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How can I save $1 million for retirement?

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I’m in my late 40s and want to improve my position in retirement. I hear that $1 million is needed in retirement, a level I am currently not on track for.

I have a home worth $800,000 and owe about $200,000 on it. My super is about $300,000. Should I pay off my loan or try salary sacrifice?

The beauty of getting trustworthy financial advice is that the planner could run a test on both scenarios. Be careful – some planners always want people to ramp up super because they get a commission or charge a fee based on funds under management.

Tests I have seen done for some people show the result can be line ball depending on what returns you get from super versus your property. Your principal property is capital gains tax-free and super is taxed at 15 per cent. And what you take out after age 60 is tax-free.

Some people like to pay off their home and then salary sacrifice, while others salary sacrifice to retirement and then pay off the home. As lump sums come out tax-free after age 60, this is more appealing nowadays compared to the past. However, your personal circumstances need to be considered before comment. On the $1 million issue, it depends on what you spend a year.

If you plan to spend $70,000 a year, $1 million in super might be needed. If $35,000 a year is needed, then maybe $500,000 in super might be OK. It will depend on the return your allocated pension makes. By owning a house, you can trade back to something smaller or taking out a reverse mortgage could save many retirees when their lump sum runs out.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, April 01, 2011

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