Retirement should be a time to wind down and enjoy life, however, there are a few important topics often overlooked when planning for retirement. This article explains three of these aspects including re-contribution strategies, death benefit nominations, and having a spending policy in place.

Retirement can be an exciting phase in your life. But all the recent changes to superannuation bring with them lifestyle and financial issues you need to be aware of as you plan your retirement.

Retirement means different things to different people. For some, it’s an opportunity to travel, to begin that project they’ve been putting off for years, or to just relax, spend time with the grandkids and dabble in their favourite hobbies. Retirement should be a time to relax and be free to pursue your lifestyle goals.

Plan smart for a stress-free retirement

Your retirement should ideally be free from financial stress. Planning and good advice from a qualified financial adviser is the key to confidence in retirement.

If you’re considering retirement, there are issues you need to think about and plan for before you take the plunge. Here are 3 decisions retirees commonly miss in planning for their retirement:

1. Have a re-contribution strategy

Few prospective retirees have heard about a ‘re-contribution strategy’ but you do need to know what it is and how it works.

Your superannuation entitlements generally comprise both taxable and tax-free components. A re-contribution strategy is one where you withdraw your money from your superannuation account and re-contribute that cash back into your fund.

Why a re-contribution strategy is important

Re-contributing all or part of your withdrawn funds back into your superannuation as a tax-free non-concessional contribution increases the level of tax-free funds in your superannuation account.

This reduces the tax payable on your superannuation pension if you dip into that pension while under 60 years of age. A re-contribution strategy can also lower the tax payable on benefits paid to your beneficiaries when you direct your superannuation benefit to your non-dependent beneficiaries following your death.

2. Death benefit nominations

A lot of retirees often forget superannuation death benefits are payable to your nominated beneficiaries  or your estate from your superannuation fund upon your death. Your superannuation does not form part of your estate upon your death and is treated separately to your Will.

There are four types of death nominations. You can make a binding death benefit nomination while you are alive. This is a written direction to your superannuation trustee establishing how you wish your superannuation death benefits to be distributed. These must be reviewed and updated every 3 years.

Secondly, a reversionary beneficiary is where a superannuation fund member receiving an income stream nominates an eligible beneficiary to receive those payments upon their death.

Thirdly, you can make a non-binding death benefit nomination guiding how you wish some or all of your superannuation death benefits to be distributed following your death. However, being a non-binding nomination, the Trustee of the superannuation fund may still exercise discretion at the time of making the payment.

Lastly, you may make a non-lapsing binding death benefit nomination directing your superannuation trustee to distribute some or all of your superannuation death benefits to your nominated beneficiaries or Estate. This nomination, if allowed by your fund trust deed, remains in place unless the member cancels or replaces it with a fresh nomination.

Why a Death Benefit Nomination is important

If you don’t make a valid death benefit nomination,  the trustee of your fund will have discretion as to who should receive your superannuation death benefit in the event of your death.

A valid death benefit nomination is the one that is in line with superannuation legislation.  If your nomination is deemed to be invalid, the trustee of the superannuation fund will exercise discretion following your death and will decide who should receive your superannuation death benefit. In addition, tax may be payable by your beneficiaries depending on the tax components of your superannuation and to whom is the benefit being paid.

3. Ensuring your money will last and the Age Pension

Australia’s social security system is means tested. It is designed to act as a safety net. So, the higher your income or assets you have on retirement, the lower your Age Pension entitlements may be.

If your income or assets exceed the set cut-off limits, you will not be eligible for an Age Pension at all. Hence we are expected to use more of our savings to fund our retirement.

Currently, under the assets test assessment, for every $10,000 of assets above the allowable lower threshold your pension drops by $390 per year each if you’re a couple or $780 per year for a single person.

It is important to note that your assessable income will also be taken into consideration when determining the rate of Age Pension.

Why ensuring your money lasts is important

The more heavy lifting your Age Pension does, the less you’ll draw on your retirement savings. This is important as our increased life expectancies coupled with a turbulent investment environment make it challenging to ensure your retirement savings will go the distance.

Final observation

Planning your retirement can be complicated. As you can see from the above three issues, the various legislative frameworks are complex. While it pays to understand how retirement works, it is important that you contact a qualified financial adviser to discuss your personal situation and retirement needs.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.