Most of us live a fast-paced, busy lifestyle but when it comes to planning for your retirement, the sooner you start, the better. Too often, people start thinking about their retirement when they’re in their late 50s and realise they haven’t thought far enough ahead to live the retirement they desire. Planning for your retirement can be a complex area and it’s important to understand your options, what strategies are on offer and the future implications of the choices you make now. We’ve prepared 4 steps on how to prepare for retirement, regardless of your age.
Have a goal in mind
When you start to plan for the future, it’s best to establish your ideal retirement age. That way, you can work backward and determine what you need to achieve that position financially. This enables you to break down your goals into small, achievable steps. In Australia, depending on when you were born, you will be able to access your superannuation between the age of 55 and 60. This is referred to as your preservation age. You can find your preservation age on the Australian Taxation Office webpage. Eligibility for the age pension is determined by your date of birth and can vary from age 65 to 67. For anyone born on or after 1 January 1957, the eligibility age is 67. When considering a modest and comfortable retirement lifestyle, the Association of Superannuation Funds of Australia has determined the following figures. (Last updated in December 2020).
Modest lifestyle
Comfortable lifestyle
Single
Couple
Single
Couple
Total per year
$28,179
$40,739
$44,224
$62,562
While this is a good starting point to consider, if you’re getting ahead of the game and starting to plan for your retirement early, it’s worth noting that these figures will change over time due to inflation so please consider them as a starting point. It’s also worth considering what your ideal retirement will look like. Do you plan to travel? Will you downsize your home or relocate? Will you move into a retirement village? Your lifestyle will play a role in determining how much you need to live comfortably each year. To learn more, read ‘It’s Never Too Early to Start Planning Your Retirement.’
Let’s talk about Superannuation
The balance of your super can have a big impact on your ability to retire comfortably. Where possible, it’s best to take a proactive approach to managing your super to ensure your balance is in a healthy position at your ideal retirement age. If you won’t be accessing your super for five or more years, you should focus on the projected balance when you plan to access it. Your total superannuation sum will fluctuate with the performance of investment markets. Therefore, it’s more important to take a long-term view of your superannuation investment while ensuring you always maintain an appropriate asset allocation, rather than checking your balance on a daily basis. To increase your retirement savings and improve your superannuation’s bottom line, you can engage a financial planner to help you select a low-cost fund with an appropriate asset allocation. It may also be worth considering a salary sacrifice. This is where your before-tax income is invested into your superannuation. These amounts are typically taxed at 15 per cent which is often lower than the percentage of income tax most people pay. It’s best to discuss these options further with a financial planner. Superannuation should not be a set-and-forget activity, particularly when you’re over 50. For more info, read ‘How to Supersize Your Superannuation.’
A debt-free retirement
Well, doesn’t that sound like the ultimate goal! An AMP.NATSEM report found that currently, four in five people aged 50-65 still have household debt. Debt can be a major hindrance to your ability to retire so it’s important to have a plan in place to reduce and consolidate your debt where possible by:
Seeking financial advice from a planner
Increasing your repayments where possible
Creating a budget that determines what you earn, how much you owe and what your discretionary spending looks like
Paying more than just the minimum when repaying debts
Reviewing your debt to see if there is an opportunity to find a better lender with reduced fees and lower interest rates, and consider consolidation where possible
Avoid paying for things with credit cards or buy now, pay later services
Plan your living situation
It’s not uncommon for people to move when they retire, whether that’s to relocate to greener pastures or simply downsize. It’s worth considering what you might do before you retire as moving can often come with extra, unpredictable costs. Planning means you will be able to be ahead of any out-of-pocket expenses that may arise instead of having to factor them in at a later date.
The sooner you start, the better chance you have
As we’ve mentioned throughout, it’s best to be as proactive as possible when planning your retirement. Careful consideration can go a long way and be the difference between a modest retirement or a comfortable retirement. Essentially, having a solid financial plan around your retirement provides you with more options. You may be able to retire earlier than originally intended or to continue working and growing your wealth. Still, either way, you can make a choice that is a luxury that many Australians do not have.
Who can I speak with about planning my retirement?
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