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The main key to retiring in style is leveraging your superannuation fund. This guide explains how to devise a superannuation strategy that works for you and how to plan for further income in old age, and gives you tips for pulling it all together.
In all cases your first step should generally be to consolidate your super into a single fund, unless you're deliberately keeping them separate. This means choosing the right type of super fund and knowing about the available options. If you already have your super fund sorted out and are crystal clear on all the details, then you might want to jump ahead to planning your income in retirement.
Otherwise, start at the beginning.
Here are some tips on how to choose a super fund type:
An investment strategy is all about mixing up growth and defensive investments until you have a balance that works. Growth investments are the high risk ones such as real estate or shares that may considerably increase or decrease in value, while defensive investments are the low risk ones like cash and fixed interest accounts that generally won't lose much value.
Superannuation investment strategies can be divided into four groups, representative of most of the options out there. Going with your personal taste for risk versus reward can work, but there are some other factors to consider, in particular:
Note that these options do not apply to MySuper, which has its own special strategies explained further below.
| Type | Approximate investment mix | Typical expected return | Expect a loss | |
|---|---|---|---|---|
| Growth | High risk, high return | 85% shares and property, 15% cash or fixed interest | 6.2% | 4 or 5 years in 20 |
| Balanced | Medium risk, medium return | 70% shares and property, 30% cash and fixed interest | 5.7% | 4 years in 20 |
| Conservative | Low risk, low return | 30% shares and property, 70% cash or fixed interest | 4.2% | 0 years in 20 |
| Cash | No risk, guaranteed returns | 100% fixed interest with Australian institutions | 2.9% | 0 years in 20 |
When picking an investment strategy, some of the most important factors to consider are your age, your situation and your personal taste for risk.
MySuper has two straightforward investment options. The default, and the more popular of the two, is generally equivalent to a balanced investment strategy. You can find out more about the exact investment strategy and breakdown by checking with your super fund.
The second is the lifecycle investment strategy option, which automatically adjusts the risk levels based on your age. A typical lifecycle investment strategy mix might look like:
Superannuation is just one of your post-retirement income sources. Knowing about and planning for all the other ones that may apply can help you balance the budget. After retirement you may still earn income from sources like:
Once you know how much you will need for retirement, you can look at these expenses next to your sources of income. In addition to this, there are several ways to manage your superannuation income to make it work for you.
Upon retirement, you are able to get paid the total amount you have saved in your superannuation fund, and can divide that amount into specific types of payments. Depending on your situation, you can use these options to make your retirement funds go further.
Lump sum: Get super paid out as a lump sum.
Regular income stream: Get paid from your super in regular instalments.
Purchase an annuity: Annuities can give you guaranteed income and other advantages for defined periods, but typically do not pay as much as other options.
You can combine the above options as desired to create an after-retirement financial plan that works for your needs. One of the main ways to save more money here is with the considerations around superannuation payouts, for example ensuring any lump sums fall short of the taxable threshold. Consulting a financial adviser ahead of time can be a valuable way of planning for retirement and making sure you've optimised your finances.
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