Planning for retirement is one of the most important things that you can do now. It will ensure that you live comfortably in your elder years. It is important that you set aside money today to help you care for your future needs. It takes time to set up and plan for retirement.

While your employer is required to put money in a superannuation fund for you, you need to make sure that you are contributing as well.

This will give you the money you need to do the things you want to once you receive retirement age. Additionally, if you want to retire early, you will need to save money separately from your superannuation fund, so that you can access before you reach the official retirement age.

Superannuation Fund

Your superannuation fund is the primary retirement savings vehicle for people in Australia. Currently employers are required to contribute 9.25% of your earnings to your account on your behalf. If you do choose an account type, your employer can choose from one of the approved superannuation funds from the government.

You will qualify for this contribution amount even if you are a temporary worker or a contract worker. When you begin working, you will need to give your employer your tax file number, and they should give you a sheet to fill out that allows you to choose the fund where they will put your contributions. You can qualify for this even if you are working overseas for an Australian company.

Make sure that you check your statements regularly to verify that you are receiving the contributions that you should from your employer. It will also help you keep track of the amount in your account to let you know if you are on track to retire comfortably.

Making Contributions

In addition to the amount that is contributed by your employer, you may want to make your own contributions to your superannuation fund. You can sign up to have a portion of your salary contributed to your super fund in addition to what your employer is making for you.

Additionally, you can do individual contributions, like if you received inheritance money and you wanted to add a portion of it to your super fund. It is important to understand that the tax laws are dependent on the way you make the contribution.

You can also make contributions to your spouse’s super.

Receiving Distributions

As of 2014, you can begin accessing your superannuation funds once you are 55 and retired. The age is set to increase gradually beginning in 2015; by 2025 the age will be 60. You can access your super funds if you are working and over 65 years old. You may be taxed on the benefits that you receive. It depends on how the contributions were taxed.

The amount you receive in distributions is dependent on the amount that you have in your account. It is important to realize that the more that you have contributed through both your employer’s contributions, and your own the higher your distribution will be.

Retirement If You Are Self-Employed

If you are self-employed, you will need to plan for your retirement on your own.

You can make tax-deductible contributions to your super if you are self-employed. You will need to make regular contributions since an employer is not making any for you. You should make a goal to contribute at least 9.25% since that would be what is contributed if you were working for a company.

However, you may want to contribute even more than that so that you can retire more comfortably.

Age Pension

The age pension provides additional income to people age 65 and older in Australia. It is a supplement to the superannuation fund and other retirement income that you may have saved up. You do have income and assets tests that you must pass in order to receive the pension.  If you are single and make more than $1810.20, you will not be eligible for age pension.

If you are a couple and your combined income is more than $2769.60, you will not qualify for the pension. They are looking at your fortnightly income. The amount of pension you receive is adjusted according to your income and is reduced by $0.50 for every dollar that you make over $156, if you are single, and $276 if you are a couple.

There is also an assets test that you must pass in order to qualify for the full pension benefits. If you are single and a homeowner, you cannot have more than $196,750 in assets. If you do not own a home, the limit is $339,250. If you are a couple, the limit for homeowners is $279,000, and $421,500 if you do not own a home.

The pension will gradually reduce until you reach the maximum allowable limit. This is $663,500 for single homeowners, and $806,250 if you do not own a home. The amount for a couple is $1,032,500 if you own a home, and $1,175,000 if you do not.

There are strict rules about the amount that you can gift to others over a five-year period. You can be penalized for trying to reduce your assets, and not receive the full amount of your pension, if you give away more than $30,000 in a rolling five-year period. It is important to take that into account if you are on the border of qualifying for a pension.

Currently the maximum pension rates are $751.70 if you are single, and $566.60 each if you are a couple or $1,133.20 combined. If you think you are eligible for a pension, you can apply online or fill out a paper form. The pension office will look over your claim and let you know if you qualify for the pension. There is additional help available such as a clean energy supplement or rent assistance that is dependent on your current financial situation.

The age pension should be looked at a possible supplement to your other retirement planning, and not as the primary source of funding for your retirement.

Other Ways to Plan for Retirement

In addition to taking advantage of the superannuation funds and pension, you may want to find other ways to plan for your retirement years. It helps to build wealth on your own, so that you have additional income that you can rely on while you are retired. The superannuation fund is one of the best ways to save, and invest specifically for retirement, but you may want to invest in addition that, because it will give you access to the money earlier.

This means you can retire earlier if you want to or if you must for health or family reasons.

When you are interested in investing in the market on your own, you can begin to make monthly contributions to an investment fund separately from your superannuation fund. It is helpful to find an investment advisor, especially if you have never invested in the market before and you not understand. One of the best ways to find a financial advisor is to ask family and friends to give your recommendations.

Additionally, you should interview the advisors and find one that works well for you.

A financial advisor should be able to explain the benefits of each account, explain the fees associated with each fund type or stock, and clearly explain the risks associated with the accounts. You should also understand if you are paying on commission, which means they are paid when you invest in a new fund, or if they are paid by fee, which means you pay them for consultations and annually for their advice.

Either model works, but it can help you understand the selling practices of your advisor.

Single stocks carry more risk than funds, and there are a number of types of funds that you can choose from. If you choose to have single stocks (stock in one company) in your portfolio, make sure that you do not have all of the money in just one stock, and that you diversify in both the type of companies that you invest in and the amount that you invest.

With a single stock, if the business goes under or is taken over, you can lose all of the money that you had in the stock. Index or mutual funds invest in several different companies and help you to more easily balance the risks of investing, because your money is already spread over different companies.

If you are worried about investing, choosing a few funds can help lower your risk.

Another way that you can plan for your retirement on your own is through purchasing investment properties. Usually people start out by buying smaller homes that they can rent to tenants. This provides a fairly nice income stream, especially as you build your portfolio with a variety of properties.

If you are considering becoming a landlord, you should take several things into account.

1. Try to make your purchases in cash. It can be difficult to have to pay the mortgage payments on the property when you are in between tenants, and it is better if you can begin making money from the first day.
2. Make sure that you are setting aside money from the rent to cover fees and taxes associated with the property.
3. Consider using a rental management company so that you do not have to do the maintenance work and deal directly with your tenants. This makes collecting rent and dealing with other hassles much easier, and can make the fee to the rental company worth it.
4. Make sure that you insure the value of each building.

Rental properties allow you to build a steady stream of income that you can invest before you retire and then use it to live off once you reach retirement age. If you are thinking about doing this, you will need to make sure that you have multiple properties and that you are planning properly for the insurance, taxes and other expenses that are involved with the investment.

References:

1. http://www.humanservices.gov.au/customer/services/centrelink/age-pension
2. http://www.ato.gov.au/Individuals/Super/Accessing-your-super-benefits/When-you-can-access-your-super/
3. http://www.ato.gov.au/Individuals/Super/Compulsory-employer-contributions/

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