Structuring your investments for retirement: maximising Australian superannuation benefits
February 27, 2024
Recent findings from Capital Preferences reveal that a staggering 78% of Australian pre-retirees aged 55 to 74 feel unprepared for retirement1. The prevailing concern isn’t just about outliving their savings or battling inflation’s erosion of their nest egg; it’s about ensuring a stable and comfortable future. As we witness an upsurge in health and longevity, it’s crucial to explore how you can leverage superannuation to fortify your retirement investment strategies.
Transitioning from the security of regular employment income to becoming partially or fully self-funded is often a one-time move that requires careful planning and strategy, particularly around your superannuation for retirement.
Superannuation as a starting point
At the forefront of retirement planning lies the pivotal role of Australian superannuation. Upon reaching the retirement age of 60, or alternatively, 65 under certain conditions, you gain access to your superannuation funds. The most common avenue is to initiate an account-based pension, transforming your superannuation into a regular income stream and substituting your previous employment earnings.
Tax benefits
Starting an account-based pension not only provides a consistent income but also offers significant tax advantages. Earnings and capital gains from the assets supporting your pension can potentially be tax-free up to $1.9 million. For instance, on a $500,000 balance, this could translate into annual tax savings of approximately $3,750, assuming an earnings rate of 5%.
The overlooked aspect of retirement investment
While these tax benefits are substantial, effectively structuring your investments to sustain your retirement lifestyle requires further insight. This is where the ‘3 Bucket’ approach to superannuation investment options becomes invaluable.
The ‘3 bucket’ approach
- Cash bucket: This includes cash or cash-like investments to provide immediate retirement income.
- Defensive assets bucket: Comprising of term deposits and similar vehicles, it offers a buffer during market volatility.
- Growth assets bucket: Holding shares and property, this bucket aims to grow your wealth over the long term.
The strategic allocation allows you to draw income from various sources, ideally reducing the need to liquidate growth assets during market downturns. Directing earnings from the defensive and growth buckets into the cash bucket ensures you can live off the income generated by your portfolio, not the capital itself.
The value of asset allocation and advice
Russell Investments emphasises the importance of asset allocation and professional advice, citing an added value of 4.6% from these practices in 20232. Moreover, financial advisers can play a pivotal role, potentially contributing an average added value of 5.9% to your retirement planning in the same year.
Seeking expert advice
When facing significant financial decisions like retirement, consulting with experts can yield considerable benefits. LDB offers a comprehensive family office solution with in-house specialists in Superannuation, Wealth Management, Taxation, and Property to guide you and your family towards optimal outcomes for your unique situation.
Conclusion
To navigate the complexities of retirement planning and ensure your investments are optimally structured for a prosperous future, consider reaching out for expert advice. At LDB, we’re committed to crafting tailored strategies that align with your retirement goals, centred around the efficient use of superannuation and diversified investment approaches.
Ready to secure your retirement dreams? Contact LDB’s superannuation and wealth management professionals today at (03) 9875 2900 or complete our contact form to start the conversation.
1. Media Release 05 February 2024: Retirees want an additional $145 billion of guaranteed income, Capital Preferences / Challenger
2. 2023 Value of an Adviser Report, Russell Investments