy, she is able to increase her super balance rather than reducing it, helping her build valuable additional retirement savings.
By using this strategy, Judy could end up with approximately $45,000 extra in her super fund by the time she turns 65. These extra funds could increase her minimum retirement income to around $26,940 pa.
Source: Colonial First State. Assumptions: Earning 7.7% pa after fees and before taxes with inflation at 3%.Using 2012–13 income tax rates. Pension is paid as an allocated pension. Superannuation guarantee contributions are 9% of gross salary before any salary sacrifice. All superannuation contributions and pension payments are made regularly throughout the year. A change to any of the assumptions and variables can provide significantly different results. This case study is for illustrative purposes only. Your clients’ circumstances have not been taken into account.
These case studies are for illustrative purposes only. They are not to be taken as personal advice and are intended to provide general information only. They do not take into account your individual needs, objectives or personal circumstances.
Information in this web page is based on regulatory requirements and laws, which may be subject to change. This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.
Sound advice is the key to success
As you can see from these case studies, the right type of investment and an effective financial strategy could make all the difference to achieving the lifestyle you want in retirement. Roe’s Financial Services Pty Ltd offers knowledge, expertise and experience. We’ll take the time to understand your individual circumstances and retirement goals, then recommend appropriate strategies to help you achieve those goals.