A retirement checklist for the five years before you stop work
Retirement goes best when it’s planned, not just reached. These are the things worth working through in the five to ten years before you stop work.
1. Work out what you’ll need
Start with what you spend now, then adjust: no commuting or work costs, perhaps more travel or health spending, and no mortgage if it’s paid off. Compare that with what your super, investments and any Age Pension will produce. The gap, if there is one, tells you how much more to save or how long to keep working.
2. Find all your super
Check myGov for lost or duplicate accounts and consolidate where it makes sense, after checking you won’t lose insurance you need.
3. Boost your super while you’re still earning
- Salary sacrifice or personal deductible contributions, taxed at 15% in the fund rather than your marginal rate. The concessional cap is $30,000 a year.
- Catch-up contributions if your total super balance is under $500,000: unused caps from the previous five years can be used.
- Non-concessional contributions of up to $120,000 a year, or $360,000 using the bring-forward rule, depending on your balance.
- Spouse contributions to even out balances between partners.
4. Deal with debt
Going into retirement with a mortgage or personal loans means drawing more from super to service them. Paying down debt in the final working years, or planning a lump sum from super to clear it, reduces the pressure.
5. Understand the Age Pension
Age Pension age is 67. Your entitlement depends on the income test and the assets test, which count super, savings, shares, investment property, cars and contents, but not your home. Financial assets are deemed to earn a set rate of income. How you structure your assets and when you draw down can change how much you receive. If you’re a veteran, check DVA entitlements too.
6. Think about the home
Staying, downsizing or moving closer to family are big decisions, financially and personally. If you’re 55 or older and sell a home you’ve owned for ten years or more, you can make a downsizer contribution of up to $300,000 each into super from the proceeds, outside the normal caps. Bear in mind that money moved from the home into super or savings counts for the Age Pension.
7. Decide how you’ll draw your super
A mix of lump sum and account-based pension suits most people. See pension or lump sum? If you’d like to keep working part-time, a transition to retirement pension can help from 60.
8. Review insurance
Life and income protection needs usually fall as debts reduce and children leave home. Check what you hold inside and outside super, and whether you’re still paying for cover you don’t need. Insurance inside super generally stops at a set age.
9. Health cover
Hospital cover becomes more valuable as you age, and the Medicare levy surcharge may still apply if your income is high. Review your extras to match what you actually use.
10. Get your estate in order
An up-to-date will, enduring power of attorney, enduring guardianship, and binding death benefit nominations for your super. See estate planning.
11. If you have an SMSF
Check the fund’s investment strategy suits drawing a pension, that there’s enough cash to pay it, and how the fund will be run if a member loses capacity or dies.
12. If you own a business
Selling or passing on a business needs years of planning to make the most of the small business CGT concessions, which can let you put sale proceeds into super tax-free. See should I transfer my business property into my SMSF?
Get the plan on paper
Your accountant and a financial planner working together can turn this list into a plan with numbers. Clarity Wealth’s financial planning works alongside us in the same building, and the first meeting is free.