5 Tips To Help You Plan For Your Retirement
Helping our clients plan for their retirement is one of the key things we do as financial advisors.
Starting early and figuring out how and when you want to retire is so important, as it gives you more choice about what you’d like to do with your retirement years.
Based on my conversations with clients, I’ve pulled together my top five tips to help you plan for your retirement – at any age.
Tip 1: Work Out When You Want to Retire
In Australia, there is no such thing as a retirement age. You can retire whenever you would like to.
There are certain factors that help determine when you retire:
Your Health
Your Financial Situation
Your Preferences
Your Ability to Access Super
The first tip to plan for retirement is to start planning when this might be. The earlier you plan, the more likely you are to achieve your goal.
Having a target retirement age will help you with determining what strategies are appropriate to you.
For example, if you aim to retire at age 55, yet cannot access your super until age 60, then you will need to build up funds outside of superannuation to fund your retirement income for the 5 year period prior to having access to super.
Tip 2: Work Out Your Expected Retirement Cost of Living
Knowing how much you will live off in retirement will help determine how much capital you need to aim for in retirement.
The Association of Superannuation Funds of Australia (ASFA) provides yearly a standard cost of living for a ‘comfortable lifestyle’ and a ‘modest lifestyle’ for both single and couple retirees.
Although using these figures as a guide helps, your cost of living is unique to you and can vary significantly from those figures used above.
These are 3 different methods to start to get an understanding of your cost of living in preparation for retirement.
The first option is around the tax returns. If you took your taxable income and subtracted the tax payable and any loan repayments (based on the assumption that at retirement you have no debt), you should get a figure that was what had either been saved or spent. If you took out any abnormal items (savings to major expenses), you would have the cost of living.
The second option is to get an excel copy of all the bank transactions for the last year. You would use this to find out the cost of living expenses by examining the transactions and taking out any abnormal items and then simply adding the columns.
The third option sometimes used is to get a copy of the latest ASFA detailed budgets breakdown. You would use this as a guide of what expenses you should account for and match off your estimate expenses with what ASFA has on the report. This is a great exercise to review areas you may be spending too much or not enough on.
Tip 3: Work Out Where your Retirement Money Will Come From
Once you know your expected retirement cost of living, you will need to work out where the funds will come from to allow you to meet this cost of living throughout retirement.
Your Super Fund
You can start accessing your superannuation depending on your preservation age and your retirement circumstances. Your superannuation could form a substantial portion of your retirement capital.
Investments / Savings
You may be planning to sell own or use income generated assets you may own in either investments (shares and property) or savings (bank accounts and term deposits).
Inheritance / Proceeds
You may be expecting an inheritance or proceeds that may help you meet your retirement needs.
Government Benefits
Based on your income and assets, you may be eligible for Centrelink benefits call the aged pension. The age pension is broken up into both full and partial age pension entitlement.
Tip 4: Review Your Investment Risk Tolerance
The right tolerance for you should consider your investment goals, timeframe, and attitude for risk, helping work out the right balance of risk vs return.
Studies into the determinants of portfolio performance in 1986 found that asset allocation explained, on average, more than 90 per cent of the variation in total return. That is, your risk profile can help determine your expected range of returns.
The below chart shows you that the longer you invest the more predictable the performance outcomes are. Over a 10 year period the range of expected returns narrows, and we can identify what we believe to be the expected long term objective returns of each risk profile.
The portfolio’s that have more risk (growth and high growth) also have the greatest chance for higher long term performance.
You can take the expected long term objective returns of each risk profile and run projections around whether or not these returns, and your balance will meet your cost of living over your life expectancy.
Tip 5: Reduce And Eliminate Your Debt
Being debt free in retirement helps reduce your retirement cost of living, as you will not have the need to fund regular debt repayments.
You can start by not taking on more debt as you approach retirement.
You should make all of your repayments on time, to avoid any additional charges and prevent the interest building up.
Some strategies to pay off your debt include:
Focus on the highest interest rate first
Focus on the lowest balance first
Negotiate a lower interest rate
Following these guidelines will help you get a head start on being able to enjoy your retirement. Early planning means you buy yourself time to tweak your goals and strategies. However as we know, retirement looks different for everyone.
If you would like to discuss your retirement plans, contact one of our trusted Financial Advisers.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate considering your particular objectives, financial situation and needs.
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