Retirement planning is a journey that unfolds over many years. It’s a process that involves careful financial management, strategic investment, and thoughtful lifestyle decisions. But did you know that there are four key ages that could significantly impact your retirement planning? Let’s delve into these pivotal milestones.

Age 60: Accessing Your Super

The age of 60 is a significant milestone in the context of retirement planning in Australia. This is the age when you can start accessing your superannuation if you have reached your preservation age and retired. The preservation age varies depending on when you were born, but for most people, it’s between 55 and 60.

Superannuation, often referred to as ‘super’, is a long-term financial arrangement specifically designed to provide income in retirement. Throughout your working life, contributions are made into your super fund. These contributions are invested on your behalf by the fund, with the aim of growing your retirement savings over time.

When you turn 60 and meet the necessary conditions, you can start accessing these savings. This is a significant benefit of the superannuation system, as it allows you to tap into a large portion of your retirement savings. The funds you withdraw from your super after you turn 60 are tax-free. This is a substantial advantage, as it means you can access your superannuation savings without incurring any additional tax liability. This tax-free status can provide a substantial boost to your retirement income, helping to ensure that you have the funds you need to enjoy your retirement years.

However, while turning 60 allows you to start accessing your super, it doesn’t mean you have to. Some people may choose to continue working and contributing to their super beyond this age. This can allow for even greater growth of your super balance, providing more income for when you do decide to retire.

Age 65: Adding to and Withdrawing from Your Super

The age of 65 is a significant milestone in the journey of retirement planning. It’s the age where you gain unrestricted access to your superannuation, regardless of your employment status. This means you can withdraw some or all of your super whenever you need to, providing greater flexibility in managing your retirement income.

However, it’s also the age at which certain rules and restrictions start to apply for adding more to your super. Prior to July 2022, individuals aged 65 to 74 were required to meet a work test to make voluntary super contributions. The work test involved working at least 40 hours over 30 consecutive days in the financial year you plan to make the contribution.

This requirement was designed to ensure that superannuation, which receives favourable tax treatment, is used for its intended purpose—providing income in retirement, rather than being used for estate planning or tax minimisation purposes. However, this rule posed a barrier for older Australians who wanted to boost their super balance but were not working the required hours.

Recognising this, the Australian Government introduced changes to the superannuation rules in July 2022. Under the new rules, Australians under the age of 75 can make voluntary super contributions without needing to meet the work test. This change provides greater flexibility for older Australians to contribute to their super, allowing them to boost their retirement savings and better prepare for retirement.

However, it’s important to note that while the work test has been removed for most voluntary contributions, it still applies for personal deductible contributions for those aged 67 to 74. Personal deductible contributions are contributions you make from your after-tax income and then claim a tax deduction on. If you’re in this age group and want to claim a tax deduction for personal super contributions, you’ll still need to meet the work test.

These changes to the superannuation rules highlight the evolving nature of retirement planning. As our understanding of retirement changes and as people live longer, healthier lives, it’s important that our retirement planning strategies and the rules that govern them adapt accordingly.

Age 67: Government Age Pension

The age of 67 is another significant milestone in the retirement planning journey in Australia. This is the age at which you become eligible for the Age Pension, provided you meet the income and assets tests. The Age Pension is a regular income stream paid by the government to eligible Australians who have reached their Age Pension age. It’s designed to provide a safety net for individuals who do not have sufficient superannuation or other resources to support themselves in retirement.

The Age Pension can supplement your super and other income sources, providing a level of financial security in your retirement years. However, it’s important to plan your retirement income carefully, as the income and assets tests could reduce your Age Pension entitlements. The Age Pension is means-tested, which means that the amount you receive depends on your income, assets, and other circumstances.

However, not everyone will qualify for the Age Pension, and this is where the Commonwealth Seniors Health Card can come into play. For self-funded retirees who do not qualify for the Age Pension due to their income or assets exceeding the thresholds, the Commonwealth Seniors Health Card can be a valuable aid. This card provides older Australians with access to cheaper prescription medicines, Medicare bulk billing, a higher Medicare Safety Net, and various other state-based concessions.

The Commonwealth Seniors Health Card is subject to an income test, but unlike the Age Pension, it’s not subject to an assets test. This means that your savings, investment properties, and other assets won’t affect your eligibility for the card. It’s a valuable benefit for self-funded retirees, helping to reduce healthcare costs and providing access to certain government concessions.

Age 75: Restrictions on Adding to Super

The age of 75 is a critical juncture in the context of retirement planning in Australia. Once you turn 75, the rules around contributing to your super become more restrictive.

At this age, you can no longer make non-concessional (after-tax) contributions or receive contributions from your spouse. Non-concessional contributions are those made from your after-tax income. These contributions are not subject to the 15% contributions tax that applies to concessional contributions, making them an attractive option for boosting your super balance. However, once you turn 75, you can no longer make these contributions, which can limit your ability to add to your super.

Similarly, spouse contributions, where your spouse makes a contribution to your super fund on your behalf, are also no longer permitted once you turn 75. Spouse contributions can be a useful way for couples to balance their super balances and potentially take advantage of the spouse contribution tax offset. However, this strategy is no longer available once the receiving spouse turns 75.

Concessional (before-tax) contributions, including employer contributions and salary sacrifice contributions, are only permitted if you meet the work test or qualify for the work test exemption. Concessional contributions are those made from your before-tax income, such as compulsory Super Guarantee contributions made by your employer or salary sacrifice contributions that you choose to make. These contributions are taxed at a concessional rate of 15%, which is lower than most people’s marginal tax rate.

Conclusion

Understanding these key ages can help you navigate the complexities of retirement planning. Each of these milestones presents unique opportunities and challenges, and being aware of them can help you make informed decisions about your retirement. However, everyone’s circumstances are different, and what works best for one person might not work for another. Therefore, it’s crucial to seek professional financial advice tailored to your individual needs and goals.