What is Retirement Planning?
Retirement planning is creating a plan to ensure a comfortable life after work. But why is it so important? To ensure you live your golden years to the fullest you need to get a few things in order. Think about the type of life you want to lead. Do you want to move away to a new location or stay in your hometown and prioritise time with your family? Once you have the answer to this question, you must ensure your finances are in check.
While it may seem overly official, we recommend writing a retirement strategy and determining your long and short-term goals. The planning process includes a lot more than simply how much money you’ll save and how much you need. It takes into account your complete financial picture, accounting for inflation, your investment portfolio and the cost of downsizing if you are looking to swap household chores for your dream lifestyle!
One thing to remember is that retirement plans aren’t static documents, you’ll need to regularly review and make changes if your circumstances change making sure your hard-earned fund continues giving you the life you envisioned.
When Can You Retire?
There’s no one-size-fits-all when it comes to your retirement age, when you choose to retire will depend on your love for your career, your financial goals and if you feel ready to embrace a new beginning. As of 2024, the retirement age for those born in 1960 is 67, at this age, depending on your financial situation, you can begin claiming Social Security payments.
You can access your super account when you reach your preservation age, which is between 55 and 60, depending on when you were born, and retire. If you want to retire before your preservation age and would like to access the money in your superannuation fund you are required to sign a document stating you have no intention to return to full-time employment.
Assessing Your Retirement Income
Estimating Your Income
Your post-retirement expenses largely determine your “magic number”. It’s a good idea to create a budget, calculating estimated costs for housing, health insurance, food, clothing, and transportation. You may also want to factor in the cost of entertainment, hobbies, and travel, particularly if you’re planning the trip of a lifetime in your early years.
To estimate your annual income consider the value of your retirement accounts including age pension support, superannuation, and investments.
Saving for Retirement
As you approach your retirement years it’s important to improve your financial health as much as possible and determine how much of your current income you can save, and where you can save it. Figures released by ASFA state that for a comfortable lifestyle, estimated yearly expenses are close to $74,000 for a couple and $52,000 for an individual – however these are based on the assumption you own your home.
Additional contributions to your superfund can make a big difference to your retirement account, while making additional mortgage payments can take years off the length of the repayment term, reducing the total payable interest.
Use online tools, such as the Australian Super Projection Calculator, to get an estimate of how long your super fund may last.
Understanding Your Investment Options
Determine the right mix of investments based on your age and risk tolerance. For those who are helping their parents create a foolproof retirement plan, it’s a good idea to start planning your own. It’s never too early to begin investing, after all, a well-thought-out plan is key to a promising lifestyle.
Invest aggressively when you’re young and dial back to a more conservative mix as you approach retirement. Consider hiring a financial advisor or managing your savings on your own.
Managing Debt and Insurance
Paying Off Debt
When planning, consider what outstanding debt you have and ways to reduce it while you’re still earning an income. Check out our top tips to reduce your debts before you retire and consider alternative payment plans if you’re experiencing financial hardship.
Understanding Your Insurance Options
Review your insurance options and consider the implications of changing your coverage. Most super funds offer automatic insurance, but it’s essential to make sure your coverage is right for you. As you get older, your needs may change, and your current level could be too much or too little. Certain situations, such as a change in relationship status or children moving out of home, might be a good opportunity to reconsider your cover.
Estate Planning
While your golden years promise many happy memories, a crucial part of a retirement plan includes deciding what you want done with your assets when you pass. Check you have an up-to-date will, powers of attorney, and nominated beneficiary for your super.
Doing so avoids difficult conversations and processes for family members while preventing distant family and friends from claiming entitlement to your assets.
Read our guide to estate planning and write to see what you’ll need to include.
Seeking Professional Advice
Use online resources, such as webinars from educational bodies to learn more about retirement planning. Consider hiring a financial advisor or managing your retirement savings on your own.
Review your retirement plan regularly to ensure you’re on track to meet your goals. Make adjustments to your plan as needed to stay on track.