Hi Tammy, I’m in my mid-50s and retirement suddenly feels very close. I have not started planning and feel completely unprepared. I’m starting to panic! Sam, Mona Vale
Hi Sam, it is never too late to start planning! Having a retirement plan has many benefits. It ensures you are making the best use of your available resources to grow your wealth. It also provides reassurance and clarity around how much wealth you need at retirement to maintain your desired lifestyle; when you are likely to be able to afford to retire; whether you are on track; and if not, how you can bridge this gap.
The combination of strategies which will work best for you depends on your circumstances and I encourage you to seek advice specific to your personal situation. Here are just a few:
• Tax deductible super contributions
Generally, the most tax-effective way to build wealth for retirement. From 1 July, 2024, the concessional contribution cap indexed to $30,000 per financial year. The employer super guarantee rate also increased from 11 per cent to 11.5 per cent. If your total super balance is less than $500,000, you can carry forward unused concessional contributions from previous years.
• Gearing
Borrowing to invest is a great way to fast-track wealth creation as you have more invested to grow in value. When structured correctly, interest on borrowings used for investment are tax-deductible. You don’t have to borrow a huge amount to buy an investment property, you can borrow smaller amounts to invest in shares and managed funds.
• Debt recycling
Rather than invest your surplus cash flow, you use it to make additional repayments on your home mortgage, then reborrow these amounts to invest. You maintain your overall level of debt, but over time convert your home loan to tax-effective investment debt.
• Transition to retirement pension
Commence a pension from super to provide cash flow to make tax-deductible super contributions.
• Tax effective income splitting
Spread your taxable income evenly between you and your partner to use both your marginal tax rates and tax offsets.
• Tax-free pension income
In retirement, you and your partner can have up to $1.9 million each in a tax-free pension, paying tax-free income, with flexibility to access additional funds tax-free as needed. Super contribution splitting can help equalise super balances between partners.
Quick Tips: Gearing also magnifies negative returns. A paper loss only becomes a real loss if you are forced to sell an investment at the wrong time. Managing risk is therefore crucial to ensure success with any gearing strategy.
Feel free to call me on 8376 0350 if you have any further questions.
Regards, Tammy.
Financial planner Tammy Marshman of Up Wealth Management is an Authorised Representative of Consultum Financial Advisers Pty Ltd, AFSL 230323. Phone 8376 0350 or visit upwealthmanagement.com.au
This is general information only, as in preparing it we did not take into account your personal objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your personal circumstances. Although the information is considered reliable, we do not guarantee that it is accurate or complete and you should not rely upon it. Please seek financial advice specific to your situation before making any financial, investment or insurance decision.