At some point we’re all going to retire. Whether we leave a job or sell our business we’ll need to know how we’re going to live the golden part of our life. Most of us think of retirement as a time of freedom to ‘do our own thing’. For many it’s an opportunity to seek fresh challenges in a different area of paid or unpaid work, learn new skills, help others or take up studies. Others travel or get fit to enjoy what may be as many years out of the workforce as those in it.
That’s why it is essential to plan to ensure you are prepared. When it comes to planning for retirement, it would be easy to get overwhelmed. After all, planning for retirement is often complicated and confusing — there always seem to be new laws, regulations, products and the like that make it harder rather than easier to save and invest for retirement.
No two retirement financial plans are exactly the same. There are many things to consider when planning for retirement such as the lifestyle you want, where you want to live, how much income you will need and the best way to transition to retirement. That’s why seeking advice is so important. According to the Financial Planning Association of Australia, 50% of Australians are concerned they do not have enough money to retire on. In our own experience, we also know that those who do have enough, are worried about making it last and transferring it safely to the next generation. An even greater number of over-50s have no idea how much money they will need post-work, according to the research paper released recently by REST Industry Super.
Longer life spans have changed the shape of retirement – and society. Governments are making changes to retirement ages & Age Pension may be around when you retire, but the benefit that you get from Centrelink may not provide enough income for your retirement years. On top of that, people are living longer and must find ways to fund those additional years of retirement.
Such eye-opening facts mean that today, sound retirement planning is critical. Your retirement planning process we help you answer the big questions in relation to your retirement such as:
- Where should my money be invested?
- How much superannuation will I need to build up?
- What other investments do I need to make?
- Is my retirement planning strategy tax smart?
- What is the financial game plan before and after retirement?
- How do I get the social security entitlements while minimising tax?
- How do I protect myself from running out of money in retirement?
- What are some of the unexpected occurrences and contingencies I need to factor in?
At Intralink we see these as some basic steps to help you get you started. Retirement objectives and priorities can be broken down as follows:
Expenditure requirements (the biggest factor of all) – It’s common to discuss desired annual retirement income as a percentage of your current income. Depending on who you’re talking to, that percentage could be anywhere from 60% to 90%, or even more. The appeal of this approach lies in its simplicity. The problem, however, is that is doesn’t account for your specific situation.
And keep in mind that your annual expenses will fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop once the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much yearly income you’ll need to live comfortably.
Our general rule is that you will live on your current income in retirement. It doesn’t change much.
How long you work for; – To determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to estimate how long you’ll be retired. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Although it’s great to have the flexibility to choose when you’ll retire, it’s important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.
Build your retirement fund. What you are prepared to save & how (if you have a decent time period left before retirement); The next step is to put your retirement plan into action. It’s never too early to get started. Compulsory super has made it somewhat easier for Gen Y and below but older generations have to be more proactive. Understand your investment options and the types of investments & tools that are available, and decide which ones are right for you.
We see Self-Managed Super Funds (SMSF) as the best way to structure your investments into and throughout retirement, it is important that your savings are invested in a tax effective way while still maintaining flexibility to cover any unforeseen changes in your circumstances.
Retirement Planning Investing & Investment risk (not a time for this to be high); – The key risks in retirement income include market risk, inflationary risk, and longevity risk. When combined together, these risks present a significant challenge when deciding on a sustainable level of retirement income that can be drawn. A balance has to be struck between:
- Achieving adequate income;
- Hedging against future inflation growth;
- Adequate asset allocation (to deal with the unexpected);
- Impact of tax if funds are outside the superannuation environment;
- Protecting your capital and
- The danger of eventually running out of private resources and having to rely solely on the Age Pension.
Housing requirements – where do I want to live and do I want to downsize; Downsizing is a big lifestyle decision that often involves the whole family. You need to carefully consider your current and future lifestyle needs when it comes to real estate and ensure that a decision made today is not regretted down the track. Throw into the future mix Aged Care which can have a very significant impact on people’s emotional state and financial position.
Leaving an Estate – Estate planning too is a key consideration and provides you with the opportunity to make important decisions about the assets you have worked a lifetime to create. Many people are worried about transferring wealth safely to the next generation. Timely and careful estate planning will ensure your estate is passed on to the intended beneficiaries in an efficient and tax-effective way.
Start your “retirement planning” early.
There are many ways that you can rearrange and structure yourself to get the best result. Choices need to be made, but they need to be informed choices. This is not the time to fly blind and it is a time for honest assessment of the facts.
Preparing for a satisfying retirement is more than a financial exercise. It is a very complex situation. What is often called the “Third Age” can easily last more than 30 years and brings with it significant changes. As a society, we have no precedent for the longer, healthier lives “baby boomers” can expect. In our view, it is therefore worth giving serious consideration to what you want your retirement to be. Ideally, you should be planning what it is you want to go “to” well before you voluntarily or involuntarily retire “from” what you are now doing.
Please don’t hesitate to call the office on 03 9629 1100 should you wish to speak to an Intralink Adviser.