The final stretch: Building wealth before retirement

The years in the leadup to retirement are an important time. Retirement feels close enough to picture, but it’s still far enough away for today’s actions to make a meaningful difference. While you’re still receiving a salary, treating those final working years as an opportunity to optimise your finances can be a smart move.

Take stock of your current financial position

Before changing anything, take a broader look at your financial position and try to get a sense of how things are tracking. How much do you have in super and other investments? Do you still have any debts? Are there large expenses on the horizon? 

This simple exercise can confirm whether you’re in good shape – in which case you can turn your attention to other aspects of retirement planning – or reveal a shortfall while there’s still time to do something about it.

Maximise your super contributions

If your super balance isn’t as large as you’d like it to be, consider whether you can increase your concessional contributions. You might be able to do this by salary sacrificing or by making an eligible personal contribution and subsequently claiming it as a tax deduction.

This can be worthwhile as concessional contributions are generally taxed at 15% within super. Contribution caps apply, however, so make sure to check how much you’ve already paid into super throughout the financial year before making any additional contributions.

Catch-up concessional contributions and other tax-effective strategies

If you haven’t used your full concessional contributions cap in a previous financial year, you might be able to carry the unused amount forward and use it in a later year. This is known as the carry-forward rule, and for someone approaching retirement, it can be a great opportunity to make larger contributions when income is higher or extra cash is on hand.

There are other potentially tax-effective strategies worth investigating, too, including timing taxable events so they coincide with low income years, or making contributions to a spouse’s super. Of course, tax strategies like these can often be complicated, so be sure to get advice if you need help understanding how the rules apply to your circumstances.

Review your investment mix

With retirement coming up, have you given some thought to whether your super investment option still reflects your needs? One thing to keep in mind is that an upcoming retirement doesn’t necessarily mean you should move everything into defensive investments. After all, your money might still need to grow for many years after work stops, particularly if you expect to live a long time. 

A more sensible approach might be thinking about how much risk you can tolerate, when you expect to draw on your savings (and how much you’ll draw on), and how your investments might behave if markets took a turn for the worse.

Pay down debt and improve your cash flow

A strong retirement position is about more than the size of your super balance. The money flowing in and out of your household matters too.

Reducing high-interest debt can free up cash for investing, or simply reduce the amount of income you need once work stops. It’s also worth taking a close look at your spending in case there are costs that you can eliminate without putting a dent in your preferred lifestyle.

In the end, there’s no single formula for getting retirement-ready. Your approach will depend on your income, super balance, investments, debts and the lifestyle you want to fund. But with retirement within sight, reviewing all these moving parts – and finding ways to optimise them – can help ensure your final working years are used wisely.

For more information contact the My Fortress team.