In an ideal world we would all retire with a great big pot of money and spend our days living a life of luxury. But the odds are very few of us will get to have such a charmed existence.

The harsh reality is those who rely solely on the superannuation guarantee charge to build their retirement nest egg will probably struggle.

But getting around to superannuation contributions can be difficult when you are paying a mortgage and bringing up kids.

And even a solid financial plan can end up in tatters if there's an unexpected divorce, job loss, illness or a downturn in the stock market.

So for many people retirement planning is probably going to come down to a few hasty 11th-hour manoeuvres and hoping for the best.

According to the latest AMP-NATSEM (National Centre for Social and Economic Modelling) Income and Wealth Report, there is already a sizable group of Australians on the verge of retirement who have next to nothing invested in superannuation.

The average estimated superannuation balance for the 2.7 million Australians in the 50-to-64-years age group is just $56,000.

They have another $58,000 on average in other savings and investments but the bulk of their wealth another $126,000 on average is tied up in the family home.

Andrew Mohl, managing director of AMP Financial Services, says it is likely many of these people will have to sell the family home to fund their retirement.

Helen Barrett, not her real name, is typical of the people in this predicament.

Having retired at the end of last year with just $12,000 in superannuation, the only way she could supplement her age pension was to downsize the family home. The worked example (far right) shows that by freeing up about $100,000 in capital and investing it in an allocated pension or an allocated annuity, she could draw down an additional $6000 to $12,500 each year without affecting her age pension or her income-tax position.

Nevertheless, advisers warn that such a strategy requires some careful planning.

Andrew Heaven, a principal at WealthPartners Financial Solutions and an AMP financial planner, says: "One thing I would warn people about is to make sure the property they are going to move to is one that they can see themselves in for the long term."

He points out the transfer costs of selling up and buying a new property are quite high usually about 8 per cent so making a mistake can be expensive.

He advises people to rent in their preferred area for six months to be "absolutely sure" about their decision before they go ahead with a move.

Jennifer Brookhouse, technical strategy manager with ING, says people also need to be sure that downsizing will provide them with the capital they need to fund their retirement.

Someone selling an old property and buying a new one in a similar area may find they do not end up with much leftover capital.

She suggests people should not only look at their living expenses when they are doing their sums but also at how their expenses may change over time.

Having been through this process, people may find they have to be prepared to compromise and look at buying a unit instead of another house, or living further away from the family. "A lot of times there may be a trade-off," says Brookhouse.

For those who have at least seven to 10 years up their sleeve, selling up does not have to be the only solution.

Some planners suggest drawing on the equity in the family home and gearing into managed investments or shares can be an effective way to accelerate your wealth.

However, Andrew Barnes, director of wealth management at Citibank, warns people to be aware of the risks of such a strategy: "If you gear a portfolio not only are the movements up exaggerated but so are the movements down."

Looking beyond the family home there are other last-minute retirement strategies available.

Putting off retirement and continuing to work for a couple of years even if it is only part-time can be another effective strategy.

Colin Lewis, technical manager with IPAC Securities, says studies have shown that by putting off retirement for just two years people can extend their income in retirement by up to seven years.

As Dr Margaret Evans, a Central Coast GP, has found, a few extra years in the workforce can also give people the time to make some hefty contributions to super (see story below right).

Lewis says there is no limit on the undeducted contributions or after-tax contributions people can make into their super.

The beauty of these contributions is they are not subject to contributions tax or the superannuation surcharge and they do not count towards reasonable benefit limits.

If the super fund is then rolled into an allocated pension or allocated annuity, they will be returned tax-free to the retiree over the vehicle's life.

For those who continue to work and contribute to super, the Government is introducing some additional support expected to take effect from July 1.

Kim Guest, technical services manager at AM Corporation, says the Government has undertaken to match any undeducted contribution made by low-income earners up to $1000.

To be eligible for the full co-contribution, the person must earn less than $20,000. It then reduces at the rate of 8¢ for each $1 of income until cutting out at $32,500.

Under the new measures, people will also be able to continue making non-deductible contributions to their super until the age of 75, rather than 70, as long as they are working at least 10 hours a week.

But the best way people have of ensuring they drink cappuccino rather than instant coffee in retirement is to start contributing to super early. "Super would have to be the most tax effective investment you could make in readiness for retirement," says Lewis. "There are tax advantages both in the accumulation phase and through into the retirement phase."

As the above table shows, the earlier you start, the smaller the contributions that are needed to achieve the same lump sum.

Nevertheless, Barnes says: "Sitting down and making a financial plan is still perceived by a lot of people to be very complex and very threatening."

Citibank recently completed a study of 500 full-time workers aged 30 plus who are earning more than $50,000 and have more than $100,000 available for investment.

It found that 84 per cent of them did not have a formal plan for their investment future.

That means a lot of them are ignoring the best way to secure their financial future.

Barnes says people who want to have a comfortable retirement need to start a disciplined savings program, investing in both super and non-super assets such as managed funds or shares.

He concludes: "If you are going to invest for whatever goal whether it is short-term, medium-term or retirement the trick is to have a consistent savings plan and to invest and stay invested."

The final countdown

But before you start looking at strategies to do that, Elaine Keenan, adviser services manager at Count Wealth Accountants, recommends a thorough review of your goals, your financial position and how much you need to realise your retirement goals.

Having gone through that process those with 10 years up their sleeve could consider the following: Pay off non-deductible debt such as mortgages and personal loans. Invest what had previously been mortgage repayments in growth assets. Fast-track wealth-creation programs by drawing on the equity in a home or using a margin loan to gear into other growth investments. Unlike a mortgage, this debt is deductible. Arrange to salary-sacrifice into super. Make contributions into super on behalf of a non-working spouse. Make personal undeducted contributions if you receive an inheritance or some other windfall. Downsize the family home to build up income-producing assets. Direct some pay into a cash management trust to take advantage of higher rates and avoid account-keeping fees.CL

Working back late

Aged 69, Dr Margaret Evans is still working full-time in her three-person practice.

"One reason I am continuing to work is because I love medicine so in part it is a lifestyle choice," she says.

But the other reason is she still does not have enough in her superannuation pot to maintain her desired lifestyle in retirement. "I didn't make proper plans," she says. "With three children to educate on my own, I didn't earn enough to make the kind of provision that was needed."

Like many other doctors, she says selling her practice to fund her retirement is not an option.

"In the main, medical practices are not salable especially here on the Central Coast where we can't get doctors."

Instead, she has been contributing seriously to super for the past 10 years in the hope that she can make up for lost time.

"Currently, I'm putting about 50 to 60 per cent of my gross into superannuation."

She believes she is only a few years off achieving her goals but a love of her job means she is unlikely to be hanging up her stethoscope in the near future.CL

Downsizing

When she retired at the end of last year at age 64, she had just $12,000 in super, $14,000 in an ING account, a $19,000 new car and the family home built in 1965 on Sydney's northern beaches.

With both her parents still alive and in their 90s, it was likely her tiny retirement pot would have to stretch for another 30 years.

To supplement the income from her fortnightly age pension of $396.73 and the $60 she earned working three hours a week, she decided to sell the family home.

The three-bedroom house was sold for $565,000 and she purchased a two-bedroom unit for $440,000. After deducting about $40,000 in transfer costs, her assets were:

This equates to $180 a fortnight so her pension is $400 a fortnight (including pharmaceutical allowance).

Taxable income is:

Salary$60 x 52 = $3120
ING account$10,000 x 4.5% = $450
Allocated pension$6000 - ($85,000 20.70) = $1894
Pension $400 x 26 = $10,400
Total$15,864

Therefore she pays no tax or Medicare levy.

With an allocated pension or annuity, she has some flexibility about how much income she draws down but she must draw down between about $6000 and $12,500 a year. Apart from being tax-advantaged, these products allow her money to stay invested in growth assets rather than fixed interests, which should make the money stretch further, particularly in the current low-rate environment.

Heaven says if she had not bought a new car he may have recommended putting some money into managed funds.

Instead, as it stands, assuming she draws down the minimum $6000 a year, she will have an income of just shy of $20,000, according to Murphy. "Her total income is about $6350 per annum better off with the $85,000 of additional capital than it was prior to the house changeover," he says.

If she draws down the minimum and there is surplus left over, this could always be invested in managed funds, suggests Biti.CL

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