A high-five to boost super

The deterioration in superannuation account balances that started four years ago is making a comfortable retirement look that much harder to achieve for those in their 50s and 60s.

Without much time left in the workforce, they will have to save harder and smarter to claw back the losses. .

The starting point for boosting super is salary sacrificing into super, Graeme Colley, the national technical manager at ANZ's wealth division, OnePath, says. "For many people over age 55, their kids are often off their hands and they are starting to save again," Colley says.

Salary sacrifice

Most employers allow employees to put some of their pre-tax pay into their super. Each dollar of pre-tax pay put into super is taxed on the way in at 15 per cent instead of the investor's marginal income tax rate.

Someone on the 37 per cent income tax rate would save 22? in tax for each dollar sacrificed into super.

The savings are even more once the Medicare levy and the flood levy are taken into account. The maximum amount of pre-tax income that can be sacrificed into super is $50,000 for over-50s, although the government has said the over-50s cap would reduce to $25,000 from July 1, 2012. The cap includes the 9 per cent superannuation guarantee.

The government is in talks with the industry on whether to leave the $50,000 cap in place for over 50s who have less than $500,000 in super. Another option believed to be under consideration is that over 50s be allowed a limit of $35,000.

Super consolidation

Fund members should consolidate their super funds into a single fund, Philip La Greca, the technical services director at Multiport, says. Someone with super money scattered across three to four funds could be paying much higher fees than if they had a single fund, La Greca says. Those with several funds may also be paying for multiple insurance.

The Association of Superannuation Funds of Australia estimates there are just over two super accounts per person, on average. Researcher SuperRatings estimates there is about $11 billion in "lost" super. Most of the lost accounts are relatively small but more than 200,000 of them hold more than $10,000 each.

Unclaimed superannuation can be searched through the Tax Office's SuperSeeker search tool at ato.gov.au/superseeker.

Low-income partner

The co-contribution scheme is one of the best investment opportunities going for those who qualify, La Greca says. For each dollar of after-tax contributions to superannuation, the government contributes a matching dollar. The maximum entitlement is $1000 for this financial year for those with taxable incomes up to $31,920. The government's contribution reduces to zero at an income of $61,920.

Spouse contributions are where one spouse makes after-tax contributions to the other spouse - married or in a de facto relationship, including same sex.

The contributing spouse will receive an 18 per cent tax rebate on contributions of up to $3000 per year, or $540 provided the spouse receiving the contributions earns less than $10,800 a year.

A partial rebate applies if the receiving spouse earns more than $10,800 per year, up to a maximum of $13,800 per year. Spouse contributions that attract the tax rebate cannot be made to a spouse age 70 or over.

Between ages 65 and 70, they must be working at least 10 hours a week, on average.

Transition-to-retirement

A transition-to-retirement (TTR) strategy can be very beneficial, Frank Gayton, national practice manager, Industry Fund Financial Planning, says.

Almost everyone between 55 and 65, even if they are working full time, can start a TTR pension.

The idea is similar to salary sacrifice - swap the income tax that would have been paid on salary for the 15 per cent that applies on contributions into super. With a TTR strategy however, the extra step is that income is drawn as a pension.

The amount of salary sacrificed and taken out as a pension is calculated so that the after-tax income is unchanged.

The strategy allows money to be diverted legitimately into the super account balance and away from the Tax Office.

However, La Greca says those considering this strategy need to weigh the costs against the benefits.

A financial planner will be needed to implement and maintain the strategy, and there will be two accounts, an accumulation account and a pension account, which may have separate sets of fees. La Greca says the plan is offers the best tax benefits for those over 60, when there is no tax on withdrawals from pensions. The larger the account balance and higher the income, the more effective the strategy, he says.

Super splitting

This involves splitting "concessional" contributions such as the 9 per cent superannuation guarantee and salary sacrifice contributions with their spouse. The maximum that can be split is generally 85 per cent of concessional contributions. For example, if the spouse "payer" has made $10,000 in concessional contributions in the financial year, generally up to $8500 of the $10,000 can be put into the spouse's account.

The cap for the spouse "payer" is the same as for salary sacrifice.

The receiving spouse must be under 65 and, if over 55, must not have permanently retired.

Splitting strategies can have several potential advantages. A split to an older spouse could allow early and tax-free access to their retirement savings. Splitting with a younger spouse below pension age could help maximise Centrelink benefits. Super splitting may become more attractive if the government legislates its proposal to continue the higher concessional cap of $50,000 for those above 50 years with less than $500,000 in super, Colley says.

What's needed

Weekend Money asked Graeme Colley, national technical manager at ANZ's wealth management arm OnePath, for calculations showing how much super is needed to fund a $50,000-a-year retirement income.

That is the amount research suggests is needed to fund a comfortable retirement.

John is 63 and Mary is 61 and have just retired and own their home outright.

The target is a combined income of $50,000 a year, adjusted for inflation, until John reaches 81, after which the $50,000 will no longer be adjusted for inflation as the couple's expenses are expected to fall.

The calculations assume the couple will receive a part-age pension and then the full age pension when John turns 71.

After John turns 85, the couple will live on the age pension only as they there will be no money left in their account-based pension.

Assuming an earnings rate on the account-based pension of 6.5 per cent a year, the amount needed at the point of retirement is $430,000.

By delaying retirement by two years, the required savings falls to $375,000.

Couples who want to be able to take regular overseas holidays and enjoy some of the finer things in life would need a retirement income of more than $50,000 a year.