Approaching retirement

The government wants us to save some or all of our own retirement nest egg, so it provides special tax advantages to encourage us to use superannuation for this purpose. You may now have fewer financial obligations than you did earlier in life - the kids may have left home, you may have almost paid off your mortgage and have less financial commitments. If so there has never been a better time to look at saving more to boost your retirement options.

Tax-free withdrawals from super when you turn 60.

To encourage you to save more for your retirement, the government abolished its former limits (reasonable benefit limits) on how much you can have in super. You can now accumulate as much super as you like and all of it can be withdrawn tax-free once you turn 60. The only catch is that to prevent abuse of the system the government limits how much you can contribute to super in any one year. The annual limits are:

• $50,000 for concessional (deductible) contributions, i.e. employer contributions and salary sacrifice contributions. If you're aged 50 or over, a transitional cap of $100,000 per financial year applies until 30 June 2012 – commencing in the financial year you turn 50. Any contributions in excess of either cap will be taxed at a rate of 46.5%.
• $150,000 for non-concessional or after-tax contributions, or $450,000 averaged over 3 financial years if you are under 65 in that financial year. All contributions over the cap will be taxed at a rate of 46.5%

Why is super important?

The abolishing of the reasonable benefit limits should allow you to accumulate a larger nest egg within super. Australians now have a higher life expectancy than ever before. Current figures show that having reached age 60 the average man will live another 21.66 years and the average woman another 25.44 years¹.

Its unlikely that the government age pension on its own will give you the financial freedom you want for your 20 plus years in retirement. The maximum age pension in currently only $13,143 pa for a single and $10,975 (each) for a couple. It's designed to provide a basic subsistence income and most people want a lot more from their retirement years.

Do you have enough super to fund your desired retirement lifestyle?

To answer this question you need to know two things:

• How much annual income you want in retirement
• How much super you'll need to produce that level of income

How much super is enough?

If you already know the annual income you want to receive in retirement (in today's dollars), use our superannuation calculator to work out how much super you'll need to generate that income. The calculator will also work out whether your employer contributions will be sufficient, or if you need to add extra funds to your super.

If you don't know how much income you'll need in retirement, the Association of Superannuation Funds of Australia (ASFA) has undertaken research in this area and has estimated that an individual person needs $35,789 p.a., after-tax, to live a comfortable lifestyle. This assumes you own your own home and budget for items such as $21.36 per week for gifts and/or alcohol and tobacco, $129.91 per week for food and $30.82 per week for clothing.

When can you withdraw your super?

The restrictions the government places on when you can withdraw your super are known as the "preservation rules". The preservation rules mean your super balance remains inaccessible, other than in exceptional circumstances such as death or total and permanent disability, until you reach your preservation age (see table).

Your date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 - 30 June 1961	56
1 July 1961 - 30 June 1962	57
1 July 1962 - 30 June 1963	58
1 July 1963 - 30 June 1964	59
After 30 June 1964	60

Source: Australian Taxation Office

Beginning the transition into retirement

Many people find that gradually winding back their working hours, so as to increase their non-working hours, is a useful way to begin the transition into retirement. If your situation allows it, you may decide to:

• Cut back your working hours
• Re-train or consider a change of career
• Try out retirement part-time before you say goodbye to working life for good

A pre-retirement pension can give you the flexibility to organise your transition into retirement in a way that works for you. Learn more about pre-retirement pensions.

Take action now

If you need to boost your current level of super contributions, discover some powerful strategies to help you maximise your super. Depending on your personal situation and how long you have until you wish to retire, it may be a good idea to consult a financial planner.

To find out what options best suit your personal situation, consult a Commonwealth Financial Planner. If you would like to know more about how a Commonwealth Financial Planner can help you, or to make an obligation-free appointment with a Commonwealth Financial Planner, call 1800 241 996 or email us.

Important information

• The information contained on this web page is of a factual nature only and is not intended to constitute financial product advice. It has been prepared by Commonwealth Financial Planning Limited without considering your individual objectives, financial situation or needs. You should consider its appropriateness in light of your circumstances and consider seeking professional advice relevant to your individual needs before making a decision based on this information.
• Commonwealth Bank customers who wish to obtain information about Retirement Planning may do so by contacting a Commonwealth Financial Planner. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139. Commonwealth Financial Planning Limited is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
• 1. Australian Government Actuary. Australian Life Tables 2000-02: Expectation of Life at Selected Ages.