Having super is not the same as having a retirement plan

Many Australians spend decades building their super without knowing how to use it effectively when retirement approaches.

There is plenty of discussion about whether Australians are getting enough support from their super funds to prepare for retirement.

For me, the bigger question is this: do people actually understand what they can do with their super as they approach retirement?

From the conversations I have with clients, often the answer is no.

Many people spend decades building their super balance. They know roughly how much they have and they know they will eventually need to draw on it. But when they reach their 50s and 60s, the conversation needs to become much broader than the balance on their annual statement.

How much will I actually need to retire? When can I afford to stop working? Should I be doing something differently before I retire? How should my super interact with my other investments, assets and income? And are there strategies available to me now that I simply don't know about?

Those are the questions I think we need to be talking about more.

The knowledge gap before retirement

One thing that continually surprises me is how many clients over 60 have never heard of strategies such as a transition-to-retirement pension or recontribution strategy.

That doesn't mean either strategy will be right for everyone. They won't be.

But people can't consider their options if they don't know those options exist in the first place.

And that is where I think there is a gap.

For much of our working lives, superannuation can feel fairly passive. Our employer contributes, we might make additional contributions ourselves, we choose an investment option and hopefully watch the balance grow.

Then retirement starts getting closer and suddenly the decisions become much more personal.

It is no longer simply about accumulating super. It is about understanding how you could use what you've built to support the retirement you actually want.

What questions does a retirement plan need to answer?

I think people sometimes assume retirement planning is simply working out whether they have accumulated “enough”. That's obviously an important question, but good retirement planning goes much further.

• What do you want retirement to look like? 
• What will it realistically cost? 
• How much income will you need? 
• Will you stop working completely, or gradually reduce your hours? 
• What assets do you hold inside and outside super? 
• What tax considerations need to be factored in? 
• What happens if markets fall just as you're preparing to retire?
• Most importantly, what can you be doing before retirement to put yourself in a stronger position?

The answers will be different for everyone.

Someone who owns their home outright and wants a relatively modest retirement has very different planning needs from someone who still has debt, owns an investment property, wants to travel extensively or plans to continue working part-time.

That is why I don't think retirement planning can start and finish with a super balance.

Retirement planning strategies you may not know are available

There are a number of strategies that can become relevant as people approach or enter retirement.

A transition-to-retirement income stream, for example, may allow an eligible person who has reached preservation age to access some of their super while they are still working. Depending on the person's circumstances, this can form part of a broader strategy around reducing working hours, managing cash flow or making additional super contributions.

A recontribution strategy involves withdrawing eligible amounts from super and contributing money back into super, subject to the relevant contribution rules and eligibility requirements. For some people, this can change the taxable and tax-free components of their super and potentially improve the position of beneficiaries from an estate-planning perspective.

These can be useful strategies in the right circumstances, but they aren't shortcuts and they certainly aren't one-size-fits-all solutions.

Contribution caps, preservation rules, tax, Centrelink considerations, estate planning and the person's wider financial position can all affect whether a particular strategy makes sense.

The value isn't simply knowing that a strategy exists. It's understanding whether it makes sense for you and how it fits into the bigger picture.

Why financial planners and accountants should be part of the retirement planning conversation

This is one of the reasons we offer retirement planning advice for Australians at PKF.

People don't live their financial lives in neat little boxes. Super isn't separate from tax. Tax isn't separate from investments. Investments aren't separate from cash flow, debt, estate planning or the decision about when you can afford to retire.

For Australian business owners, the picture can be more complicated again. Their wealth may be tied up across their business, property, investments and superannuation, and retirement may also involve succession or the eventual sale of the business.

Bringing your accountant and financial planner into the conversation can help connect those pieces.

The aim shouldn't be to find the cleverest strategy or squeeze every possible dollar out of super. It should be to understand where you stand, what you're working towards and what sensible decisions you can make now to give yourself more options later.

The best time to plan for retirement is before you get there

Retirement planning doesn't need to mean deciding today exactly when you'll retire or what every year of retirement will look like.

It means starting the conversation early enough that you still have choices.

For some people, the first step might simply be working out how much retirement is likely to cost and whether they're currently on track. For others, it might involve reviewing contribution strategies, investments, debt or how their super is structured.

And for someone approaching retirement, there may be opportunities available that they simply haven't heard about yet.

That is the gap I would like to see close.