Famed French writer Antoine de Saint-Exupéry once said, “A goal without a plan is just a wish.” The quote still rings true and if you are considering retirement or perhaps a change to the way you work, planning is key.
When planning your retirement, the most important issue is how much income will you need and how much can you get and from where? For example, if you are currently earning over $250k per annum, will you need this amount when you retire or will your expenses change?
The second consideration is whether you need a lump sum to perhaps reduce outstanding debt or pay for holidays or new cars etc. If so, how much do you need and where will it come from?
During your career you will have accumulated superannuation savings and perhaps other investments. The most tax effective form of retirement income will come from your superannuation savings. If you are 60 plus, this income will be 100% tax free on any tax-free component of your super (otherwise known as the non-concessional component) and will be taxed at your marginal tax rate less a 15% tax offset on any taxable components (otherwise known as the concessional component). Lump sums can be withdrawn completely tax-free on the taxed component once you turn 60.
If you rollover your super into a superannuation pension, otherwise known as an Account Based Pension (ACBP), you will need draw down a minimum amount each year as prescribed by the Government. However there is no maximum, so you can vary your income accordingly. For example, if you plan to travel in your early retirement, you can draw a higher income, then reduce this later. Be aware that drawing a higher income can potentially impact your capital balance if you were to draw out more than the fund earns. Currently, the minimum draw down is 2% pa if you are aged 55-64.
You also have the option of rolling over a portion of your super, which could be used to top up other income, for example if you opt for semi-retirement.
Another form of retirement income is a transition to a retirement pension. This allows you to access an income from your super before reaching retirement age and is usually considered between 55 and 60. However, it will not allow access to lump sums until you reach your normal retirement age which varies from 55 to 67 depending on when you were born.
You will need to consider how readily you can access any non-super investments and what income they generate. For example, rental properties will usually have rent that can be used as income, after expenses to maintain the property.
Doctor’s retirement scenario
Dr Grace^ is 65 and has $1.23 million in super savings, plus $300k in the bank. He owns his home and other lifestyle assets and needs to generate about $70k per annum from superannuation and investments as he intends to consult for a few more years. Dr Grace expects to earn a gross income of $80k per annum from consulting. He wants to spend about $30k a year on holidays in the first four years of semi-retirement and is keen to keep at least $50k in cash for contingencies.
Dr Grace has sought advice on what options are available to him, and this is one outcome available:
- He holds $170k to fund his holiday lump sums and cash buffer.
- He makes an after-tax contribution of $100k to boost his super balance.
- He rolls over $1.3 million of the super balance to a superannuation pension(ACBP). He invests it in a moderate portfolio of 50% growth assets and 50% conservative assets and then draws $70k per annum. It is estimated that based on a return of 5% pa, this super pension income can be maintained into his late 80s, assuming nothing else changes for him.
Moneysmart account-based pension calculator
Dr Grace will leave $30k in his current superannuation fund as his ongoing consulting will generate additional Superannuation Guarantee Contributions of approximately $7,600 per annum. Assuming he consults for five years, this super could grow to around $75k, assuming a growth rate of 5% per annum.
The more complex your situation, the more important it is to obtain advice early. The sale of assets such as business premises or investment properties, will take time and careful consideration of the tax consequences and costs involved.
To discuss your retirement planning, contact the expert team at Doctors Wealth Management.* Book an appointment today or call 1800 128 268.
^This scenario is for illustrative purposes only and is not based on any particular individual's experience. Any relation to actual people is purely coincidental.
Avant Retirement Reward Plan
The Avant Retirement Reward Plan# is one way doctors benefit from Avant’s mutual status as we return funds to members. This year, we are pleased to be paying out a record $11.2 million to 770 members who retired in 2019-20.
The Avant Mutual Board has also approved an additional $25.5m to be added to the pool of funds, increasing the total to $369 million. These funds have been notionally allocated to members. Login to see your allocation.
Important: *The material contained in this publication is of general nature only. It is not, nor is intended to be legal, accounting, tax or financial advice. Doctors Financial Services Pty Ltd (DFS) and its related entities have not considered your individual objectives, financial situation and needs in providing this information. If you wish to take any action based on the content of this publication we recommend that you seek appropriate professional advice. While we endeavour to ensure that this information is as current as possible at the time of publication, we take no responsibility for matters arising from changed circumstances, information or material. DFS and its related entities will not be liable for any loss or damage, however caused (including through negligence), that may be directly or indirectly suffered by you or anyone else in connection with the use of information provided. Doctors Wealth Management is a registered business name of Doctors Financial Services Pty Ltd ABN 56 610 510 328, AFSL 487758. Doctors Wealth Management Financial Advisers are Authorised Representatives of DFS.
DISCLAIMER: #The declaration of a dividend is at the sole discretion of the Avant Board. The notional balance is an indication of what you would have received had you retired in the previous financial year and had been eligible to receive a Retirement Reward Dividend. It is not a guaranteed entitlement.