If you’re heading joyfully into retirement, you will want to make the most of those super savings you have squirreled away during your working life. Remember, you are entitled to this money and deserve to receive your maximum benefit. Here are some of the money mistakes Australians make as they start planning for life after full-time work, and how to avoid them.
Planning your retirement finances can get tricky so it is always sensible to talk to a financial adviser to fully understand your options and opportunities. Doing it alone without a financial adviser is full of danger.
1. Leaving money in super when you retire
Many people leave their super where it is once they reach age 60 and retire. Unfortunately, this could leave them paying more tax than they otherwise might. The more super you lose to tax, the less you will have to finance your retirement.
By leaving their super where it is, many Australians could be inadvertently sacrificing a better retirement lifestyle.
2. Not applying for the Age Pension as soon as you are eligible
The government Age Pension is designed to help older Australians fund their retirement by supplementing (or in some cases replacing) the money they receive from their super account. Despite that, some people may see it as a last resort – something they should only use if they need extra income on top of their savings. This means they may not have the quality of life they would like in retirement.
Applying to receive the Age Pension as soon as you are eligible may put you in a stronger financial position. To be eligible you need to have reached Age Pension age and pass the income and assets tests.
3. Not making the most of your entitlements
The size of your Age Pension benefits is affected by your broader financial circumstances – specifically, Centrelink’s assessment of your income and assets.
If you are receiving the Age Pension but have not looked at how your other financial arrangements might affect it, you could be leaving money on the table and spending more of your hard-earned super than is necessary.
Many Australians can get more out of their Age Pension benefits by making a few simple changes to their finances. For example, if your partner has not reached Age Pension age yet, any money in their name in the accumulation phase of super is exempt under both the income and assets tests. Simply contributing to your partner’s super account can result in big increases in your Age Pension benefits.
You will need a good understanding of the income and asset tests, so it is a clever idea to speak to a financial adviser before making any changes you are unsure about.
4. Assuming you need to stop work completely to qualify for the Age Pension
While the Age Pension was designed to support Australians in their retirement, you do not have to be fully retired to receive it. Despite this, many people wrongly believe they are ineligible because of their employment status. This means they may be missing payments they are entitled to, potentially leaving them worse off financially.
If you are approaching Age Pension age and still working, it is worth considering applying.
You may be working full time, reducing your working hours, or continuing part-time or casual employment. Depending on how much you earn and your other financial circumstances, you may be eligible to receive a full or part Age Pension.
5. Not applying for the Commonwealth Seniors Health Card if you are eligible
If you are a youthful retiree, qualifying for a Commonwealth Seniors Health Card (CSHC) might seem like a depressing milestone. But even if ‘senior’ is the last thing you feel like, not having a CSHC means missing discounted prescription medicines and other handy benefits.
You may be eligible to receive a CSHC even if you do not qualify for the Age Pension or for a Pensioner Concession Card.
6. Not topping up your super if you downsize your home
If you have finally booted the kids out and are rattling around in a big house, you might be considering downsizing to something smaller.
At the same time, you might be worried about your super balance and fearful that your holidays in retirement might be more caravan park than round the world cruise.
If you sell a home you have owned for at least 10 years and you are 55 or over, you can put up to an extra $300,000 (or $600,000 per couple) of the sale money into your super, subject to a few other conditions. This is on top of any other super contribution limits that apply.
7. Not taking enough income from your super pension
When many people retire and start an account-based pension, they choose to receive the minimum payment amount required each year – thinking it is a recommended amount, or because they are afraid of running out of money.
However, a government review found that most Australians do not make the most of their savings in retirement and die with the bulk of their savings intact. As a result, many people may not end up having the quality of life they wanted in retirement.
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