What to ask when planning to retire

From the time we enter the workforce to the time we retire, one of the “background” goals is to accumulate enough wealth for a comfortable retirement. We all have planned — as well as unexpected — financial commitments along the way, such as education, medical, holidays, and a mortgage, but we’re still striving for that retirement nest egg at the same time. 

Whatever career path you’ve taken, the adjustment to retirement is a huge mental and emotional undertaking. In switching gears to enjoy your golden years, here are five things you can ask to make the transition easier. 

 1. Have you officially retired? 

To fully access your super, you have to meet a few conditions based around your retirement and age. Firstly, you must have reached your preservation age (the age you can access your super), which depends on when you were born. For example, if you were born between July 1, 1963 and June 30, 1964, your preservation age is 59. 

If you are under 60 years old, you also need to have stopped work, with no intention of returning to work. Aged 60 to 64? You only need to have stopped working. 

If you’d like to use your super as a pension but haven’t retired, you can still do so if you have reached your preservation age. This is called "transition to retirement income stream". Although this is an option, we usually advise against it (except for in exceptional circumstances) as this stream doesn't provide the same tax concessions as an account­based retirement pension. 

Once you meet the required conditions, you need to notify your superfund or SMSF that you’ve met the conditions and want to access your super. This must be done in writing. Your designated superfund will likely have an obvious way you can start this process, such as through their website. 

2. Do you have enough? 

The dollar amount you need to feel secure and live comfortably in retirement is different for everyone. This is deeply personal, and depends on your goals, desired lifestyle, budget, regular bills, mortgage (if you have one), investments, and more. 

Knowing how much super you have, and how long it will last, is extremely important. This will largely influence your day-to-day living and how you spend your savings. A financial adviser can help you review your budgets and cashflow needs, as well as cut down spending where possible. We strongly suggest meeting with one if you’re considering retirement, or doing it as soon as possible once you have formally retired. 

3. Have you reviewed your investment strategy? 

Once you move into retirement territory, your investment goals and risk-level will move as well. You may need to reassess your investments and make adjustments, all whilst considering any tax implications and capital gains. 

If you have a SMSF, evaluate whether there are enough liquid assets, cash, and cashflow to meet its costs and pay your super pension each year. Fund income — including capital gains — while the SMSF is paying retirement pensions, may be wholly or partially exempt from tax. However, these concessions depend on several factors, such as whether some fund members are still in the accumulation phase and others in the pension phase. As such specialist tax advice surrounding your SMSF should be sought to ensure your fund is optimally structured. 

4. Have you considered your retirement benefits? 

It’s a good idea to review and update (if necessary) your SMSF trust deed, because this impacts how your benefits can be paid to you. A part of this involves determining how much of your super balance will be used to start a pension. This amount is limited by your transfer balance cap — if you’ve never had a retirement phase pension before, the cap will be $1.7 million. 

Amounts that exceed your transfer balance cap remain in your super, held in an accumulation account. However, investment income from amounts held in this account are not exempt from tax. 

5. Have you reviewed your estate planning? 

Before you start your pension, estate planning should be considered, especially if you want to make your pension reversionary. This means it automatically goes to your spouse on your death. If you have existing binding death benefit nominations, these need to be reviewed to ensure they’re still accurate. 

Want to go deeper? 

If you’re edging closer to retirement, there’s a lot you need to think about — way more than we’ve covered here today. We’d love to support you and make the transition to this existing new chapter of life a little easier. Contact us to get started.