The final working years are critical in reaching a comfortable retirement position. Having a financial plan and sticking to it during that period can make a big difference.

People in the pre-retirement years usually have surplus income due to mortgages being paid off and children no longer being dependent. They have probably had promotions and pay rises too. Harnessing that surplus cashflow is important.

The first option is to make the most of superannuation. Sacrificing part of one’s salary into super can save tax and boost retirement savings. The maximum allowed each year is $27,500 less employer contributions.

For a person earning $80,000 per annum the employer contributions will be $8,800 so they can sacrifice $18,700 or $359 per week. They save 34.5 per cent tax including Medicare Levy, their marginal rate, minus 15 per cent super entry tax. That’s 19.5 cents of every dollar saved. 

If the worker’s total superannuation balance was under $500,000 at the previous June 30 they can also do catch-up contributions. They can catch up any contribution amounts they were entitled to put in in the previous five years but didn’t.

Lump sum contributions can be made instead of salary sacrifice if that is preferred. When a tax deduction is claimed it should result in a healthy tax refund.

Once a worker reaches age sixty they can convert their super to start a pre-retirement pension that provides extra tax-free income. That can be used to finalise a mortgage or other debts that aren’t quite gone yet.

The pension income can also allow extra salary sacrifice contributions into super by either the person or their spouse. If a working person changes employers after age 60 or reaches 65 the earnings inside their pension account become tax free.

In the pre-retirement years other investments held, such as managed funds, shares and properties should be reviewed for suitability in retirement. For example, properties and shares that only yield low incomes relative to their investment values may be better sold with reinvestment for higher income.

Prior to retirement it’s also important to decide what we want to do with our time. Maybe it will be golf, or fishing or travelling, plus the grandchildren. Maybe it will be work. After sixty, many people who no longer need to work choose to. Their work is valued and gives them purpose.

Voluntary work for community groups and charities is equally rewarding. Knowing what we want to do in retirement enables us to plan ahead so the transition to retirement is easy. Professional advice and a good financial plan are also important.