Are your retirement savings on track?

Assessing your retirement savings

If you think your savings are lower than they should be, you may want to consider these steps to assess your retirement savings gap and help address any shortfalls. 
 

1.    Calculate your annual retirement needs 

Calculators and planners are a great place to start when determining how much you might need each year, based on the ASFA Retirement Standard. In addition to your expected income, expenses and desired lifestyle, you should also factor in any larger purchases you may want to plan for such as travel, a new car, or renovations to your home. 

Government website Moneysmart has the following tools which could help:

•    Superannuation calculator could help you estimate how much super you’ll have
•    Retirement planner can help you estimate your retirement income
•    Budget planner to help you estimate your expenses.

2.    Evaluate your current savings 

Assess your super balance, other savings and investments. Compare this with your projected needs in retirement to identify any gaps. Take the time to explore what your options could be to save more or reduce debts, so you’re not taking them with you into retirement. For example, could you reduce any personal loans, credit card debt or your mortgage and then focus on saving more for retirement? 

3.    Increase your savings

If you have the capacity, you might want to consider making additional contributions to your super. Currently, you can make pre-tax contributions up to a cap of $30,000 per year, which includes contributions from your employer. For after-tax contributions, you can contribute up $120,000 per year. You may also be able to carry forward unused cap amounts for up to three years for before-tax contributions and up to five years for after-tax contributions. 

•    Salary sacrifice contributions: this is when you ask your employer to pay some of your before-tax salary into your super account. As long as you stay within the $30,000 pre-tax cap (inclusive of your employer contributions) your salary sacrifice contributions can generally be taxed at a lower rate than your personal income tax rate. 
•    After-tax contributions: you may be eligible to contribute up to $120,000 each year from savings or income that has already been taxed, without incurring additional tax. This could be beneficial if you have already reached the annual cap of $30,000 for pre-tax contributions and you have some significant savings. 
•    Government co-contribution: if your income is below a certain threshold, you may be eligible for a government co-contribution. This could provide up to $500 per year for making after-tax contributions to your super.

Visit the ATO website for more information about super contributions.

4.    Review your investment options

Check that you’re comfortable with the way your super is invested and the balance of risk versus returns. Adjusting your investment strategy may help grow your savings but be aware there is a trade-off. If you choose more high-risk growth investments, for example, you may get higher-than-average returns, but the risk of negative returns is also magnified. If you experienced a big drop in your super balance, there may not be enough time before you retire to recover those losses.