Stock images: Getty, unless otherwise stated.
Need to know
- Our research shows many people find retirement planning complicated
- These resources can help you with the different tasks involved
In a survey by Super Consumers Australia, more than four in five pre-retirees say they find retirement planning at least moderately complex.
"My wife and I found getting the information needed to make decisions about the ongoing financial security in retirement was very problematic," retiree Robert tells us in the survey.
"We went to several financial advisers, including the one contracted by [our] super fund, but found none wanted to know us because we did not want to purchase products from them – we just wanted advice and information about how the system worked.
"The whole system should be made simpler, easier to understand with easily accessible advisers provided, who can advise, explain and do the calculations for you."
As we'll see in this article, the resources you may want to consult about the different parts of retirement are spread across a range of government departments. There are also some gaps in the information.
On this page:
- 1. Approaching retirement
- 2. Building retirement income
- 3. Managing and spending your retirement income
- 4. The future
1. Approaching retirement
Finding the best super to build up income
Finding a good super fund to build up your retirement income became easier in 2021 with the introduction of a new super fund comparison tool. Super Consumers Australia welcomed the tool because it cuts through much of the previous complexity in making comparisons.
This tool compares funds on the fees you pay and how much each fund has returned to its members over the long term.
Most importantly, it shows you whether each fund has passed or failed a kind of 'basic fitness test'.
It's also important to keep in mind the fundamentals of super to maximise your retirement income. These principles include having only one high-performing fund and making sure you're paying for insurance that's right for you.
How much super you'll need
Super Consumers Australia has been working on a new set of retirement targets due for release in 2022. These will let people see what current retirees are spending to give them a better idea of how much they'll need to save themselves.
Remember there's always a trade-off in saving for retirement. If you save more than you need during your working life, you may be needlessly living a lower quality of life than you could be.
If you do decide to top up your super, Moneysmart has a guide to the different ways you can contribute. We've also covered the tax implications of making contributions.
The retirement income you can expect
The Moneysmart retirement planner calculates how much retirement income you're likely to get from super and the age pension given your super balance, age, salary and any career breaks you've had.
You can also enter in any savings you have outside super in the 'advanced settings – other' function.
How much you'll need for health and aged care
Government resource My Aged Care has a guide on how much you'll pay for aged care based on how your needs have been assessed.
Research has found that concern over health and aged care may drive precautionary saving by retirees.
People may not realise how much of their aged care costs will be subsidised by the government
Some submissions to the Retirement Income Review (RIR) made the point that people may not realise how much of their aged care costs will be subsidised by the government.
Knowing the cost can help people spend their retirement income more freely, with less fear of it running out.
Retirement planning advice from your fund
Your super fund can give you some free information about your options, but take into account the strengths and weaknesses of this advice.
Super Consumers Australia policy manager Franco Morelli says this advice (sometimes called 'intra-fund advice') can help you understand the different options the fund offers and which of its products might meet your needs.
The advice is also included in the fees you already pay the fund, so there are no extra costs.
"The intra-fund advice has limitations beyond this," says Morelli. "Your fund can't legally give you advice about whether to switch to the best fund on the market, even if that's in your best interest.
"Further, if you're in an underperforming fund, it raises the question of whether you want to be getting advice from them at all."
2. Building retirement income
When you can access your super
You can access your super when one of the following applies:
- You're 65 years old.
- You've retired AND reached your 'preservation age'.
Different people have a different preservation age, depending on when they were born – the ATO has a guide to your preservation age.
Moneysmart also offers a calculator that tells you your preservation age and when you can start getting the age pension.
You can also withdraw your super early in exceptional circumstances. If you're eligible, it's worth weighing up how much it will reduce your retirement income when the impact of compound interest over a number of years is taken into account.
For example, we previously calculated that a 30-year-old withdrawing $20,000 would lose $49,823 from their retirement income. A 60-year-old, meanwhile, would lose $23,770.
Transition to Retirement Income Accounts
Your super fund may offer this option, which lets you access some of your super before you've fully retired. In the right circumstances, it can help you save on tax.
ASIC's Moneysmart notes that these accounts can be complicated and work best if you're 60 or older and earning a middle income or higher.
You can also call a Financial Information Service (FIS) officer for more information on how these accounts work.
What the age pension gives you
Services Australia has information on pension eligibility and how much you can get.
Also, keep in mind that you can count on the age pension being there when you retire, despite a common misconception that it will be abolished.
Retirement planning calculators
Moneysmart has a calculator to work out the income you'll probably get from your super and the age pension. Another calculator on the site tells you your preservation age (to start getting the age pension).
Lifespan calculators can also be useful for working out how long you're likely to live.
Online calculators, such as the one from Moneysmart, can help you work out how much income you're likely to get in retirement.
3. Managing and spending your retirement income
Using your super in retirement
There are several things you can do.
Broadly speaking, you can:
- keep your super in accumulation mode
- move some (or all) of your super into an account-based pension
- buy an annuity or other retirement income product
- take out your super as a lump sum (possibly to pay off debts such as a mortgage).
You can choose a combination of these options to meet your individual goals and circumstances in retirement.
There are also newer retirement-income products coming onto the market. Some of these may combine the features of an account-based pension and an annuity, or seek to address some of the criticisms of existing retirement income products.
In the medium term, the Retirement Income Covenant will force super funds to have a plan for helping their members in retirement. This may lead to more innovative and targeted products.
Tax implications of different retirement options
We've previously outlined the tax implications of different options you have in retirement to help you find a mix that works for you.
Choosing a good retirement product
The RIR acknowledged there is currently "little guidance" to help people choose retirement income products.
Super Consumers Australia director Xavier O'Halloran says a valuable step would be for the government to extend some of the consumer protections for MySuper products into the retirement phase. This could include a comparator tool for these products where you could easily see their fees, returns and whether or not they'd passed a basic test.
In the meantime, your super fund can give you some advice about the different retirement income options they offer, and FIS officers can explain how the different options work more generally – this is a free government service you can call.
Budgeting for retirement
Super Consumers Australia is developing a set of retirement targets based on what people actually spend.
Saving too much isn't without consequences – you could be living a lower quality of life during your working years to save more than you'll ever need in retirement
The current standards, developed by an industry lobby group and widely used by the media and financial planners, set an unrealistic target for many.
Remember that saving too much isn't without consequences – you could be living a lower quality of life during your working years to save more than you'll ever need in retirement.
Debt or financial distress: what to do
Financial counsellors are trained to help people who are experiencing financial hardship. They can help you understand your rights and prioritise any debts you have.
The National Debt Helpline is a good place to start, offering free and confidential guidance. Unlike some other sources of advice, this helpline isn't trying to sell you anything – it's an independent non-profit service.
Drawing down from super in retirement
Many retirees draw down their super at the minimum rate mandated by the government, meaning they'll have super left over when they die.
The RIR found that many retirees could have a better quality of life by drawing down a bit more of their super.
Another piece of the puzzle here is that many people understandably worry about outliving their savings. Having a good sense of your probable future costs can help.
Similarly, you may want to look into retirement income products that guarantee you some income (beyond the age pension) as long as you live.
Equity release for more retirement income
The RIR found that releasing even a relatively small amount of your home equity "can substantially improve retirement incomes for many people". Yet uptake of the government's Home Equity Access Scheme remains low.
Uptake of the government's Home Equity Access Scheme remains low
In the right circumstances, releasing some equity in your home can be a way to enjoy more income in retirement while continuing to live in your house. See our guide to reverse mortgages and the Home Equity Access Scheme to find out more.
Again, FIS officers can answer your questions about these schemes and give you more information.
Downsizing your home to boost your super
The government's little-known downsizer contribution scheme lets you top up your super with some of the proceeds of a house sale and save on tax.
Your will doesn't automatically cover your super, so make sure you decide where any leftover super will go. A death benefit nomination form is one way of doing this.
4. The future
Leftover super when you die
The first point here is that your will doesn't automatically cover your super. But you can choose for it to be part of your estate and dealt with under your will.
You can nominate where any remaining super will go after you die by completing a death benefit nomination form. These forms are usually available on your fund's website.
These nominations may be binding (where the fund has to follow your wishes) or non-binding (where they use your wishes as a guide).
Nominations may be lapsing, meaning they expire after some time, often three years; or they may be non-lapsing, meaning they stay in place indefinitely. Most funds only offer lapsing nominations.
Note that you can only nominate someone from one of these groups to get your super:
- Spouse
- Child
- Financial dependent
- Person in an interdependent relationship with you
- Legal personal representative (who can then divide your remaining super based on where you've chosen it should go in your will).
The process of making a valid nomination can be quite technical, so be sure to talk to your fund if you're unclear on how to complete your nomination form.
See our guide to death benefit nominations for an overview of the process.
Leaving super as an inheritance
Everyone has different goals for their retirement income, but the RIR noted that "Superannuation is intended to fund living standards of retirees, not to accumulate wealth to pass to future generations."
The RIR cited evidence that leaving a bequest is not the highest priority for retirees.
As we've outlined, tax concessions are built into the system to help you accumulate retirement income to spend and enjoy in your post-work years.
Retirement planning can help give you the confidence to draw down on the retirement income you've worked hard to build up and to enjoy your later life.
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
