Ignore planning to guarantee financial disaster in retirement

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Sometimes, facing up to the worst possible scenario makes the right choices very clear.

When it comes to financial planning, add a dollop of wishful thinking to a dash of wilful ignorance, and you’re well on the road to ruin.

In that spirit, we offer you a step-by-step guide to penury, in order to ensure you make the right choices now and in the future.

1. Don’t plan
First, just wander along without considering how much income you’ll need in retirement. Prudent citizens instead do the following:

  • work out the age at which they will retire
  • estimate their life expectancy and how long they’ll need an income
  • define retirement. Will they work part-time?
  • calculate monthly expenses in retirement
  • plan to fill the gap between the money they’ll need and the money they have
  • make a spending plan for the fun things, like shopping and travel
  • engage an accountant or financial planner to tackle tax planning.

YourLifeChoices estimates that for a couple to live an ‘affluent’ lifestyle in retirement, they would spend $1470 per week and a ‘constrained’ couple would spend $847 per week.

2. Live it up and don’t save
Next, you must spend, spend, spend, and stop stressing about bills. The smarty-pants folk, on the other hand, do this:

  • aim to save 10 times their final salary in savings by the time they retire
  • budget for two-thirds of pre-retirement expenses
  • cut back on extra expenses such as fancy boats and cars
  • examine recurring bills to save every month
  • Save 15 per cent of income per year.

3. Take the pension as soon as possible
The pension safety net will take care of you, won’t it? Ah, no. The wise do this:

  • take the pension as late as possible
  • do not plan retirement around the pension
  • make social security a supplement to personal savings.

(While you’re at it, leave work as soon as possible …) 

4. Don’t pay off your home
Who needs a hedge against inflation and extra source of financial protection in retirement? She’ll be right. The affluent ensure they:

  • make their home their safety net
  • make sure they’re not paying in retirement
  • pay the mortgage when they have an income, refinancing and making extra repayments.

5. Ignore your debts
Why bother paying off debt before retirement? That’s what well-off retirees do. They also:

  • pay off credit card debt and personal loans first
  • pay off home loans as quickly as possible so they pay less in interest when they’re retired
  • install a debt reduction strategy for the remainder of their working span

6. Let your superannuation run itself
You think of super as an onerous subtraction from your immediate bottom line. The relaxed and comfortable think of it as a crucial cornerstone of their finances and do the following:

  • work out the full amount of superannuation they need for retirement
  • forecast potential retirement shortfalls by using tools like the MoneySmart retirement calculator
  • develop a strategy to attack the shortfall, making extra super contributions, comparing super accounts to ensure the best return, setting up a high-interest savings account, or adding an extra investment.

7. Ignore health expenses
You think it’s negative and morbid to focus on bad health before it happens. Realistic, wealthy types instead factor it in. They also:

  • adopt a healthier lifestyle. It’s good for their wellbeing, and their finances
  • plan for big, long-term expenses. One person in every couple is likely to face an expensive ailment as an older person
  • consider insurance which includes long-term care.

So, there you go: what to avoid in order to self-sabotage.

The well-off and smart lead comfortable retirements because they know how much they need and take measures to achieve it. If you crave disaster, ignore their example and do nothing.

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Financial disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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Written by Will Brodie


Total Comments: 16
  1. 0

    To me it seems that the best idea is to have a financial disaster in retirement as if you look after yourself you are a fool.

  2. 0

    Owning your own home is a priority which will not be so achievable in the future. This present crisis will put back many people’s plans for their futures. People’s circumstances differ as well. Ill health can hit anyone and that changes people’s lives. Businesses going bust has caused many to lose their homes and wiped out their bank balances. Not everyone has a strong superannuation especially in the past but, if you have one, then throw as much money in there that you can. Work until you can’t which is more doable for some than others. Don’t judge others’ circumstances because you don’t know even if you think you do.

  3. 0

    Most people as soon as they start work don’t have a savings plan they just spend, spend, spend they pay the butcher the baker the candlestick maker but they don’t pay themselves and today they use their CREDIT CARD which they can quickly overdraw on. The BEST PLAN is to bank 10% of your weekly earnings from day one, over the years this will add up to a tidy sum. Should a disaster strike you are well covered and if by chance you are lucky when you retire you will have large amount of spending money as well as your superannuation. So it’s up to you to SAVE FROM DAY ONE.

  4. 0

    Many of the above will be impacted by the current situation.
    When it is time to kick start the country – and economy – again, I suggest the following.
    With the high number of unemployed, as there will be, now is time to to pay a decent pension to seniors to make it viable to leave the workforce, and make places for the younger ones. Many seniors have had their superannuation decimated (me included, meager as it was anyway) and will be out looking for any type of job to help. Forget that. First it will be harder for seniors competing against younger ones, and secondly, this is the time when the younger people need all the help to take them into the future. What ever help that is.
    Any senior who wants to stay working – fine. But if they want to retire, or can’t continue working – then pay a decent sustainable pension rate. Make it easy (easier) for younger people to find and get a job.

    • 0

      I agree sunnyOz, this would be an ideal opportunity to reset the fundamentals.

    • 0

      sunnyOz. Maybe a good idea but do you think resuscitating struggling businesses in a floundering economy with inexperienced, untrained and so inefficient workers is the solution? There are not too many unskilled jobs these days and is that the direction we want our young people to go? I don’t want to go into Bunnings and ask for a male or female plumbing fitting and its suggested I go to the sex shop. I’m sure you don’t want an inexperienced kid feeding the machine that makes your medications? Maybe far better to restart some of what we now know are vital industries using some of the skills we’ve got while we still have them, apply quotas to selected imports to guarantee a market for local manufacturers and train and hand over to the young and well trained. Investing in TAFE would create jobs for the experienced and skills for the young. We need a real industry minister who knows industry and business not the floozie who’s playing at it at the moment. We need a government that believes in a diverse value adding highly skilled industry sector not just holes in the ground owned by foreigners using foreign capital and equipment where the profits go to the Caymen Islands,

  5. 0

    Retiring Well. Unfortunately you are so right, take responsibility for your own future and the government treats you like a leper, no benefits that we have contributed toward over a lifetime. Maybe it’s because they think they can’t bribe with their handouts people who look after themselves. Let’s see however, if we are still out of their sights when they look for ways to recover the debt they have incurred on behalf off the unprepared. If we continue to reward failure and punish hard work, success and thrift there is only one direction the economy and country will go.

    • 0

      I agree whole heartedly with your comments Viking. Save and plan for a comfortable retirement and see Govt. come sniffing for more. Where else will they get it. Not from the big end of town, who can afford to pay a little more tax.

  6. 0

    The self funded retiree must be thinking have i done the right thing and would i do the same again, thrift must be questioned under the C/Link rules.

  7. 0

    You can regard me as a fool if you like, but my husband and I have both set ourselves up well for retirement, and although we only qualify for the Commonwealth Seniors card we are very comfortable thank you. We only had very ordinary wages, so it meant that we didn’t have a lot of luxuries, no overseas travel, but didn’t go without necessities either. Paid our mortgage off early, saved and bought a seaside cottage for family holidays. My opinion is that we are not fools for looking after ourselves, we have the pleasure and satisfaction of knowing that we are able to be independent. My belief is that if you can do it for yourself then you should, regardless of the taxes we have paid over a working lifetime. There are plenty of people that can’t do this, and social welfare is needed for them.

    • 0

      Jenny but are you saying that’s 70-80% of the population that needs help in the richest country in the world ?

    • 0

      NO Viking, I didn’t say that. Where did you get that percentage from?

    • 0

      Because that’s the percentage of retirees on welfare pensions.
      By the way good on you both for what you have achieved. By no means do I take you for a fool. My point is that as typical wage earners if you can do it why can’t most other people, not all but most?
      I came to this country in my twenties with my wife. We were told Australians are strong, independent, innovative and self sufficient and has a universal pension scheme, work hard and you get it. If I’d known we were brought here to support 80% of locals in their old age, our strategy would have been different. We came here with little money, no jobs, no contacts, no family for support, I had been a farm worker but because I knew machines I got a job in purchasing dept in a machinery company. I could not believe the work ethic waste and lack of savings. Soon I was selling more machines than whole sales department. We worked hard saved everything bought nothing till we paid off our mortgage in 2.5 years then we bought our first washing machine then later a TV all for cash then later still a phone. Made all our own furniture in that time, educated several kids. We now have a farm and factory. If you and we can be independent why not the majority of other people?

    • 0

      I think it has something to do with the feeling of entitlement which seems to accompany a socialist society. Too many people nowadays think that they can spend all their money on big houses, new cars, eating out and generally indulging themselves and their kids, and when they retire the government will take care of them ie the age pension. There are those who gamble away every penny they lay their hands on, so all they have at retirement is probably a mountain of debt. There are those who have money and assets but hide it away so that they can qualify for a government pension despite the fact that they don’t need it. And of course, when the age pension was first introduced it was intended to support the working man in retirement who was supposed to survive for only a few years anyway. Many did not even live to see retirement. Whereas now, the life expectancy has increased to the extent that many are living around twenty years so the numbers on the age pension are increasing all the time.

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