What's a tax-effective strategy to maximise my retirement income?

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There's a very good reason financial planners focus on devising strategies for you to build your superannuation balance in preparation for retirement - super is typically the most tax-effective vehicle to hold your retirement savings.

So what are the best ways to design a tax-effective strategy to maximise your retirement income?

NGS Super financial planner Cheryl Haines says designing a strategy that will save you on tax as well as boost the amount of funds you'll have in retirement comes down to good financial planning.

"The more you can dedicate to super over the longer term, the more tax effective super will likely become for you once you reach retirement," she said.

"And don't be concerned if you've come to the super party a little late and haven't managed to contribute as much as you had hoped in the lead-up to retirement. This can be the case for many different reasons but there may still be opportunities for you to make contributions and enjoy the tax benefits."

The Government imposes annual contribution caps to both concessional (before-tax) and non-concessional (after-tax) contributions. "While the caps are relatively generous, currently $27,500 per annum for concessional contributions and $110,000 per annum for non-concessional contributions, both of which will be indexed to $30,000 per annum and $120,000 per annum respectively from 1 July 2024, consistently adding to your super over time, if possible, is key," Ms Haines said.

This comes down to the fact that once you are over the age of 60, and assuming you have met a condition of release which enables you to withdraw a lump sum or commence an income stream (or both), you have access to your super completely tax free. In fact, the lump sum or regular income stream payment doesn't form part of your taxable income and any payments are not required to be recorded in your income tax return. "In addition, by switching on an income stream in retirement, the investment earnings are also tax free allowing you to maintain your retirement nest-egg in a tax-free environment," Ms Haines said.

One of the easiest ways to add to your super balance is with voluntary super contributions.

Voluntary super contributions are contributions you actively choose to make. They're different to your employer contributions because they're not compulsory. And the good news is you can continue to make these contributions, which you don't intend to claim a tax deduction on, up to the age of 75.

"People make voluntary super contributions to give their super balance a boost, knowing they'll have more tax-free income in retirement," Ms Haines said.

The downsizer contribution allows you to use the proceeds from the sale of your home to make a contribution to super. It's an after-tax contribution, meaning the contribution is tax-free and doesn't attract the 15 per cent contribution tax on the way into super.

Ms Haines said a downsizer contribution provides an opportunity for people who might otherwise be ineligible to contribute to super due to their financial situation or age.

"The rules around a downsizer contribution can be complex and may affect income support payments like the Age Pension so it's a good idea to speak to a financial planner first," she said.

This is the latest in a series of articles to help you prepare financially for life's stages. Each month, an NGS Super expert answers your questions. Email yours to ASKNGS@ngssuper.com.au

This information is general information only and does not take into account your personal objectives, financial situation or needs. Before acting on this information or making an investment decision, consider your personal circumstances and read our Product Disclosure Statement and Target Market Determination at ngssuper.com.au