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?