Retirement Planning
Once a passive phase of life, now retirement has almost been phased out!
Yet life planning is important for those wishing to ensure good Health and Wealth in their later years. On our YOURLifeChoices Retirement Planning page we offer planning tips and resources, financial information, a ‘Ready to Retire?’ quiz, as well as the latest books and sites for you to explore.
For a down-to-earth retirement guide, you can also read the following retirement planning articles from Your Life magazine.
Your money or your life – a three-step plan for financing your retirement
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Retirement planning – How to double your nest egg
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Retirement Planning
Retirement planning gets bad press. The consequence is that a majority of 45 to 64-year-old Australians have entered the land of denial when it comes to this issue. And there seems little to get them out of denial when most retirement planning information is full of references to aged care, going grey, becoming dependent, and dying. Clichéd photographs of grey haired couples drinking lattes or walking hand-in-hand on the beach suggest singles don't matter, and happily retired couples just play.
How does this affect you? If you're feeling fit, healthy and happy to work for a few more years at least – can't your retirement planning wait?
Life stage financial planning
Understanding how much money you need at each stage of your life is the first step to reaching financial security. It’s never too late to start planning but the sooner you get a handle on your money the better.
Remember telling your children how important it was to save for a rainy day? Financial planning is exactly this, just on a larger scale. So no matter what stage of life you’re at, there are steps you can take to maximise your money or pass on your financial wisdom.
Age 20-35 – starting out
1. Avoid debt
This is when many people fall in to bad financial habits, falling foul of expensive debt such as car loans, credit cards and personal loans. Racking up large amounts of debt can make it impossible to succeed financially. At the risk on nagging, make sure children and grandchildren understand the need to live within their means – if they can’t afford it, they shouldn’t buy it.
2. Compound interest
Teach younger family members the benefit of investing early and reinvesting any earnings. Simply taking $10,000 and investing it for 41 years at a return on 10 per cent per annum will result in a staggering $500,000.
3. Income insurance
These days, there is no such thing as a job for life. Unemployment, illness or injury can, very quickly, have an adverse effect on a family’s income. Mitigate the risk by arranging income protection insurance.
4. Superannuation
This is where being young really pays offs. Keeping superannuation in one, low-fee fund for your working life will ensure maximum benefits when retirement comes knocking.
Age 35-40 – mortgages and families
1. Life insurance
Make sure your family is provided for with a reasonable income and any debts can be paid in the event that you can no longer work due to a disability or death.
2. Extra mortgage repayments
With lifetime mortgages becoming a likelihood for many Australians, just a few dollars extra each month can take years off the duration of your mortgage and save you thousands of dollars in interest. Remember, if your interest rate is 8 per cent, any extra repayments save you 8 per cent interest on these amounts.
3. Consider longterm investments
Longterm investments which are not linked to your superannuation and can be accessed if needed make sound financial sense.
4. School fee plans
If you have children you may wish to consider putting a little away for future school fees should they be academically gifted.
Age 50-65 – maximising your income
1. Re-evaluate your insurance cover. You may no longer need as much income protection or life insurance but there may be aspects such as house and contents insurance in which you are lacking sufficient cover
2. Salary sacrifice as much as you can into your superannuation to take advantage of tax concessions. Those over 50 can sacrifice up to $50,000 per annum.
3. Reduce debt now before you head into retirement. As your income is likely to decrease once you take a pension, servicing debt becomes more expensive.
4. Understand how your super is working for you. Talk to a financial planner to make sure that your money is in the fund and consider changing investment strategies to ensure maximum return.
Age 65+ - retirement and enjoying life
1. You could live for 30-40 years in retirement so don’t blow all your cash at once. Financial planning is just as important now as it was when you were just starting out.
2. Consider if your assets can work better for you. Perhaps a reverse mortgage or downsizing your home can release much needed capital.
3. Ensure your superannuation income is being provided tax free.
4. Know the ins and outs of the Age Pension rules and what you entitled to. Every penny counts.
Self-funded retirees benefits boost
If you’re a self-funded retiree, you may have suffered considerable financial losses as a result of the global financial crisis. With some smart accounting, you may be eligible for Centrelink benefits.
As the end of the current financial year looms, now is the time to consider how best to maximise cash flow and make your money work for you. With asset values lower, self-funded retirees may now find themselves below the Centrelink asset limits, and therefore eligible for a pension. Even if you only get a few dollars, this will entitle you to a Pensioner Concession Card which can save you a small fortune.
It is also worth looking at how your assets are held, inside or outside a super fund, as this can have a bearing on how Centrelink assess your wealth. Making sure you utilise both you and your spouse’s superannuation funds, especially if your spouse has not yet reached retirement age, can reap surprising benefits and qualify you for a larger Age Pension. Paying money in to a spouse’s superannuation fund may also be classed as a spousal contribution, which has associated tax offsets. To boost superannuation even greater, the spouse may also be eligible for the government’s co-contribution of up to $1000.
Before making any financial decisions, you should consult an independent financial planner. If you don’t already have one, then you can find a planner in your area by clicking YOURLifeChoices simple shortcut to the Financial Planning Association.
Want to know more about maximising your retirement funding? Read more on YOURLifeChoices
Life planning
Where do you hope to go?
Australians are living longer and retiring earlier, with some people now spending more than a quarter of their lives in retirement. But how far will your super stretch? What kind of life do you want to live?
Starting to prepare sooner rather than later will help you get closer to your goals. The best news is that it’s never too late to begin. Retirement income is not a ‘one size fits all’ process - you will need to consider your individual circumstances carefully. This is where a financial planner can be the best person to help you through the process.
Whether you plan to fully retire, never working another day in your life or to keep working until you are 101, the questions related to income planning are the same.
Lifestyles are becoming increasingly diverse. More people are travelling, taking up new sports, learning new skills and working later in life. Use the short budget planner to estimate how much you’ll need in retirement and set up some firm goals.
You may be planning a more active retirement than your parents.
At the risk of stating the obvious, your starting point is where you are now. The interesting thing is that few people have an accurate understanding of their current financial position. Denial is a common response to the need to plan for later life income. But it is this denial which prevents many people from planning early and creating a ‘liveable’ retirement income. So here’s an easy program to get you moving forwards.
Retirement planning can be a daunting task, so having a plan is critical.
You could start by identifying what you want for retirement (e.g. stay at home, travel, spend more time relaxing, hobbies, start a new business, help out a parent or children) will provide a good indicator of what it will cost to make your dreams a reality.
Age Pension provides some income, but it is really only a safety net. If you enjoy socialising, travel and entertainment, you need to plan for more.
To help you identify your goals/lifestyle in retirement, AMP has partnered with YOURLifeChoices magazine to create a new section on their website (www.amp.com.au) focusing on lifestyle interests for the 50+.
Some things to consider
What do I want to do?
· How much can I spend in retirement?
· How much income do others get? What’s normal?
· Am I able to save more?
· Where can I get help?
· How should I invest my money so that I’m better off when
· I retire?
· How long will my money last?
My dreams and goals
Travel
Whether it’s hitting the open road in Australia or venturing
overseas, more frequent travel is a widespread ambition for
many retirees. The following list of costs is by no means
exhaustive, but will act as a thought starter for those wishing to
cost their travel adventures.
· Campertrailer, caravan, motels, resorts
· Considerations (including insurance)
· Cost of fuel
· Distance – remember when towing, fuel costs increase
· Maintenance and repairs on vehicle
· Airfares
· Food - consider increased costs in remote areas or expensive cities
· Your home, maintenance on your home whilst you are away, cost of utilities/ services and other ongoing costs
· Security.
Renovations
Renovating the house is often one of the
big-ticket items when people retire:
· The new porch, a coat of paint, new bathroom/kitchen.
· It might also be worth factoring in a buffer – things never go 100 per cent to plan.
Major purchases
· Boat
· Caravan
· Education
· Gifts to children or grandchildren
· Medical
Moving house
Many people consider moving to a new home, closer to family, or by the beach. There are many costs involved, some of which include:
· Agents fees
· Stamp duties
· Legals
· Removalists
· Clean up, etc.
Moving can be a costly exercise. Think twice before making the move. Is it really what you want to do? It might be an idea to rent in the new location for a while before moving. We’ve all heard of people who make the sea change and then decide to move back because they feel that they’ve lost the connection with family and friends – and at the time they move back, they then don’t have enough in the kitty to be able to afford to buy where they want to live. Do your research first, and try before you buy.
Education and volunteering
Leaving full time work often means more time to pursue further education and training. This might be career-focused – or just for fun. Either way you will need to factor in the cost of such education, including fees, books and resources, and the costs of getting to and from the learning institute. If you are hoping to become a volunteer,
you may also need to consider travel costs, insurance and any associated training such as Teaching English as a
Second Language (TESOL) courses.
Your next steps
The following table will help you turn the examples and strategies you have just read into your own starter plan.
