How much do I need in my SMSF to retire?

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How much do i need in my SMSF to retire
Self Managed Superannuation
By
John Liston
John Liston
Director | Adviser
March 3, 2020
5
minute read

Your questions on much you need in your SMSF to enjoy your retirement, answered

Planning for your retirement raises its own set of complex questions. The question that tends to cause the most stress for clients approaching retirement age is “how much do I need in my SMSF to retire?”

Extending life expectancies are further complicating this issue. As we’re now expected to live past 90, people who stop work at 60 are now required to fund a 30-year retirement.

Therefore, it’s best to know these figures as early as possible, so you can do everything in your power to put robust retirement plans in place. It’s much easier to make adjustments now, than if you start thinking about it five years before you wish to retire.

Get in touch with a Liston Newton Advisory SMSF specialist today to discuss your retirement goals. We’ll work with you to put a plan in place that allows you to have the comfortable, enjoyable retirement you’ve worked your whole life to achieve.

How much should I aim to have in my SMSF before I retire?

How much money is required to be in your SMSF to enable a comfortable retirement depends on a number of factors:

  • What age you plan to retire
  • The amount of income you wish to spend each year of your retirement
  • The type of investments you’re comfortable holding in your SMSF
  • If you plan to leave money for the next generation

SMSF actuary Accurium undertook a recent study for approximate retirement amounts. Based on an average retirement age of 65, they determined that:

  • Living off $60k per annum requires $702k in your SMSF
  • Living off $70k per annum requires $1.1million in your SMSF
  • Living off $100k per annum requires $1.8million in your SMSF

These figures are assuming that you invest you invest in an even 50-50 split of growth assets and defensive assets.

This doesn’t tell the whole story

SMSF retirement

The above figures paint a simplified, straightforward answer to the question of 'how much do I need in my SMSF to retire?'

The reality is that everyone’s situation is different.

Most people don’t simply stop working once they reach 65 years old. They may choose to go part-time, or switch roles to a consultant in order to supplement their income. Working a little longer than you originally planned means you can reduce the amount of savings are required.

Most people don’t spend the same amount every year for 30 years, either.

When people begin to remove themselves from work in their 60s, they take advantage of more time to travel, or take holidays. This increases their spending in those early years.

As retirees transition into their 70s and 80s, travel becomes less frequent, and their spending reduces. Approaching 90, however, can often see your spending increase due to health issues.

When can I access my SMSF?

Under Australian legislation, you can’t access your super until you reach preservation age.

[table]
[thead]
[tr]
[th]Date of birth[/th]
[th]Preservation Age[/th]
[/tr]
[/thead]
[tbody]
[tr]
[td]Before 1 July 1960[/td]
[td]55[/td]
[/tr]
[tr]
[td]1 July 1960 – 30 June 1961[/td]
[td]56[/td]
[/tr]
[tr]
[td]1 July 1961 – 30 June 1962[/td]
[td]57[/td]
[/tr]
[tr]
[td]1 July 1962 – 30 June 1963[/td]
[td]58[/td]
[/tr]
[tr]
[td]1 July 1962 – 30 June 1963[/td]
[td]59[/td]
[/tr]
[tr]
[td]From 01 July 1964[/td]
[td]60[/td]
[/tr]
[/tbody]
[/table]

Transitioning to your retirement income stream

Your Transition to Retirement Income Stream (TRIS) is the income stream that commences in your SMSF once you reach preservation age, yet haven’t yet retired. This SMSF pension is designed to help you access a limited amount of your super as you gradually transition into retirement.

The TRIS is useful in assisting those who want to start drawing down from their super, but aren’t ready to fully retire yet.

Example

For example, say you earn $100k per year as a full-time employee. Instead of retiring and drawing the full $100k per year from your SMSF, you might instead go part time. Then you would draw $50k TRIS from your SMSF.

This helps to reduce the amount of income required from your super over the long-term, preserving your balance for longer.

Tax exemptions during your retirement

While accessing your TRIS can help to preserve your retirement balance, transitioning to full retirement brings its own benefits. These come in the form of tax exemptions.

This table explains these benefits succinctly.

[table]

[thead]

[tr]

[th] [/th]

[th]TRIS (non-retirement)[/th]

[th]Retirement (R-TRIS)[/th]

[/tr]

[/thead]

[tbody]

[tr]

[td]Income tax[/td]

[td]15%[/td]

[td]Tax-free[/td]

[/tr]

[tr]

[td]Capital gains tax - asset owned less than 12 months[/td]

[td]15%[/td]

[td]Tax-free[/td]

[/tr]

[tr]

[td]Capital gains tax – asset owned 12 months or longer[/td]

[td]10%[/td]

[td]Tax-free[/td]

[/tr]

[tr]

[td]Capital gains tax – asset owned 12 months or longer[/td]

[td]10%[/td]

[td]Tax-free[/td]

[/tr]

[tr]

[td]Personal tax – pension withdrawals – preservation age to 59[/td]

[td]See your financial adviser*[/td]

[td]See your financial adviser*[/td]

[/tr]

[tr]

[td]Personal tax – pension withdrawals – 60+[/td]

[td]Tax-free[/td]

[td]Tax-free[/td]

[/tr]

[tr]

[td]Maximum pension withdrawal[/td]

[td]10%[/td]

[td]None[/td]

[/tr]

[tr]

[td]Balance transfer cap[/td]

[td]No[/td]

[td]Yes[/td]

[/tr]

[/tbody]

[/table]

*There is a lot to take in when calculating the tax paid on your personal tax. We recommend speaking with your financial planner to discuss this in more detail.

The final word

Whatever your retirement goals, it’s never too late to put a comprehensive plan in place to enable you to comfortably live out your retirement.

Whether your goal is to retire at 60, or work until you’re 75, your SMSF adviser can work with you to ensure you’re able to accumulate the amount of money that allows you to retire on your terms.

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