What to Consider When Planning for Retirement
Retirement is a significant milestone, marking the transition from decades of work to a new chapter of relaxation, exploration and fulfillment. However, achieving a comfortable and secure retirement requires careful planning and consideration. Here are the key factors to keep in mind when planning for retirement in Australia.
Understand Your Retirement Goals
Before diving into the financial aspects, it’s essential to envision what you want your retirement to look like. Ask yourself:
Where do you want to live? Will you downsize, move to a coastal town or stay in your current home?
What activities do you want to pursue? Travel, hobbies, volunteering or spending time with family?
What standard of living do you expect? This will help you estimate your expenses and set realistic goals.
By clarifying your vision, you can create a retirement plan tailored to your unique needs and aspirations.
Determine Your Retirement Age
In Australia, the age at which you can access your superannuation (preservation age or meet the retirement condition of release) and qualify for the Age Pension will impact your retirement timeline. Currently:
The preservation age is 60.
The retirement condition of release for superannuation is 65.
The Age Pension eligibility age is 67.
Consider whether you want to retire as soon as you’re eligible or continue working (part-time, casual or full-time) to supplement your income.
Calculate Your Retirement Income Needs
A good starting point is the ASFA Retirement Standard, which provides benchmarks for modest and comfortable retirements in Australia. For example:
A comfortable retirement for a single person requires about $51,814 annually.
A comfortable retirement for a couple requires about $73,031 annually.
Keep in mind factors like inflation, rising healthcare costs and potential changes in lifestyle that may affect your future expenses. It’s wise to overestimate rather than underestimate your income needs.
Source: https://www.superannuation.asn.au/resources/retirement-standard/
Maximise Your Superannuation
Your superannuation is likely to be your primary retirement savings vehicle, so it’s crucial to make the most of it. Consider the following strategies:
Consolidate Your Accounts: If you have multiple super accounts, consolidating them can reduce fees and simplify management.
Salary Sacrifice: Contributing extra to your super from your pre-tax income can boost your savings and reduce your taxable income. This is dependent on your salary and super guarantee contributions (SGC) as there are caps of how much you can contribute.
Government Co-Contribution: If you’re a low or middle-income earner, the government may match your contributions up to a certain amount.
Review Investment Options: Ensure your super is invested in a way that aligns with your risk tolerance and retirement timeline.
Regularly reviewing your superannuation can help ensure it’s on track to meet your retirement goals.
Plan for Healthcare Costs
Healthcare expenses often increase with age, and it’s essential to plan for these costs:
Private Health Insurance: Evaluate whether maintaining or upgrading your private health cover is beneficial.
Commonwealth Seniors Health Card: Assess whether you’re eligible for government concessions to reduce health care costs.
Out-of-Pocket Expenses: Budget for potential out-of-pocket costs for specialists, medications or procedures not covered by Medicare or private insurance.
Aged Care: Consider future needs for in-home care or residential aged care, which can be costly.
Taking a proactive approach to health and fitness can also help minimise healthcare costs in retirement.
Understand the Age Pension
The Age Pension is a valuable safety net for many retirees in Australia. However, eligibility depends on your income and assets. Key points to consider:
Means Testing: Both the income test and assets test determine the amount of pension you’re eligible for.
Deeming Rules: Investment income is calculated based on deeming rates, regardless of the actual returns (except for investment property rental income).
Part-Pension: Even if you don’t qualify for a full pension, a part-pension and associated benefits can significantly enhance your retirement income.
A financial adviser can help you optimise your income and assets to maximise your pension entitlements.
Create an Investment Strategy
Investments outside of superannuation can provide additional income and diversification in retirement. Consider:
Dividend Stocks: Generate regular income from shares of established companies and be potentially eligible for franking credits. This includes ETF’s.
Property: Rental income can supplement your retirement, though property management requires time and effort.
Bonds and Term Deposits: Low-risk options for stable returns. Bond and Term Deposits rates can provide a consistent income in retirement.
Your investment strategy should balance risk and return, aligning with your retirement goals and timeline.
Prepare an Estate Plan
An estate plan ensures your assets are distributed according to your wishes and provides peace of mind for your family. Key components include:
Will: A legally binding document specifying how your assets will be distributed.
Enduring Power of Attorney: Appoint someone to manage your finances if you become unable to do so.
Super Beneficiaries: Nominate beneficiaries for your superannuation and insurance.
Review your estate plan regularly, especially after major life events, to ensure it remains up to date.
Plan for Longevity
Australians are living longer, which means your retirement savings may need to last 20 to 30+ years. Consider strategies to ensure your funds last:
Annuities: Provide a guaranteed income for life or a set period.
Drawdown Strategy: Withdraw from your investments in a way that minimises tax and maximises longevity.
Part-Time Work: Working part-time during the early years of retirement can reduce pressure on your savings.
Planning for longevity helps ensure you won’t outlive your resources. However, the Centrelink Age Pension may take part in the later years of retirement depending on assets and income.
Seek Professional Financial Advice
Retirement planning can be complex, and a qualified financial adviser can provide tailored advice to help you:
Set realistic retirement goals.
Develop a comprehensive savings and investment plan.
Navigate superannuation and pension rules.
Minimise tax and maximise benefits.
Start Planning Today
Retirement planning is a journey, not a destination. The earlier you start, the more prepared you’ll be to enjoy a comfortable and fulfilling retirement. By understanding your goals, maximising your resources and seeking professional advice, you can build a secure financial future.
Comment from Tanner.
You only want to do retirement once, therefore getting professional advice from a financial adviser can assist you to get your ducks in a row and to give you the peace of mind, for you to enjoy retirement.
Retirement planning should start as early as possible, by managing your superannuation, identifying your goals and having a plan in place to combat what options are best for you.
If you’re ready to take the next step, contact Tanner Jordan Wealth. We’re here to guide you every step of the way, ensuring your retirement dreams become a reality.