Quite a lot of people have been dismayed by the Government’s recent announcement to increase the Age Pension age to 70 for people born after 1965. Some also believe it’s only a matter of time before the access to superannuation age is lifted as well.
If you are adamant not to change your retirement plans, and those plans did not include working until age 70, you will need to think outside the (superannuation) box.
A basic strategy to achieve this would be to implement a plan to generate a cash ‘buffer’ in order to supplement your income from your intended retirement age until age 70. This could be 5-10 years.
After such time you have exhausted your cash reserve, you then tap into your superannuation savings and any social security benefits you may be entitled to, to support you throughout the remainder of your retirement.
Sound simple? Well it may well be straightforward enough but the traps here are twofold: taxation and temptation.
Income generated from investments held outside superannuation are taxed at your marginal tax rate, which could be as high as 46.5%; hence you will need to account for this. It is also wise to assess the tax effective non-superannuation structures available to you, in an aim to reduce your tax payable.
Having a sizeable sum of savings not locked behind the walls of superannuation can also be a temptation. However, you will need to resist the urge to splash out on an overseas holiday you would not ordinarily take using your ‘early retirement funds’.
The same rules apply to accumulating wealth outside of superannuation as it does for your superannuation savings: the more you put away early, the greater the potential for a larger capital base.
If you wish to know more about the options for saving for your early retirement contact us.