The five golden rules of preparing for retirement

Are you ready to retire? Leon discusses the five golden rules of retirement preparation.

early retirement

When many Australians approach retirement age, they find themselves unprepared. Here are the five golden rules of preparing for retirement. You can try them at any age and, if you’re lucky, you can start your retirement early.

1. Work part-time
When you think you’re ready to retire, try working part-time hours first. That way you can maintain a steady income stream and test the waters of retirement. You may be lucky enough to get reduced hours at your current job, or you could consider other areas in which you’re interested. Look for a job you’ll enjoy and spend the extra time enjoying life.

2. Find affordable health insurance
Ensure that you are insured and have good health care plans in place. One of the most common occurrences that take retirees by surprise, both physically and financially, is unexpected health issues. Make sure your insurance is suitable for your needs and shop around for the best deals while you’re still working. If you do it earlier than later, you’ll be less likely to have pre-existing conditions to declare and, especially when you’re still employed, many insurance companies will waive your waiting period.

3. Know the 80 per cent rule
It’s generally accepted that you’ll need about 80 per cent of your existing income to live in retirement. One thing you’ll quickly figure out is that money goes out but doesn’t come back in. It can be difficult to get used to. One way to figure out your living costs is to try living off 80 per cent of your existing income for at least one year.

So, say you have a household income of $80,000 … in the first year you cannot exceed $64,000 in total living expenses.

Track your expenditure, create a new budget and then try living off $51,200 the next year. After two years of experimenting with this budget, you can work out how much you’ll need in retirement. Consider that Australians live, on average, 22 years in retirement and times that by the $51,200. You’ll need over $1. 2 million in retirement savings.

Keep in mind that you’ll probably spend more in your first few years of retirement. So, if you plan early, you could try living on the 80 per cent rule for a few years before you retire, giving you more time to prepare for the real deal.

At the very least, you’ll now have a figure to work with.

4. Know your super
The superannuation system can be confusing and just when you think you have a grasp on it, it changes. If you’re a YourLifeChoices subscriber, you’ll probably have a pretty good handle on the system (so help your mates and tell them about us, too!).

Knowing how to maximise your super opportunities can be the difference between gaining tens of thousands of dollars and losing the same amount – or more.

So, know your super. Speak to your super fund. Compare it against other funds. Make sure you’re getting the best returns available. Make friends with the system and you will reap the rewards. Need help? Well, here’s where you should start.

5. Be as debt-free as you can be
Ideally, when making the decision to retire, you’ll do so with as little debt as possible. If you can manage it, pay off your mortgage because you should understand that those who don’t own their own home will have a tough time of it in retirement. At the very least, rid yourself of credit card debt and any personal loans. This is key to putting yourself in a good position to have your house paid off sooner.

Do you have any suggestions for people looking to retire? What did you wish you knew in the years leading up to your retirement?

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    johnp
    10th Aug 2017
    10:42am
    Was wondering re the pros and cons of say running down super balance when a couple is nearly 70 years old and then going onto say full aged pension. Are there any behavourial economics to assist re this ?? Particularly when in a non performing super fund.
    Old Geezer
    10th Aug 2017
    10:54am
    Since it is non performing are there any financial benefits of having this super? ie Do you have other income and this extra money earning income would cause you to pay extra tax? Do you need the life insurance that is part of your super fund? If not I'd take it all out and manage it myself.

    Another thing is that your super fund may be grandfathered from the assets test. Check with Centrelink.

    See FISO at Centrelink for advice.
    buby
    28th Aug 2017
    8:10am
    Geez good luck on that Johnp, If your lucky enough to get to 70 and have some money behind you, that the government have not taken back from you one way or another! gl
    buby
    28th Aug 2017
    8:11am
    OLD Geezer most sensible thing i've read from you today? lol
    mike
    10th Aug 2017
    11:00am
    To johnp, definately not. Bastard Hockey called disabled rorters whilst he himself rorted the travel allowance and filled his own back pockets with SEVERAL multilples of the $288/night travel allowance, then moved the goal posts and smashed the retirement plans of all the working class who worked and saved for their retirement plans under then current centrelink guidelines. They keep changing the rules to your detriment whilst filling their own back pockets and rorting the system.
    Old Geezer
    10th Aug 2017
    11:07am
    Mike the fund is not performing so why leave it there? At least move it into something that performs.

    As he is nearly 70 unless there is some financial reason to leave it there I'd take it out and at least by just putting it in the bank one would get some interest even at today's low rates.
    johnp
    10th Aug 2017
    11:10am
    thanks very much Old Geezer. Very astute and good comments that are much appreciated. :-)
    Re
    non performing and financial benefits of having this super?
    - Your right, but the nonperformance is only in last 3 years so we are agonizing over this.

    Do you have other income and this extra money earning income would cause you to pay extra tax?
    - Fairly minor income (part time jobs) that is below the tax threshold (say $15K each)

    Life insurance
    - We havent had this for say 10 years as not really relevant with no dependants now

    - What interested me and if you can expand on is the comment about
    Another thing is that your super fund may be "grandfathered from the assets test"
    Check with Centrelink. See FISO at Centrelink for advice
    Old Geezer
    10th Aug 2017
    11:33am
    From memory so check but if you were drawing a pension from a super fund and was on the OAP at a certain date that amount in the super fund was grandfathered form the asset test.

    This might explain it.

    https://www.humanservices.gov.au/customer/enablers/income-stream-reviews

    Account based or market linked income streams
    For account-based income streams that started before 1 January 2015 and assessed under the old rules and for market-linked income streams, you need to tell us:

    what the account balance was on the most recent 1 July
    the new annual income amount for this financial year
    any lump sums you took out in the last financial year, other than your normal payments
    For account-based income streams that started before 1 January 2015 and assessed under the new rules or for those started on or after 1 January 2015 you just need to tell us the most recent 1 July or later account balance.

    You do not have to provide us with a new income stream schedule.

    Asset test exempt lifetime or life expectancy income streams
    For these income streams you need to provide an actuarial certificate. This must:

    state that your fund can keep paying the income stream
    have a date on it showing it is current - between 1 July and 31 December of the current year
    If you don’t give us this document by 31 December of the current financial year, your income stream may stop being exempt from the assets test.
    johnp
    10th Aug 2017
    11:37am
    gday Mike, couldnt agree more with your comments.
    Examples like the PM; just his recent incremental salary increase (yearly) was about what the old aged pensioner gets overall in total for a year. Rather OBSCENE I would say !!
    Fitzy
    10th Aug 2017
    11:47am
    I'm about to retire. I have a $200K mortgage but my super fund is outperforming my mortgage interest rate (9% vs 4.5%). I'm considering leaving the $200K in super until the difference in interest rates falls to about 1%. I have enough other super funds to live off. Your thoughts?
    Old Geezer
    10th Aug 2017
    12:16pm
    Some thoughts as I don't know your circumstances and there are lots variable depending on you age etc.

    Make sure your super fund is earning 9% as I have seen many that don't earn the rate they tell you they do. Work it out.

    If you are over 60 and draw a minimum pension from your super fund it is tax free. Your fund also does not pay any tax. You can have more than one super fund in pension mode.

    If you leave $200k in accumulation mode then your super fund will pay tax on any earnings. Again this may be good or bad depending on your age and other circumstances.
    Fitzy
    10th Aug 2017
    12:57pm
    Thanks Old Geezer. I plan to move it all to an income account where the 'no tax' situation currently results in an interest rate marginally higher than the accumulation fund. (9.3% vs 9%).
    Old Geezer
    10th Aug 2017
    1:14pm
    I would have thought the other fund would earn at least 10% more than the accumulation fund.
    johnp
    10th Aug 2017
    12:09pm
    thanks again Old Geezer, that was very helpful; you should be a fin advisor
    fair amount of detail to go thru; looks like I will be off to centrelink and join the far queue :-)
    been online with them before and always end up going around in circles in catch22. What I would call rather "Kafkaesque"
    johnp
    10th Aug 2017
    12:16pm
    gday Fitzy. My comments would be not to concern about future interest rates falls which may or may not happen. Considering you have enough other super funds to live off; doesnt it come back to comparing what you actually pay say yearly in mortgage payments to what you receive yearly in super stream payments ? If the incoming super payments are sufficiently larger than the outgoing mortgage payments ?
    johnp
    10th Aug 2017
    12:16pm
    gday Fitzy. My comments would be not to concern about future interest rates falls which may or may not happen. Considering you have enough other super funds to live off; doesnt it come back to comparing what you actually pay say yearly in mortgage payments to what you receive yearly in super stream payments ? If the incoming super payments are sufficiently larger than the outgoing mortgage payments ?
    Old Man
    10th Aug 2017
    12:29pm
    I believe that there is another "must" for the list. Prepare a budget to ascertain just how much is needed to live in the manner to which you have become accustomed. We did this exercise with our financial adviser and found it most helpful. If you know how much you need to be paid each month, you can then work out how much you need to hold in super. The age pension can also be factored in depending on income and assets.
    KB
    10th Aug 2017
    2:26pm
    You need to taketin account cost of living which rises every year changes of government that affect whether you are entitled to pensions and changes in super health needs of yourself and if you have a partner/If you live totally on a pension then you can only budget six or so months down the path.
    Puglet
    10th Aug 2017
    3:30pm
    I probably won't be popular for saying it but here goes. I am uncomfortable about running down my or anyone else's super/investments to get the pension. Those who really need the OAP are being squeezed in part because of the demand for government assistance and I don't want to take money when I don't need it. I own my home and a resonable super balance and live on it. It was tempting to do what you suggest but so far I haven't! I am very careful to ensure that I can always afford a very good nursing home - I reckon I'll need over 600,000 bond and then the costs of the care. If I am going to have dementia I want to be cared for, I won't know but my kids will and I don't want them to have to see the dreadful things that the media tells us about.


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles