age of 60 – see Chapter 19), you can access tax-free superannuation benefits from your DIY super fund. If you choose to retire before the age of 60, you may pay some tax on your super benefits. If you’re aged 65 or over, you don’t even have to retire to access your tax-free super benefits.
The Retirement Super Star in Figure 1-1, essentially a summary of Part V of this book, is a great starting point for kicking off your SMSF retirement plans. You also find the answers to the second, and third, most popular questions in retirement planning:
✔ What if I don’t have enough super to last for my expected lifetime (see Chapters 19, 20, 21 and 22)?
✔ What happens to my super savings, and my super fund, after I die (see Chapter 24)?
I know what’s on your mind: If these are the second, and third, most popular questions, what then is the number one question asked by Australians when planning for one’s retirement?
That’s easy. The most popular question asked by prospective retirees is: ‘How much money is enough?’ I consider the answer at length in Chapter 3, and cover the topic in even more detail on my website, SuperGuide (www.superguide.com.au).
Figure 1-1: Your retirement super star.
Chapter 2
Understanding How Super Works
In This Chapter
▶ Taking four super facts seriously
▶ Knowing what makes a super fund tick
▶ Considering all of your super options
▶ Sizing up your current super fund, and your super entitlements
▶ Figuring out the fees your super fund charges
▶ Deciding whether to change super funds
U nless you own a goose that lays golden eggs, you need to create your own nest egg for your retirement. Like most Australians, you probably hope you’re going to have a good-sized egg, because you want your later years to be free from financial worries.
Your challenge, as a future retiree, is to create the most comfortable retirement that you can afford. The dilemma, however, when thinking about saving for retirement is whether to rely on the Age Pension, or to accumulate superannuation or private savings, or a combination of all of them. For the record, the Age Pension is around $427 a week – paid fortnightly – for a single person, or $644 a week as a couple (as at September 2014, applicable until March 2015, and increased in March and September each year).
In this chapter, I give you four reasons why your only true option is to take superannuation seriously, and explain why living solely on the Age Pension is no longer a lifestyle option. I take you through the key decisions that help you grow your super balance and list the important information you need to know about your super benefits. By reading this chapter, you find out what super fund options are available (including a self-managed super fund), and whether you’re in a position to change super funds. I also supply you with lots of interesting statistics that you can quote at dinner parties or use when pontificating at the pub.
Australia’s standard of living is one of the highest in the world, with one of the world’s most advanced health systems, using the latest, expensive technology. Because older people use the healthcare system more than any other age group, and the increasing number of older Australians is putting pressure on Age Pension expenditure, the decision makers in Canberra have peered into the country’s cookie jar and realised that the Anzac biscuits are running out. Fewer people are ‘making the biscuits’ as the numbers of workers entering retirement increases. The federal government is likely to ration the bikkies or break them up to ensure everyone gets their fair share. But workers have grown up expecting that they’re going to get a full serve.
What’s the solution? BYO – bake your own! Superannuation is Australia’s preferred recipe when it comes to ensuring that both you and I, and everyone else, save for retirement.
Facing Four Facts about Your Super Future
The world has changed dramatically since the Australian government first introduced the Age Pension in 1909. In those days, a man’s life expectancy was a mere 55 years, and women were expected to live to the age of 59. The expense of supporting the country’s small number of older citizens was very do-able. Australia had 16 workers for every retired person, which spread the load very nicely. The government budgeted for a small financial commitment because the numbers of retirement-age and older persons were small and, at that time, few Australians lived beyond a pensionable age.
Aussies are now living longer and the percentage of Australians working is shrinking. Today, around half of federal government spending is directed towards social security payments, health and aged care – with spending on health and aged care expected to escalate during the next 40 or so years.
Government funds are limited and the financial demands of an ageing population is only going to increase. So you shouldn’t expect the government to let you join the Age Pension retirement party when you finish your working life without passing a few wealth tests.
Living longer – ageing in comfort
Have you heard the Beatles song, ‘When I’m 64 …’? The song from the 1960s is about a man asking a woman whether she’ll still love him when he’s old and crooked at the grand old age of 64. Nowadays, you need to add another 10 or 15 years to the scenario to make it realistic. Today, a healthy man in his sixties can expect his life to still pack a bit of a punch, just as former widower Paul McCartney has proven by remarrying (and divorcing) and remarrying in his sixties. Imagine …
Australia is certainly the lucky country when it comes to life expectancies, and has one of the highest life expectancy rates in the world. Life expectancy means how many years you’re expected to live. Statisticians can measure life expectancy at birth or during a person’s life.
If you’re a woman and retire today at the age of 65, you can expect to live, on average, until you’re 87 (another 22 years). If you’re a man and retire today at the age of 65, you can expect to live on average until you’re 83.5 years (18.5 more years).
Life expectancy figures show that you may experience retirement for nearly as long as you were working, particularly if you stop work well before the age of 65. Are you ready to age in comfort? Have you planned for your long life in retirement? I explain your average life expectancy in more detail in
