Are you 60 and still working, and not sure where to start on a retirement plan? How much money do you need? How much will you have? Here are 4 important things to consider to get you started.
There is a common misconception out there that when you turn 65 you are automatically entitled to the Age Pension. You might think “I have paid taxes all my life, worked hard, so why can’t I get an Age Pension?” The reality is that your entitlement to an Age Pension is based not only on your age, but also on what income and assets you have when you retire. If you receive income or have assets valued over the current Centrelink limits (don’t forget your spouse’s income and assets are also taken into account), you will be ineligible to receive an Age Pension and the government will make you fund your own retirement. It is as simple as that.
You may be thinking about gifting money or property to your children as you approach retirement. This is great for your children, but beware—these assets might still be counted as yours for the purpose of calculating your entitlement to a Centrelink Age Pension. When applying for an Age Pension, you will be asked if in the last 5 years you have sold any assets for less than their market value or given away any assets (including cash, property, etc). If you have, the government could deem you to still have that asset, even though you have transferred it over to your children’s name. The key factor here is what you do years before applying for the Age Pension can affect your eligibility, and even the simple act of giving something away should be given some thought.
Are you looking at selling your business or maybe your farm land to fund your retirement? Have you considered what you are going to do with proceeds and how long the money will last? Will there be Capital Gains Tax implications? There are various tax saving options available for people who are in business and looking at retirement. For example, there are options that allow you to put some money from the sale of your business or land into your superannuation fund if you are nearing retirement age, which can reduce the amount of tax that you have to pay.
Alternatively, if you are a salary or wage earner, consider salary sacrificing into your superannuation fund—if you do this as you approach retirement, you can realise significant tax benefits.
Have you considered whether self-managed super funds (SMSFs) or industry funds are best to manage your retirement money? Self-managed funds offer a number of benefits because they give you control over where your money is invested. However, as a trustee of a SMSF, you are responsible for ensuring that your fund meets the many tax and legal requirements. Alternatively, many people feel comfortable leaving their retirement money in a retail superannuation fund. Everyone’s needs are different, and it’s always a good idea to chat to a qualified SMSF adviser before making the switch to an SMSF or before making investment decisions within your SMSF. This is especially important given that there are currently a number of illegal schemes aimed at Australians with SMSFs that are nearing retirement age. As the ATO says: if it sounds too good to be true, it probably is!
There’s no denying that retirement planning is complicated—the sooner you sit down and make a plan, the better off you will be.