We frequently have individuals contact our office with a range of questions regarding their finances. Most have very similar questions and simply want to know they’re on the right track. Over the next few weeks we’ll present some of the common questions posed to us with some answers you may wish to consider.
I’m turning 58 in July and want to retire at 65. I earn a salary of $70,000 pa, want to increase my retirement savings and want to know what options I should consider.
In particular, is it worthwhile making salary sacrifice contributions or have I left my run too late?
It’s absolutely not too late to start saving more for your retirement. What’s more, if you have some surplus cash to put aside, super is generally the most tax-effective option. This is because of the low tax rate payable on investment earnings in super and you can receive tax-free benefits at age 60 or over.
As an employee, there are generally two ways you can top-up your super. You could arrange with your employer to have some of your pre-tax salary paid into your super fund, via salary sacrifice. Or you could make personal contributions from your after-tax pay or savings.
Given your income level, salary sacrifice would generally be more tax-effective than making personal contributions. This is because the contributions would be taxed at up to 15%, not your marginal rate which would be 34.5% in 2015/16. So putting some of your pre-tax salary directly into super could reduce your income tax bill by 19.5% and enable you to benefit from super’s ongoing tax concessions.
We can help you decide if this is the best course of action for you. We can also discuss starting what is called a ‘Transition to Retirement’ (TTR) strategy. This is where you arrange to make salary sacrifice contributions, invest some of your existing super in a TTR pension and draw enough income to maintain your living standard.
The beauty of this strategy is that tax concessions are available when you contribute to super, while the money is invested in the pension and when you draw pension income payments. As a result, it can help you to build your retirement savings without compromising your current living standard.
There are, however, a range of issues that need to be considered before you start a TTR strategy or any other strategy aimed at growing your retirement nest egg. Please give our office a call as soon as possible so we can discuss how you may be able to maximise your opportunities.