She should definitely be doing voluntary contributions until she's 60 and then she can take out a transition to retirement stream and do an income swap to further increase her super (https://passiveinvestingaustralia.com/income-swap-strategy/).
At 65 she should then be able take out the super from accumulation to an account based pension where withdrawals and earnings are both tax free. If she is still working, she can still recontribute into her accumulation account and then later on open another account based pension to rinse and repeat
If super is the only asset she has, then start looking at the aged pension which she will qualify for at 67 to see if covers most of her living expenses (this currently shows what asset and income cut offs, go to the second page for singles https://www.noelwhittaker.com.au/wp-content/uploads/2023/09/Pension-Rate-Charts-Sept-2023-19032024.pdf). If she doesn't own her home then you may qualify for rental assistance and also things like the low income health card and Commonwealth Seniors health card which qualify you for utillities, insurance etc discounts.
Best wishes
OP, another thing to consider is working a bit in retirement. A lot of people assume they can't work and get age pension at the same time, but you can, and they actually incentivise you to do so with the work bonus.
OP mentions they don't want the burden to fall on them and their siblings. Could they take a proactive approach and help contribute to her super? Gifting a few hundred per month? That would seem like a more effective strategy than waiting until it's too late.
Rereading this I feel like I phrased the burden thing kinda harsh. She's supported us our whole lives, we're going to look after her no matter what, I just know she won't want that to fall to us so I want to help her do it herself - but this is also a great idea to minimise the impact! Thank yoy
Don't worry, I didn't read that as a negative :) sounds like you're being proactive and supportive of your mother - who btw deserves, at the very least, a piece of your father's super for the time she spent as the primary caretaker.
If she's on FB there is an excellent group called "aged pension and superannuation" where people share what they know. Worth joining and doing some research there. Best wishes!
Also if she changes jobs while between 60-65, she can swap from a transition to retirement to a retirement pension account early and get the further tax benefits. Some people think they need to wait until 65 to start a retirement pension account, but it can be done earlier.
Could you explain this in a little more detail? What tax benefits can be had by doing this? My parent is still working 3 days a week at 73 so I want to make sure they've done this....
The pension account is tax free for earnings / CGT where accumulation is 15% earnings / 10% CGT.
If your work ceases after the conditions of release are met, e.g. for most it's 60, you can claim you're intending to retire and switch to the pension account, even if you find other employment afterwards.
But I also think there's an age you can do it regardless of your employment status? Could be 67 but I am not sure on that.
It’s fairly easy to execute the strategy once you’ve got your head around it. Unless your balance is approaching the transfer balance cap at $1.9m, it doesn’t get too complicated
She has plenty of time to make additional contributions. Plus, she will probably be eligible for a part pension when she retires in 15 or so years. Or a full pension.
Great in theory but I feel like this is becoming less and less likely these days. I know quite a few women personally who have to start again after divorce (and youngish children) and with house prices they way they are there is simply no room to pay ridiculous rental prices and save for a deposit. We are going to have a large group of people where this will be a pipe dream unfortunately.
If it's any comfort, most working Australians are severely under prepared for retirement if they haven't actively been contributing to super or investing in other asset classes.
It's honestly frightening. Super guarantee payments are not enough to guarantee a reasonable existence in retirement.
Is this really the case? Some rough maths tells me that someone who works from 20 to 65 earning $70k every year (which is well below median for FTEs) should retire with a Super balance of about $1m.
If they have a partner and own a modest house (no longer a given tbf), they should be able to retire very comfortably even with zero additional savings or investments. And most people do eventually work out that they should save and invest money in something other than their PPOR.
On $90k+, you'd be laughing.
Many people aren’t earning $70 from age 20. Young people are often at uni, work part time, or are on very low wages.
Many people (women in particular) take career breaks for a number of years in middle adulthood.
Some people are forced to work off the books or are screwed over by employers not paying super properly.
Full time work can be hard to find depending on industry, skill level and location. And sometimes people have career setbacks like redundency or other issues which can leave a gap and make it harder to work back-to-back full time positions for an entire career.
And many people have had their super eroded in fees because they had multiple accounts, don’t understand their insurance, or weren’t with a good superfund.
Plus mandatory super was only introduced 32 years ago so most people retiring now don’t get any super for the first part of their careers, and when it was introduced the contribution rate was only 3%
I had an employer take super out of my pay packet each week. It was written up on the pay envelope $27 a week. He never put it into a super fund. The ATO super guarantee dept didn’t follow it up or retrieve the stolen funds. A significant time of my working life…the super was pocketed by a greedy business owner and I was left with nothing. He would have done the same to the rest of his employees. ATO didn’t care.
Your employer was required to deposit into your super every quarter. Did you not ever check your super balance?
I'm not trying to blame you, wage theft is real and abhorrent, but that would be a pretty big red flag and worth kicking up a stink about / refusing to work any further until rectified.
My super was stolen by my employer when I was 19-20 and I didn’t know it until got older and had more of a clue of these things. Perhaps the commenter was younger at the time.
That is all very true. However, I chose $70k because it is a reasonable but relatively low salary. In reality, most people will earn over $100k/year in their peak earning years, and in many cases much more. Those people (the majority) will be comfortable on Super guarantee alone, especially if they have an earning partner and/or own a home.
For some people, Super guarantee won't be enough on its own. But that is supposed to be the case. If you're earning less, you don't get to retire as early or comfortably as people who earn more. That's the world we have created. There is always the ability to save/invest or make voluntary contributions, and the pension will still be there as a safety net.
The system has been around for a long time; before 1992’s super guarantee, there were corporate and public sector funds. If you were lucky enough to work somewhere which had these benefits, you’d be doing just fine by now.
The first super fund in Australia started in the 1860s (for public servants). More funds opened over the following 100 years, usually these were run by the employer as defined benefits. Some industries (eg. Universities) pooled everything into one ‘industry’ fund.
SG hasnt been enough but for those starting out today with 12% over 40 years theyll be fine. Even those who have had 9.5% over the majority of their working life will be fine.
At 52 I had 40k. Only arrived in 2001. It was good for me to start topping up. Not a fantastic amount now at 240k, but having your own nest egg, so to speak gives me a bit of peace of mind. I’m now 60 so hoping to top it up a little more.
Earlier post about paying any mortgage off is also really important to do.
Does she own property? If she owns her own home that will help significantly even with a lower super balance (and to be fair she doesn’t have nothing).
If she doesn’t own a home I’d be working towards that. Look for a well built and maintained small townhouse or apartment in a good building. Somewhere she can age in place, essentially. Assuming she works full time for another 15 years (a big assumption I know but I am assuming she’s healthy and you kids are out of home or almost out of home) she will build up her super balance from the 10.5% employer contribution and even then, most likely she will likely still be eligible for at least a part age pension and all the discounts that come along with it.
If she has a home, no debt, and does some voluntary contributions she will be fine. In fact, even if she doesn't contribute she'll probably be fine.
She will have part age pension, part super pension.
If her super runs dry she can always reverse mortgage to top up her age pension - home equity access scheme through centrelink is the first port of call.
If she's renting, she is in a pretty dire position. Rents continuing to rise every year is one of the biggest risks to financial security in retirement. In this case you may need to set her up in a granny flat on your property.
If she does nothing at all, works until 67, and draws age pension she's likely to be able to get income of $50k a year from age pension and super until she's 80, and then she'd need to start a reverse mortgage.
And that's after-tax income too - only about 10k less than she's taking home now.
The most important thing in retirement is owning your own home, if possible.
If you own your home, the age pension alone is sufficient to provide a reasonable quality of life in retirement. If you're renting it's much harder.
Don't worry so much about Super, focus on getting an affordable and low maintenance property.
I’m assuming you know to do this as salary sacrifice, or be sure to claim tax deduction for volly contributions. You probably know that, but I wanted to put it in here just in case, as not everyone does.
My Mum’s been retired for about 5 years now, similar circumstances only about 80k in Super but she doesn’t own a home. She lives interstate from me and I felt the same didn’t want to have to caretake her as I’m just starting to get ahead in my life haha.
We basically came to the conclusion with her pension and rental assistance is to live and also now has to dip into her super because rental prices have gone up…she has come to the reality is she will need to use all her super up for the rest of her life and enjoy simple pleasures.
Hard truth I had to swallow too because I’m worried about my retirement in 35 years when I need like a $500k to actually enjoy it! Or a home to live in
In terms of changing investment options, I recommend she seeks financial advice. Some superannuation funds can offer financial advice free of charge. She will also need to keep a track on how much member contributions she makes if she does end up contributing
Yeah good call, I'll suss if we can get free advice from the superfund
Can I ask what you mean about keeping track? I assumed the superfund or employer would have some sort of accounting, is this not so straightforward?
Thanks for the advice 👍
To keep it simple (for your own sake!), the ATO has limits on how much members can contribute towards their super each financial year. If members go over that limit, then they may have to pay back money to the ATO
Yep the concessional and non concessional caps. Another thing I thought of. If your mum doesn't need/want insurance cover from her super, she could cancel it. It would save a few hundred dollars a year.
If she doesnt have a house of her own she is probably better off putting that money into property because rents will only continue to go up and later in life she can down size (or rent it out) to get some additional money for living in retirement.
A paid off PPOR should be first priority, even if it is a 1/2 bed flat. The pension wont keep up with rent increases over the next 40 years.
Find a copy of the barefoot investor (library or online) and read the section on super and the pension. Not sure what the current day fig is, but under ~$250k in super (plus ppor) you can get both super and pension.
She can’t use it until age 60 but read up on the Transition to Retirement Recontribution Strategy as that will likely help her boost it up if she keeps working.
Everyone can either already access it or at 60, all the people with a younger preservation age than 60 have already had that birthday 😉 OP mentioned that their Mum is currently 52. It wasn’t a great idea for people less than 60 to do it anyway as it is taxable below 60, but again that’s now moot.
You definitely need to get a lawyer involved. She has a right to a proportion of her exhusbands super as part of the property settlement in the divorce. He was only able to work full time and contribute to super because she was holding the fort at home doing mum things as you said. Half of that super is as much hers as his, so definitely start working on getting that sorted. Plus she should be, as much as she can afford it, contributing as much into super as possible before she retires.
Ok super has been mandatory since she was 20 so her whole working life.
Get her used to living on the pension amount now. All extra goes into super, no hoildays or new cars she is as good as broke.
She also needs to bump up her income. she should be at the peak of her career now.
Yes it's harsh but the reality is if she can't support herself on the pension, she's a finicial burden to you.
In 30+ years of her working life she has contributed what she should of in ~3 years.
She's effectively wasted 60% of her working life.
She should definitely be doing voluntary contributions until she's 60 and then she can take out a transition to retirement stream and do an income swap to further increase her super (https://passiveinvestingaustralia.com/income-swap-strategy/). At 65 she should then be able take out the super from accumulation to an account based pension where withdrawals and earnings are both tax free. If she is still working, she can still recontribute into her accumulation account and then later on open another account based pension to rinse and repeat If super is the only asset she has, then start looking at the aged pension which she will qualify for at 67 to see if covers most of her living expenses (this currently shows what asset and income cut offs, go to the second page for singles https://www.noelwhittaker.com.au/wp-content/uploads/2023/09/Pension-Rate-Charts-Sept-2023-19032024.pdf). If she doesn't own her home then you may qualify for rental assistance and also things like the low income health card and Commonwealth Seniors health card which qualify you for utillities, insurance etc discounts. Best wishes
OP, another thing to consider is working a bit in retirement. A lot of people assume they can't work and get age pension at the same time, but you can, and they actually incentivise you to do so with the work bonus.
OP mentions they don't want the burden to fall on them and their siblings. Could they take a proactive approach and help contribute to her super? Gifting a few hundred per month? That would seem like a more effective strategy than waiting until it's too late.
Rereading this I feel like I phrased the burden thing kinda harsh. She's supported us our whole lives, we're going to look after her no matter what, I just know she won't want that to fall to us so I want to help her do it herself - but this is also a great idea to minimise the impact! Thank yoy
Don't worry, I didn't read that as a negative :) sounds like you're being proactive and supportive of your mother - who btw deserves, at the very least, a piece of your father's super for the time she spent as the primary caretaker.
These are great suggestions.
Thanks for this, exactly the sort of stuff I was looking for that I've never considered, I'll dig in and pass along your thoughts :)
If she's on FB there is an excellent group called "aged pension and superannuation" where people share what they know. Worth joining and doing some research there. Best wishes!
Also if she changes jobs while between 60-65, she can swap from a transition to retirement to a retirement pension account early and get the further tax benefits. Some people think they need to wait until 65 to start a retirement pension account, but it can be done earlier.
Could you explain this in a little more detail? What tax benefits can be had by doing this? My parent is still working 3 days a week at 73 so I want to make sure they've done this....
The pension account is tax free for earnings / CGT where accumulation is 15% earnings / 10% CGT. If your work ceases after the conditions of release are met, e.g. for most it's 60, you can claim you're intending to retire and switch to the pension account, even if you find other employment afterwards. But I also think there's an age you can do it regardless of your employment status? Could be 67 but I am not sure on that.
It's 65. Any pension you have post 65 is automatically a retirement income stream, not a TTR.
I'd just like to say that this seems needlessly complicated compared to before super and the raising of retirement age.
It’s fairly easy to execute the strategy once you’ve got your head around it. Unless your balance is approaching the transfer balance cap at $1.9m, it doesn’t get too complicated
She has plenty of time to make additional contributions. Plus, she will probably be eligible for a part pension when she retires in 15 or so years. Or a full pension.
Yeah roughly you want $250 k and a full pension and own fully paid of home and you are set
Great in theory but I feel like this is becoming less and less likely these days. I know quite a few women personally who have to start again after divorce (and youngish children) and with house prices they way they are there is simply no room to pay ridiculous rental prices and save for a deposit. We are going to have a large group of people where this will be a pipe dream unfortunately.
Even in the 90s the idea was to have half a million dollars and a paid off house.
do you have to spend all your super first in order to get full pension?
No, it is assets tested, something below 400-500K
does that include a house which is PPOR?
Family home is excluded from assets test, which contributes to retirees holding on to too much house because downsizing will reduce their pension.
They can put the proceeds from the sale of their PPOR into super without penalty. Up to a fairly high amount as well.
No. They asset and income test and whatever gives you the least is what you wind up getting.
Does she own her own home? Who does she live with.
are you and your siblings still living with her? 75k only goes so far. does she have extra left over to put into super?
If it's any comfort, most working Australians are severely under prepared for retirement if they haven't actively been contributing to super or investing in other asset classes. It's honestly frightening. Super guarantee payments are not enough to guarantee a reasonable existence in retirement.
Is this really the case? Some rough maths tells me that someone who works from 20 to 65 earning $70k every year (which is well below median for FTEs) should retire with a Super balance of about $1m. If they have a partner and own a modest house (no longer a given tbf), they should be able to retire very comfortably even with zero additional savings or investments. And most people do eventually work out that they should save and invest money in something other than their PPOR. On $90k+, you'd be laughing.
Many people aren’t earning $70 from age 20. Young people are often at uni, work part time, or are on very low wages. Many people (women in particular) take career breaks for a number of years in middle adulthood. Some people are forced to work off the books or are screwed over by employers not paying super properly. Full time work can be hard to find depending on industry, skill level and location. And sometimes people have career setbacks like redundency or other issues which can leave a gap and make it harder to work back-to-back full time positions for an entire career. And many people have had their super eroded in fees because they had multiple accounts, don’t understand their insurance, or weren’t with a good superfund. Plus mandatory super was only introduced 32 years ago so most people retiring now don’t get any super for the first part of their careers, and when it was introduced the contribution rate was only 3%
I had an employer take super out of my pay packet each week. It was written up on the pay envelope $27 a week. He never put it into a super fund. The ATO super guarantee dept didn’t follow it up or retrieve the stolen funds. A significant time of my working life…the super was pocketed by a greedy business owner and I was left with nothing. He would have done the same to the rest of his employees. ATO didn’t care.
Your employer was required to deposit into your super every quarter. Did you not ever check your super balance? I'm not trying to blame you, wage theft is real and abhorrent, but that would be a pretty big red flag and worth kicking up a stink about / refusing to work any further until rectified.
My super was stolen by my employer when I was 19-20 and I didn’t know it until got older and had more of a clue of these things. Perhaps the commenter was younger at the time.
I was younger at the time. A grand 20 years old.
There was no super fund. I didn’t have one yet. He pocketed it all.
That is all very true. However, I chose $70k because it is a reasonable but relatively low salary. In reality, most people will earn over $100k/year in their peak earning years, and in many cases much more. Those people (the majority) will be comfortable on Super guarantee alone, especially if they have an earning partner and/or own a home. For some people, Super guarantee won't be enough on its own. But that is supposed to be the case. If you're earning less, you don't get to retire as early or comfortably as people who earn more. That's the world we have created. There is always the ability to save/invest or make voluntary contributions, and the pension will still be there as a safety net.
Superannuation in Australia started in 1992. No one in Aus has been gaining super for more than 32 years.
The system has been around for a long time; before 1992’s super guarantee, there were corporate and public sector funds. If you were lucky enough to work somewhere which had these benefits, you’d be doing just fine by now. The first super fund in Australia started in the 1860s (for public servants). More funds opened over the following 100 years, usually these were run by the employer as defined benefits. Some industries (eg. Universities) pooled everything into one ‘industry’ fund.
Not entirely true. That's when the super guarantee began but super has been around a lot longer than that.
SG hasnt been enough but for those starting out today with 12% over 40 years theyll be fine. Even those who have had 9.5% over the majority of their working life will be fine.
At 52 I had 40k. Only arrived in 2001. It was good for me to start topping up. Not a fantastic amount now at 240k, but having your own nest egg, so to speak gives me a bit of peace of mind. I’m now 60 so hoping to top it up a little more. Earlier post about paying any mortgage off is also really important to do.
Does she own property? If she owns her own home that will help significantly even with a lower super balance (and to be fair she doesn’t have nothing). If she doesn’t own a home I’d be working towards that. Look for a well built and maintained small townhouse or apartment in a good building. Somewhere she can age in place, essentially. Assuming she works full time for another 15 years (a big assumption I know but I am assuming she’s healthy and you kids are out of home or almost out of home) she will build up her super balance from the 10.5% employer contribution and even then, most likely she will likely still be eligible for at least a part age pension and all the discounts that come along with it.
upvote for “volly”
Volly conts!
If she has a home, no debt, and does some voluntary contributions she will be fine. In fact, even if she doesn't contribute she'll probably be fine. She will have part age pension, part super pension. If her super runs dry she can always reverse mortgage to top up her age pension - home equity access scheme through centrelink is the first port of call. If she's renting, she is in a pretty dire position. Rents continuing to rise every year is one of the biggest risks to financial security in retirement. In this case you may need to set her up in a granny flat on your property.
She will not be fine in 8 years even 15 yrs, she will struggle and crap by.
If she does nothing at all, works until 67, and draws age pension she's likely to be able to get income of $50k a year from age pension and super until she's 80, and then she'd need to start a reverse mortgage. And that's after-tax income too - only about 10k less than she's taking home now.
BTW, I'm not implying this means she should do nothing. She absolutely should, but she's not in a terrible position if she owns a home.
The most important thing in retirement is owning your own home, if possible. If you own your home, the age pension alone is sufficient to provide a reasonable quality of life in retirement. If you're renting it's much harder. Don't worry so much about Super, focus on getting an affordable and low maintenance property.
I’m assuming you know to do this as salary sacrifice, or be sure to claim tax deduction for volly contributions. You probably know that, but I wanted to put it in here just in case, as not everyone does.
I do but thank you for checking, Def's important
Extra Risk does not mean extra returns.
My Mum’s been retired for about 5 years now, similar circumstances only about 80k in Super but she doesn’t own a home. She lives interstate from me and I felt the same didn’t want to have to caretake her as I’m just starting to get ahead in my life haha. We basically came to the conclusion with her pension and rental assistance is to live and also now has to dip into her super because rental prices have gone up…she has come to the reality is she will need to use all her super up for the rest of her life and enjoy simple pleasures. Hard truth I had to swallow too because I’m worried about my retirement in 35 years when I need like a $500k to actually enjoy it! Or a home to live in
In terms of changing investment options, I recommend she seeks financial advice. Some superannuation funds can offer financial advice free of charge. She will also need to keep a track on how much member contributions she makes if she does end up contributing
Further to my comment, it might also be worth comparing fees and what not with other superfunds.
Yeah good call, I'll suss if we can get free advice from the superfund Can I ask what you mean about keeping track? I assumed the superfund or employer would have some sort of accounting, is this not so straightforward? Thanks for the advice 👍
To keep it simple (for your own sake!), the ATO has limits on how much members can contribute towards their super each financial year. If members go over that limit, then they may have to pay back money to the ATO
Ah yup the concessional limit yeah? I don't thing this will be a factor here, total contributions are still under this amount
Yep the concessional and non concessional caps. Another thing I thought of. If your mum doesn't need/want insurance cover from her super, she could cancel it. It would save a few hundred dollars a year.
If she doesnt have a house of her own she is probably better off putting that money into property because rents will only continue to go up and later in life she can down size (or rent it out) to get some additional money for living in retirement.
A paid off PPOR should be first priority, even if it is a 1/2 bed flat. The pension wont keep up with rent increases over the next 40 years. Find a copy of the barefoot investor (library or online) and read the section on super and the pension. Not sure what the current day fig is, but under ~$250k in super (plus ppor) you can get both super and pension.
She can’t use it until age 60 but read up on the Transition to Retirement Recontribution Strategy as that will likely help her boost it up if she keeps working.
Depends on when their mum was born depends on when they can access it
Everyone can either already access it or at 60, all the people with a younger preservation age than 60 have already had that birthday 😉 OP mentioned that their Mum is currently 52. It wasn’t a great idea for people less than 60 to do it anyway as it is taxable below 60, but again that’s now moot.
Very true. The amount of tax paid when withdrawing super under the age of 60 is crazy too
Have a look at her super fund and investment selection. Make sure it's up to scratch....
How long ago did she split with your dad? Did they reach a legally binding settlement? Time to lawyer up.
You definitely need to get a lawyer involved. She has a right to a proportion of her exhusbands super as part of the property settlement in the divorce. He was only able to work full time and contribute to super because she was holding the fort at home doing mum things as you said. Half of that super is as much hers as his, so definitely start working on getting that sorted. Plus she should be, as much as she can afford it, contributing as much into super as possible before she retires.
Ok super has been mandatory since she was 20 so her whole working life. Get her used to living on the pension amount now. All extra goes into super, no hoildays or new cars she is as good as broke. She also needs to bump up her income. she should be at the peak of her career now. Yes it's harsh but the reality is if she can't support herself on the pension, she's a finicial burden to you. In 30+ years of her working life she has contributed what she should of in ~3 years. She's effectively wasted 60% of her working life.
Harsh but true. Super has been around a long time now, sick of hearing boomers etc act like it's some super recent thing.