Bruce Brammall: Your 50s is crunch time for superannuation and the savings you’ll need for a better retirement

I was deep in the bible-belt, country music heartland of South Carolina visiting DebtBoy when the Iran situation blew up. With Zach Bryan’s Pink Skies playing, my flight home got cancelled. So I succumbed to my son’s begging of me to stay a little bit longer. After all, why fly out of a US airport in the days after a hornet’s nest had been smacked with a baseball bat? As global markets started tanking, Australia was delivering largely positive superannuation news. It was revealed contribution limits would be lifted from July 1, the Association of Superannuation Funds of Australia updated its “comfortable” retirement numbers, age pension limits changed and the tax-free pension accounts were increased. The Federal Government’s Division 296 super tax, hitting those with more than $3 million in retirement savings, passed with some sensible improvements. When planning your retirement, you need to be aware of the changes that are going to have an impact on you, or engage an adviser to do so. Adjusting to change is critical. Particularly in the run-up to retirement — you still have time to manoeuvre your way through the rules. I’m talking, particularly, about 50-somethings. Peak super prep That age group can impact their super significantly. They can make huge uplifts to their balance to take retirement from just “OK” to “awesome”. Here are four ways a 50-something can make the biggest impact prior to retirement. Super’s end date? Too many people see hitting retirement at 65 or 67 as the “end date” for super. It isn’t. Not by a South Carolina country mile. This is critical to understand. If you’re 50-something now, understand your super fund is about half way through its life. You’ve had it for about 30 years. And it’s supposed to keep going for about another 30 or 40 years. It’s likely to earn more in the future than it has to date. Given it’s designed to pay you a pension through your 70s, 80s and even 90s, your superannuation still has an ultra-long-term investment time horizon. Historical returns show shares and property provide better returns than cash and bonds. Have you put proper consideration into how aggressive your super is invested? You need to understand your appetite for risk first. There are tools to do that. But if you are sitting in a balanced fund when you should be more aggressively invested, now could be the time to make that change. Give to receive For most, your early 50s is the peak time for outgoings — mortgages, kids’ expenses. But 45 to 54 is also peak earnings in Australia, according to official statistics. Your 50s is when you need to start making a priority of making extra tax-effective super contributions. If you’re an employee, you’ll be getting the 12 per cent superannuation guarantee. Aim to maximise your concessional contributions — the limit is $30,000 this year, but rises to $32,500 next financial year — is critical. A $100,000 salary earner will receive $12,000 in SG payments. You could tip in up to $18,000 to reach the $30,000 limit. If you salary sacrifice $10,000, you’ll lose $6800 in take-home pay, but your super fund will receive a net $8500. That’s $1700 less in overall tax that is, in turn, then earning in a low-tax environment. Done every year until retirement is powerful. Over and above And then there is the non-concessional limit of $120,000 a year (rising to $130,000 from July 1). These are after-tax contributions, so are not taxed going into the fund. Generally something for your later 50s, when the mortgage and midgets’ expenses are hopefully minimal, or when you are selling investments, or receiving inheritances. But if you’re already maxing your concessional contributions, consider making even small extra non-concessional contributions. Reconsider insurance For most in their 50s, the need for insurance is still likely to be high. If you’re paying for it in your super, it’s going to be draining your balance. But consider two things. Could you take out insurance outside of your super? Or make extra contributions to super to effectively nullify its impact? Big dollar boost If there was a fifth, it would be to check the costs of your super, but that’s applicable to all ages. Sure, when you turn 50, you get a free bowel cancer check from the government. But you should also use that life marker to assess what extra you could be doing to make sure you’re going to have an “above average” time in your golden years. Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. bruce@brucebrammallfinancial.com.au.