Super Insider podcast: Episode 16

Anne: Hello and welcome to Super Insider, where we chat about all things you need to know to make the most out of your super.

I'm Anne Fuchs and I'm the Executive General Manager of Advice, Guidance and Education at Australian Retirement Trust.

Before we begin, I'd like to acknowledge the traditional owners of the land and waters where we're recording this podcast today.

Now, it's important also just to let you know that this is general advice only and you'll need to decide if it's right for you.

Now, as part of our Q&A series, we have some of the team from Member Education joining us, April Smith and Kane Everingham. And they've got a whole list of questions that you, our members, and in the community, ask about what you need to know so you retire well with confidence.

So, it's over to Kane and April.

Kane: Well, thank you Anne. So, as you heard, you’ve got Kane and April here and we're from the Member Education Team at Australian Retirement Trust.

Last financial year, for example, just to let you know, we did almost 2000 education events across the year and that was to almost 100,000 people. So, we get out and about quite a bit. We get to hear a lot of the questions. And in today's session, we’re going to cover off a lot of the questions that we get around retirement and planning for retirement. So very popular field, very engaged people that we come across when we're out and about.

So, I want to start with the first two questions I'm going to start with and I’m going to say, look, I'd be retired if I had a dollar for every time these got asked April.

So, the first one there, what age can I retire? Has anyone asked you that before?

April: Oh yes. I would have a full piggy bank by now as well.

Kane: Beautiful. So, that's a very commonly asked question and technically the answer to that, when can I retire, the answer is - any time you want. There is actually no set retirement age in Australia. So, for example, I could retire right now. I know I don't sound and look it, but I'm actually 47. I know look like I'm 23, but I'm 47. I could retire right now, but could I afford to?

So, if I had rental income from properties, if I had money in the bank, if I had income from shares, inheritance money, I could technically retire right now. But it's like, what are my sources of income?  What am I going to live off? I don't get access to my superannuation until a certain age. I don't get access to any Age Pension help till a certain age. So, these are the things you need to think about when it comes to planning your retirement.

So, as an ex-financial adviser, a client always springs to mind here. It's probably the most stark example I have where she came to see me, and, as you do - hey, you know, what are you here for today?

And she said, I want to see if I can afford to retire. And I'm like, okay. So, I started asking the usual questions. When you're looking to retire? And she said, well, I'm looking to retire in two weeks. I've already handed in my notice. So, she was just looking for justification that she was okay to retire.

And so, when we did the exercise, looked at her assets, what she had, what she wanted to do in retirement. When we did the calculations, it showed that she could only actually do what she wanted to do for the first 6 or 7 years of her retirement. Then she would have spent all her super and then she would have been subject to whatever the Age Pension was going to pay her. So that wasn't the lifestyle she wanted in retirement. After 6 or 7 years, she didn't have enough super to do what she wanted to do. So, I wanted to share that because it really leads me to the next commonly asked question. And I'm sure you’ve seen this in the media. How much super do I need to retire on?

Now, everyone groans when I give them my answer, but the answer is - it depends. And just like you heard me share that story with the client, it depends on what you want to do. So, a common example or an exercise I would have taken my clients through was, you know, travel. What do you want to do with yourself in retirement? I'll pick on April here. So, April's married to an Englishman. So, I imagine, April when you retire, you want to be able to go home to England and visit. Visit your hubbie's rellies.

April: Yes, yes. I will need to save up to travel to England. But unlike yourself, luckily your family all live in Australia, so we might be saving for different things.

Kane: That's it. So very big difference. So as April said, my family are all in South East Queensland. So, I don't even have to leave the state.

So, for April, to visit the family, she needs to factor in flights, accommodation, hire cars and how often do they want to go overseas. Versus myself, I’ve only got to put in half a tank of gas and the furthest I’ve got to go is Bundaberg. So very different needs for how much super we need just on that topic alone.

It can also be cars. Am I looking to upgrade my car regularly? New car, second hand car. Even things like, where I go out to eat. Do I like to go to five-star dining and get my favourite bottle of wine? Or is fish and chips at the local takeaway. Is that what I like to do?

So, these are the kinds of things you need to consider when it comes to your retirement and how much super you need. What does a day look like? What does a week look like for you in retirement? And you need to have a really good picture, and that's a fun thing to do. Sit down with your favourite drink and just dream. What would you like your retirement to look like?

Now, once you've done that, though, you need to put a price tag to it. So, April, could you help us with that?

April: You do need to put an annual price tag on that dream, Kane. And how can you do it?

Well, there's three types of ways you could actually look at finding how much you need in retirement.  So, one of them might be the budget. So, you're writing down, what does electricity cost? What does my travel cost? What does my car cost? What bills am I needing to pay? Now we know, being in those seminars, we’ll have 300 people in the room and maybe about 3 people put their hands up loving that idea with the spreadsheets. So, it's not always the most popular one.

So, let's look at an easy one, which is the two-thirds rule. So, what is two-thirds rule? Basically, if you want to still maintain the same lifestyle as you are at the moment, what you're doing is you’re looking at your current income and what is two-thirds of your gross income. So why two-thirds? It's because the average Australian will pay about a third per cent in tax.

Okay, so there's that two-thirds rule that might make it easier for you. But maybe you might want a bit of guidance. And how can you actually calculate or assume how much you might need in retirement? There's a brilliant website, it’s called superguru.com.au. And what's on that website is what’s called the ASFA Retirement Standard.

So, what is this? It's basically a survey that they’ve gone out and surveyed our current retirees to see how much money they're spending and what they're spending their money on. And what you'll be able to see is a comparison between what our current retirees consider a comfortable lifestyle versus a modest lifestyle. And this is also assuming that you do own your own home as well. But they'll go through things like travel, being able to afford to have two cars, you know, being able to afford private health. So those types of questions are answered for you. So, I highly recommend going to superguru.com.au.

Now once we've got our plan, we know how to budget, how are we going to find, Kane, if we’re on track to that ideal retirement?

Kane: Okay, so great question, April. So, you've thought about what you want to do in retirement.  You've put a price tag to it, an annual price tag to it. So, then we move on to how do you know if you're on track?

A great tip here is have a look on your superannuation website. A lot of the super funds have some great tools or calculators on their website. It might be called a Retirement projection calculator or Retirement income calculator, but effectively you put in your current situation, I’m 40, I'm working, this is my pay, this is my super balance. Then, you know, you can project ahead to see, what’s my balance going to be like when I would like to retire? So, they're some great tools. Have a look on your superannuation funds’ website, and, again, you can have a look at any of the funds and see what they've got on there. That's a really useful tool to do yourself.

And, also obviously the most accurate way is gone and get financial advice. So, as I shared that story, to open with that, if you want to know am I on track, you can go to a financial adviser. They will find out your exact situation now and project it forward to you with a lot more in-depth calculators and tools then what you’ll get just by yourself. 

So, alright, I've used the calculator, Kane, thank you very much, but it’s telling me a horrible story, you know, I'm not on track.

April: There might be a gap.

Kane: There might be a gap. Exactly. You might get some horrible things. So, this is where you don't smash the computer, if that's what you're using. There are lots of things you can do, and I applaud anyone that's listening, this is a really great place to start.

Educate yourself. So, it could be listening to podcasts like this. It could be, again, having a look at your superannuation website. They've often got a lot of educational material on there. They've got articles, they’ve got short videos, some really great resources on there.

Call your super fund. No question too silly. Give your super fund a call and ask those questions. A really great place to start as well.

Also, your fund might offer seminars or webinars. I know that's what April and I do for a living, and we love it.

April: That's our bread and butter. 

Kane: And lastly, as I've also mentioned, you’ve obviously got financial advice, which is that personalised plan for yourself. But if I’ve done that, April, so I’ve thought about what I want to do in retirement, I've put a price tag to it and I'm not on track. What can I do?

April: What can you do? Yeah, exactly. So, you found out this gap. How can you bridge that gap?

Let's talk about growing superannuation. So, we're looking at three particular things right now. So, a way to grow your superannuation is contributions. So, putting money into your account. Now there is different types of ways you can contribute to your superannuation. So, for example, maybe a lower income earner might look to claim a government co-contribution, maybe a higher income earner might look to salary sacrifice or tax deductions. Again, something to call the superannuation fund. There's lots of different types of contributions you can make. Find out what one's going to be best for yourself. 

So, your funds in superannuation are invested. And every dollar you earn on that investment option is being reinvested. So, it's so important to choose the right investment option for you. And maybe that option might change over time depending on what your objectives are.

Another way to grow super is how about we reduce costs that we pay. So, ask your super fund, is there a way to reduce the costs of my superannuation? You might be paying insurance premiums where you may not necessarily need that insurance, but insurances are also very important.

Another question we get is when can I access my superannuation? And I remember speaking to a lady, I just came across her in my uniform. She was 63 years of age and she said to me, I cannot wait to retire. And I said to her, how come you’re not retired now? And she said, well, I can only access my super at the age of 67. And this is where there is that real misconception with when you can access your super. When you can access Age Pension is either 66 or 67, depending on when you were born.

Okay, that's Age Pension. Superannuation is different though. So, superannuation is when you’ve met your preservation age and you've permanently retired. So, your preservation age, if you’re born after the 30th of June 1964, preservation age would be 60. So, if you ceased work over 60, if you're retired over 60, another age is 65. So that's a magical age regardless of your working arrangements.

But can you access your super if you're in between? So, you're over your preservation age, under the age of 65. Can you access some of your super? Well, yes you can look at something that’s called a Transition to Retirement account, otherwise known as a TTR.

Now Kane, take it away. What is a Transition to Retirement account?

Kane: Okay, I might take it back a step. So, a question we often get asked is, should I fully retire just working full time then quit cold turkey, or should I ease into retirement? And that's actually why the government created this thing called a transition to retirement. The name gives it away. It was invented so that I don’t have to keep working full time. So, say I'm doing five days a week, I might want to go down to three days a week. I can't live on that reduced income, so I can access some of my super through this transition to retirement pension to top up the income I need. So that's what the government designed it for. It's often a great way to ease into retirement so you get a better work-life balance.

And I think that's very important because what's often not talked about is the non-financial side of retirement. So often my purpose, my reason to get out of bed, is my job and that's my circle of friends.  You might be surprised how much your workmates are your friends. And when you retire, they're gone. They’re gone and you don't have a reason to get out of bed. So, maybe dropping too part-time. Then I'm starting to establish new social groups, new routines, new habits. And I've got one foot in retirement, one foot in the work camp.

And another key thing that a transition to retirement can play is when it comes to retiring, it might be, you know what if I had to still work full-time, I’ve got one year left in me. I just, I can't do it anymore.  But if I was able to, and again you need your employer to agree to this, but if I was able to, say, drop back to three days a week, I’ve got that work-life balance. I've got a four-day weekend, I might find that, you know what, I enjoy that balance and I might work another 5 or 6 years rather than just one year if I was full-time. So that can actually help you stretch your retirement money because you’re not retiring cold turkey, and just living on super. You've got a bit of income, a bit of super, so it slows the drawdown on your superannuation. That's another great consideration to think about with this Transition to Retirement product.

Now, if I'm going to look at a TTR and sorry if I do say TTR, we are talking about transition to retirement, it’ll just shave some time off and stop me getting tongue tied. But there are some rules around a TTR. So, can you talk to those for us, April?

April: Yes. So, as I mentioned before, rules and how you can access this account is once you've met your preservation age and you're under the age of 65. So, with this Transition to Retirement account, you can access between 4% to 10% of your superannuation account.

So, what happens is you be moving that money over to a Transition to Retirement account and then you can opt to have how that is paid to you. So, what frequency? So, for example, as Kane mentioned there, if you're not wanting to rip the band aid off. And if you're wanting to just drop down your hours and maybe you receive a fortnightly payment. So maybe you might opt to have a fortnightly payment sent to you to supplement that loss of income that you might be able to choose fortnightly, monthly, quarterly, bi-annually, or annually.

Now as you mentioned before there, the Transition to Retirement was designed to kind of, as it says, transition to retirement. But as a former financial adviser, Kane, I know advisers actually look to the Transition to Retirement for another answer. So, why would you be open up a Transition to Retirement account if you’re actually not transitioning?

Kane: Okay, so good point you raise. So once this product was released, so it is actually a superannuation product, but the financial advice boffins got a hold of it, and they saw a way that they could use this in what we call a Transition to Retirement strategy or a TTR strategy.

And effectively what you're doing is, it works particularly well if I'm 60 or over, because when I get money out of super and I’m 60 or over, it's tax-free income. So, what are effectively a TTR strategy is, I am salary sacrificing or making tax deductible contributions into super as much as I can up to the limit. And then what I'm doing is I’m starting a TTR pension with my super and replacing that with tax-free income if I'm over 60.

If a TTR strategy is set up well, I’m putting more money into super through my salary sacrifice or pre-tax contributions than I am pulling out through my TTR. So overall, my pot of retirement money is growing even though I am drawing on it. So that is a rather complex reason why people might use a TTR, so they are still working full-time. I don't need extra money. I'm just looking at how can I boost or accelerate my retirement savings. A TTR strategy could be of interest to people out there. It is a technical one. I do recommend do some more homework on it and I can't stress enough, if you go and see a financial adviser, they can do all the hard work and crunch all the numbers for you and work it out to the closest dollar for you. So just something to keep in mind with that, and that does kind of lead me to the next one. You know, talking about doing it yourself. But is it easy to plan retirement yourself?

April: Well, firstly, I think you need to plan retirement yourself. So, as you mentioned, we’ll go right to the start of this podcast, jot down what is your goals in retirement? What do you want your retirement to look like? Because ultimately, you're the only person that knows that.

Now, I can also appreciate that the people that are listening to this podcast might actually be 10, 20, 30 years off retirement. So how can you actually plan for retirement when you may not necessarily know what you want to do in retirement?

Well, think about it this way, it’s giving yourself options. So, if you become engaged with your superannuation earlier, you might be able to retire earlier, you might be able to do more overseas travel. And that's why it's so important to engage with your super to give yourself those options.

So, once you've jot down those dreams, now you can actually go ahead yourself and work out, you know, is there any income gaps, see any calculators, do that. But, as you mentioned, Kane, and especially if you're looking at the transition to retirement because they can be very confusing, trying to explain how that works, maybe you might want to seek some financial advice.

Okay, so contact your super fund, see if financial advice is available for you. And education is really key, isn't it? So, I'm going to get you to take us home, Kane, with the types of education that we can help ourselves with.

Kane: Thanks, April. So, look, I just want to stress, if you’re hearing some of this information for the first time, it’s that age old saying - the best time to plant a tree was a year ago. The next best time is today. So, with anything that you’re learning around superannuation, it’s never too late to start. Don't ever feel like you’ve missed the boat. Because even just making some last-minute small changes can still make a difference to your retirement outcome. So, I really encourage you to apply some of the knowledge you've heard today and go and find more information. Call your super fund, jump on their website, have a look at their resources. Listen to podcasts like this, attend seminars, seek that financial advice appointment to get that personalised plan for you.

Well, that's about all we have time for today. We've got some more Q&A sessions coming up. So, if you do have any questions, we’d love to answer them.

Just shoot us an email to podcast@art.com.au. That’s podcast@art.com.au.

Thank you for listening to Super Insider and we hope you can join us again next time.

April: Yes, thank you.