Is your retirement just around the corner? Then it’s time to make your super work harder by avoiding these common pre-retirement super traps and start planning.
1. Outdated investment strategies
As you approach retirement, you should revisit your investment strategy. But that doesn’t necessarily mean putting all your money into defensive assets like cash. Diversification is the key to smoothing out the inevitable bumps when economies, sectors and assets rise and fall. A well-diversified portfolio includes a good mix of asset classes — such as cash, fixed interest, property and shares.
Just as your investment needs change, so will your insurance requirements. For instance, if you’ve eliminated or significantly reduced your debts, you may not need as much life insurance or income cover as you once did. And, if you’re an empty nester, you’re insurance needs are likely to be very different to those of a young family’s sole breadwinner.
Your lifestyle might have also changed over the years — for example, you may no longer engage in high-risk work activities or leisure pursuits like skiing. So make sure your cover matches your needs.
3. Missing out on tax benefits
Before the end of your career, it may be worth considering a transition to retirement (TTR) strategy. This involves drawing a pension from your super savings while you’re still working, which you can start doing once you’ve reached your preservation age (currently age 55). This pension income is likely to be taxed at a reduced rate or be tax-free. At the same time, you can boost your super contributions through salary sacrificing, with any contributions of up to $35,000 taxed at just 15 per cent.
This can give a valuable boost to your nest egg during the crucial pre-retirement years. That’s why it’s worth consulting a financial planner to find out the best TTR strategy for your situation.
4. Inadequate estate planning
Although it’s probably not something you like to think about, it’s important to consider what will happen to your estate when you pass away. When it comes to super and insurance, this means nominating who you want to receive your super savings and any payable insurance benefits. The tax implications for your beneficiaries can vary depending on their age, their relationship to you and whether the payments are classified as a lump sum or as an income stream. When you’re getting your affairs in order, it’s a good idea to seek professional estate planning advice.
5. Going it alone
Everyone’s circumstances are different, so your super strategies should be too. Talking to a financial planner is the first step in getting the most out of your super.
Source: MLC, October 2014
To find out more, contact our team of financial planners today.
Call (02) 4926 2300 or email us.
To discuss pre-retirement super traps and what you should be avoiding, please contact the award winning team at Leenane Templeton.