Retirement Planners (Age 55-65) - What Should They Consider?

This is an appropriate time to plan for retirement. For many people, retirement age is 65. Below are some key financial planning points to discuss with your financial adviser when devising a suitable pre-retirement plan:

• Income and expenses – your peak earning power continues whilst your household expenses decrease (assuming that you have paid off the bulk of your home mortgage and education expenses). If you have not paid off your mortgage yet, consider making additional payments to clear this debt before retirement.

• Superannuation – if you have excess cashflow as your expenses decrease, you should consider topping up your superannuation balance. You could use pre-tax contribution strategies such as salary sacrifice and personal deductible contributions and / or after-tax non-concessional contributions. Remember there are limitations on how much you can contribute and the tax consequences differ depending on the type of contribution. Your financial adviser can advise you what is suitable.

• One-off contribution – apart from the usual pre-tax and post-tax contributions, you may also be eligible to make additional contributions if you are “downsizing” from a property you owned for at least 10 years and lived in. Currently, an eligible taxpayer aged 60 or above can contribute a one-off maximum of $300,000 ($600,000 per couple) into superannuation for selling their eligible home.

• Transition To Retirement – apart from contributions, it may be tax effective to commence a transition to retirement (TTR) pension using your superannuation balance. Briefly, a TTR pension allows you to supplement your income once you reach your “preservation age” whilst still working (preservation age depends on which year you were born). TTR can be tax effective, particularly for people aged 60 and over as the pension may be received tax-free.

• Insurance – there are many issues that you should seek clarity on (or refresh your memory) in your discussion with your adviser. For example:

  • Do you need to adjust your sum insured for income protection in anticipation that you may start working less hours pre-retirement?

  • Similarly, should you reduce your sum insured for life and total and permanent disability (TPD) insurance since you have paid off all your debt?

  A review of whether you should maintain your current level of cover is particularly important because insurance premiums can be very expensive for this age bracket.

GENERAL ADVICE WARNING: The above is general advice only and does not take into account your personal circumstances or objectives. You should seek your own independent financial and tax advice to ascertain whether and how the above applies to your particular situation and whether it is likely to meet your objectives, prior to making any financial and investment decisions.