You may be planning on retiring in the next couple of years or are unsure of when you can actually afford to retire. Don’t put off seeking advice particularly if you are a CSS or PSS member. In this article we discuss some of the factors that need to be considered when planning for retirement and some of the strategies available to you.
Have You Determined What Your Retirement Income Requirements Will Be?
At the very minimum you should have a firm grasp of what your income requirements will be. A good place to start is to look at your current expenditure. To work out what you are currently spending simply apply the following formula:
take home pay + drawdowns from savings – actual savings = living expenses
It is best to undertake this exercise over an annual basis to factor in lumpy expenditures such as insurance premiums, rates and utilities that you may pay on an annual or quarterly basis.
The next step is to consider how these expenditures are likely to change in retirement:
- Will you have paid off your mortgage and other debts by retirement or will you use a lump sum from superannuation to do this? This may reduce your income requirement.
- Conversely, once retired your income requirements can also increase particularly in the early years to account for more leisure time, planned holidays, home renovations and other plans.
If you are considering cashing in part of a CSS or PSS lifetime pension entitlement to pay for lump sum expenditures in retirement you should seek advice as it may be more effective to save income from that pension to pay for those expenditures rather cashing out the entitlement to that income. This is particularly the case in a low interest rate environment that we currently find ourselves in.
Do You Have Sufficient Capital to Retire?
A common question is can you afford to retire and is the first thing that should be considered in any retirement planning. I have seen cases where insufficient work has gone into retirement modelling or the assumptions that modelling has been based on have been too optimistic. In instances where people retire prematurely it can be difficult to re-enter the workforce and importantly valuable CSS and PSS benefits have been claimed too early where they would have been better off accruing these for a few extra years.
After you have worked out what income you need in retirement determining whether you can afford to retire should be the next step. Seeking advice on this is and understanding the modelling assumptions the advice is based are both. The earlier you seek advice the better likelihood you can adopt strategies to meet your retirement date goals.
When Is The Best Time to Retire?
The answer to this question is different for everyone and requires analysis and planning. There are many factors at play in determining when to retire. Some of thes factors are:
- Superannuation preservation rules. These rules generally determine at what age you can access your superannuation. Importantly they do not necessarily apply to CSS or PSS benefits so members can access their benefits earlier than the standard preservation age of 60 for those born after 1964.
- For CSS members consideration needs to be given to ‘54/11’ benefit calculations compared to age retirement benefit calculations. Retiring just before your 55th birthday may be an appropriate strategy, but this isn’t always the case. Expert advice should be sought.
- For CSS members a redundancy can also trigger a range of benefit calculations which include the option to preserve your benefit with CSS. This triggers a similar calculation to the 54/11 benefit even after age 55. So, if redundancies are on the cards in your department it may be worthwhile working a little longer and not just for an additional redundancy payout.
- Timing of likely pay increases. Pay increases can improve the final salary used in calculating age retirement benefits for CSS members. For PSS members working through to their next birthday can improve retirement outcomes by increasing their final average salary.
- Annual and long service leave entitlements. It may be beneficial to take your leave entitlements as a lump sum and commence your retirement earlier as you pick up additional CSS or PSS pension income. Alternatively, you may be better off taking your leave and retiring later if it means a higher final salary.
- Retiring early in the next financial year. In some cases, postponing retirement to the next financial year may reduce tax payable on lump sum leave entitlements. This will depend on the sources and amount of your retirement income.
The above are just some of the factors a professional financial adviser will consider when constructing your retirement plan. Allowing sufficient time for the best strategy to be developed and deployed is important. You also want to allow time to find an adviser you are comfortable and confident in dealing with.
No matter what stage of pre-retirement planning you are at Killara Wealth can assist you. Whether it is budgeting, retirement affordability modelling or maximising your CSS or PSS benefits and minimising tax implications at retirement.
If you think you may benefit from any of the strategies mentioned in this article, please contact us to book a complimentary initial consultation.
