Will you be able to finance your Retirement?
Legislation changes to superannuation over the past 12 years mean we cannot leave retirement planning until our 50’s and 60’s. One of the most important changes is the amount we can contribute to our superannuation fund.
In 2005 you could salary sacrifice up to $100,587 into super. This meant that in a single year up to $100,587 could be contributed to your super and you would receive a tax deduction for this contribution. By 2019, this maximum tax deductible contribution has reduced to just $25,000.
This means we can only contribute one quarter the amount to super that we could 14 years ago – yet the cost of retirement continues to rise.
What does this mean for retirement planning?
Prior to the change in legislation, you could begin salary sacrificing in your 50’s and have a considerable amount saved up for retirement. Most people have more income to contribute to superannuation in their 50’s, so this used to be the ideal time to save.
Many of my clients in their 50’s have paid down their mortgage and they can now save more than $2,000 per month. They are also no longer paying school fees, uniforms, clothing, etc., for their children. Their income is similar but their ability to save is higher.
They want to plan now for their retirement in a tax effective manner; however, they face the considerable constraint of the $25,000 cap.
Start planning early
Historically, we have left planning for our retirement until we are in our 50’s. Before this time, there’s mortgage repayment, school fees, and family living costs to concern ourselves with. In our 50’s, we continue to enjoy the same income, but living costs reduce and our mortgage is paid down – so we have additional funds to invest into superannuation.
However, changes to legislation mean you can no longer wait until your 50’s to plan for retirement in a tax effective way. With the $25,000 limit, you will need to begin contributing far earlier to ensure you have enough funds for retirement.
Not only that, the cost of living continues to rise, and those retiring in the future will need more money accumulated for retirement than those retiring today.
The moral of this story is that we must plan as soon as possible for our retirement. We must do something each year and not leave it too late.
If you have any questions about retirement planning, or you’re looking for a financial planner in sydney to help build your wealth, get in touch with Peter Quinn by filling out our contact form, or give us a call on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.