Planning for retirement can be overwhelming, but it’s one of the most important steps to ensure financial security in your later years. Without a solid plan, retirees may face unexpected challenges like struggling to cover rising living expenses or being unable to lead a lifestyle they’re accustomed to. We’ve seen firsthand how thoughtful planning can transform your retirement experience. In this blog, we’ll walk through five common mistakes to avoid as you approach retirement, giving you the confidence to secure a stable financial future.

Mistake #1: Jumping the Gun

Retiring too early without sufficient superannuation can put a strain on your finances. Many people underestimate how long their retirement savings need to last. With Australians living longer than ever — life expectancy is currently 85 for women and 81 for men — it’s essential to ensure your savings are enough to cover 20 to 30 years.   

Retiring without enough super or income sources can force you to make significant lifestyle adjustments or even return to work. It’s vital to assess whether you’ve built up enough superannuation or other income sources before you take that step into retirement.

Mistake #2: Forgoing a Retirement Plan

Retirement is not the time to “wing it.” Having a clear retirement plan ensures that you have a roadmap for managing your finances, lifestyle, and health. A retirement plan should account for your income streams (super, pensions, investments), your expenses, and your long-term goals.

According to research conducted by the Association of Superannuation Funds of Australia (ASFA), only half of adults in Australia have sought information on preparing for retirement. Without proper guidance, you may struggle to manage your expenses or miss out on tax-saving strategies. Establishing a retirement plan early on can help you navigate unexpected costs and ensure your superannuation lasts.

Mistake #3: Under-appreciating Inflation

Inflation can significantly erode the purchasing power of your savings over time. Many retirees make the mistake of not considering how rising costs will impact their retirement. Even a modest inflation rate of 2-3% can have a major effect on your expenses over a 20- to 30-year retirement. 

For instance, if your living expenses are currently $50,000 per year, they could rise to over $90,000 in 20 years with 3% annual inflation. Incorporating inflation protection into your financial plan is essential to maintaining your quality of life.

Mistake #4: Not Topping Up

We get it, life is unpredictable and it’s difficult to make additional contributions to your super. Whether it’s to cover medical bills, education costs, or other unexpected expenses, there are often reasons not to make an extra payment.

However, refraining from topping up your superannuation when you have the chance will reduce the potential for your retirement fund to grow. The power of compound interest means that extra contributions can dramatically increase your overall superannuation because funds compound as additional returns are earned.  

The non-concessional contributions cap is currently set at $120,000 — meaning you can contribute up to this amount each year without being subjected to extra tax. However, you can trigger the bring-forward rule to access non-concessional contributions caps from future years to contribute over $120,000 during a financial year without generating excessive contributions and paying additional tax. Keep this in mind if you’re looking to contribute a lump sum — an inheritance, for example. 

If you’re over 55 and are planning to sell your home, you could also benefit from Downsizer Super Contributions. In this instance, up to $300,000 from the sale of your home could be used to boost your superannuation fund without counting towards the contribution cap.

According to ASFA, a comfortable retirement lifestyle for singles requires a minimum of $49,462 annually. Even making small, consistent contributions will help to build long-term financial security and increase the likelihood that you have enough super for a comfortable retirement.

Mistake #5: Forgetting an Emergency Fund

An emergency fund is critical in retirement, especially with the increased likelihood of higher medical expenses. The risk of illness and injury rises with age, making it essential to have extra funds set aside for unexpected health-related costs. Without an emergency fund, you could be forced to dip into your superannuation, reducing the amount available for your daily living expenses. 

Aim for a fund that can cover at least six months of living expenses, and make sure it’s separate from your investment and super accounts for easy access.  

Strategies for a Strong Financial Future

Planning ahead is key to avoiding these common mistakes in retirement. There are many strategies and habits you can implement to ensure you’re setting yourself up for a comfortable retirement. Our WealthTrack Program has been carefully designed to help you navigate the complexities of retirement planning — keeping your financial strategy aligned with your evolving goals and changing circumstances. 

Some key actions we encourage our clients to follow include:

Managing Debts  

Entering retirement with high levels of debt can drain your retirement savings. Focus on paying down non-deductible debts like credit cards or personal loans. Keeping debt to a minimum will free up more of your superannuation and pension income for living expenses and leisure.

Budgeting Your Expenses  

Track your expenses and adjust your spending according to your retirement goals. Ensure your budget includes all necessary living costs, leisure activities, and unexpected health expenses.

Controlling Your Superannuation  

Once you’re eligible, consider converting your super into an account-based pension, which allows you to withdraw income while your earnings become tax-free. Keeping your super in an accumulation account means your investment earnings will be taxed at 15%. By converting to a pension, you eliminate that tax burden, maximising your savings.  

Leveraging Government Benefits  

Applying for the Age Pension as soon as you’re eligible is a great way to supplement your superannuation income. Depending on your assets and income, you could qualify for a full or partial pension. This can provide an essential income stream to support your retirement lifestyle.  

From staying consistent with your contributions to developing a retirement plan and accounting for inflation, mindful actions today can make all the difference tomorrow. A carefully considered financial strategy can help ensure your superannuation doesn’t fall short. By working with an expert adviser, you can optimise your retirement fund and enjoy the lifestyle you’ve worked hard to build.   

Should you decide to join our WealthTrack Program, we’ll regularly review your financial strategy through progress meetings and ensure that your retirement goals remain on track.

For more guidance on securing your financial future, contact Collective Wealth Advisers today. We’re here to help you navigate the complexities of retirement planning with confidence.

Retirement is a time to enjoy the fruits of your hard work and not worry about complicated tax obligations. However, changes to income streams can add a layer of confusion to tax time. As a retiree or someone nearing retirement, understanding your obligations is important to avoid unexpected penalties.

In this guide, we’ll break down what happens to your tax return once you retire and the best ways to approach tax post-retirement.

Do I Have to Pay Tax Once I’ve Retired?

For some retirees, a tax return may not be required. If your only source of income is the Age Pension or a similar government pension, you’re typically not required to lodge a tax return. However, you must still inform the ATO by submitting a non-lodgement advice form (read on for more details on completing this).

However, it’s not always that simple. You may still need to lodge a tax return in retirement if you’re receiving income on top of your pension payments — such as investments, part-time work, income from a business, or rental income.

The threshold for assessable income is currently set at $18,200, less any applicable tax offsets like the Seniors and Pensioners Tax Offset (SAPTO). Additional income streams that could push you over this threshold include:

• — Investment income
• — Part-time employment
• — Income from a business you own
• — Rental income from investment properties
• — Inheritance, insurance payouts, or compensation
• — Foreign income

If your total income surpasses the tax-free threshold, you’ll be required to lodge a tax return.  

Tax Offsets for Retirees

As a retiree, tax offsets can significantly reduce or eliminate your tax liability. Two key offsets to consider include the Seniors and Pensioners Tax Offset (SAPTO) and the Superannuation Income Stream Tax Offset.  

Seniors and Pensioners Tax Offset (SAPTO)

SAPTO is designed to reduce the amount of tax you need to pay. If you’re eligible, it could mean that even with additional income, you won’t have to lodge a tax return. To qualify, you must either:

• — Be eligible to receive the Age Pension or Department of Veterans Affairs (DVA) Pension, or
• — Pass a rebate income threshold test that determines your entitlement to a full or partial offset.

 

Superannuation Income Stream Tax Offset

While many retirees enjoy tax-free income from their account-based pension accounts, the Superannuation Income Stream Tax Offset applies in some cases. This tax offset typically applies to those receiving Defined Benefit schemes, such as the Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation (PSS) — lifetime, indexed pensions provided by the government.

Additionally, the offset may apply if you start drawing an income stream from your Superannuation before turning 60, such as through a disability pension.

In the above cases, you may be entitled to a tax offset. This can be 15% of the taxed element or 10% of the untaxed element.

The exact tax offset amount for the taxed element will be detailed on your PAYG payment summary. However, for the untaxed element, the offset is limited and will not appear on your payment summary. The current limits are:

• — $11,875 for the 2023–24 income year
• — $10,625 for the 2021–22 and 2022–23 income years
• — $10,000 for 2020–21 and earlier income years

 

Tax Returns for Trustees of an SMSF

If you’re the trustee of a Self-Managed Super Fund (SMSF), you are required to lodge a tax return, even in retirement. Managing an SMSF comes with additional responsibilities, including tax reporting and compliance. Ensuring that you meet all your obligations is crucial to avoid penalties from the ATO.  

Tax-Free Super Pension Recipients

If you’re receiving a tax-free super pension, and it’s your only source of retirement income, you generally won’t be required to lodge a tax return. This applies to many retirees who receive their income entirely from a tax-free superannuation pension, allowing them to enjoy their retirement without the burden of annual tax filings.

Claiming Franking Credits

If you’ve received franking credits during the financial year but aren’t required to lodge a tax return, you can still claim a refund for these credits. This is especially relevant for retirees who might not have other income that requires a tax return. Fortunately, the process is straightforward and can be done in several ways to suit your preference:

1. Online: Simply log into your myGov account linked to the Australian Taxation Office (ATO) and follow the instructions to apply for a refund.

2. Phone: You can contact the ATO directly and request a refund over the phone. They can guide you through the process and ensure everything is completed correctly.

3. Mail: Alternatively, you can complete and send the Application for Refund of Franking Credits for Individuals form by post. This form can be downloaded from the ATO website or requested by phone.

Remember, claiming these credits helps ensure you’re not missing out on benefits you’re entitled to.  

When You Don’t Need to Lodge a Tax Return

For retirees or anyone not required to file a tax return, it’s important to notify the Australian Taxation Office (ATO) by submitting a non-lodgement advice form. This simple step lets the ATO know that you will not be filing a return for the financial year, preventing any unnecessary follow-ups or queries.  

You can notify the ATO in one of two ways:

1. Online Submission: You can easily complete and submit the non-lodgement advice form through your myGov account. This option is convenient and allows you to manage your tax affairs from the comfort of your home.

2. Through a Tax Agent: If you prefer, your tax agent can take care of this for you. They can complete and submit the form on your behalf, ensuring everything is handled correctly.

By submitting this form, you ensure that your tax records are up-to-date and reduce the likelihood of any unexpected correspondence from the ATO.  

If in doubt, seek expert advice…

Understanding whether or not you need to lodge a tax return in retirement can be complicated, especially with multiple income sources and tax offsets to consider. However, early planning and expert advice from a financial adviser can help you stay compliant and maximise your tax benefits. Seek guidance from a financial expert to ensure you meet all your tax requirements while making the most of available tax offsets.    

At Collective Wealth Advisers, we’re here to help you navigate the complexities of retirement tax planning, ensuring you remain compliant while making the most of your retirement income. Let us assist you in planning today, so you can focus on enjoying tomorrow.

Contact us today to learn how we can help you achieve your retirement goals.