Retirement planning - how do you shape up?

Long gone is the traditional scenario of finishing work forever, cashing in the super for that big trip or mortgage payout, and thereafter relying on the aged pension for adequate financial support. Quite simply, with longer life expectancy and an increasing desire to leave the workforce early, social security will invariably play a diminishing part in our retirement plans. The issue therefore becomes - whatever the lifestage or lifestyle - to fund a realistic retirement income stream of our own doing.

According to Kate Deering, Zurich's Senior Product Manager - Investments, many people today are more aware of what is necessary to provide for a financially independent retirement. "In fact", says Kate, "it is predicted that before too much longer superannuation funds and investment income will be the principal source of income for over 50 per cent of intending retirees".

This is great news considering the current age pension represents around 25 per cent of the average weekly earnings and is considered by the majority of people in the community as an inadequate level of income unless supplemented from other sources.

And for a lot of people approaching - or just entering - the prime time of their lives, simply keeping track of financial legislation is a daunting task. Apart from structuring

Mental preparedness

At 51, the real prospect of an impending voluntary redundancy scared Roberta terribly. "I just wasn't mentally prepared for it," she admits. Widowed some years earlier, her work was her life. And that work had been with the same employer for the best part of her adult years. While reasonably asset rich, she envisaged retirement being "some time off". Figuratively, her 'house' just wasn't in order to accommodate leaving the workforce at that stage.

This is not that unusual. As early retirement counsellor and author of The Nine Steps to Financial Freedom, Suze Orman, says: "If the employee is emotionally ready to retire, and financially ready to retire, it can be great. Seldom, though, do we have all our emotional and financial ducks in a row at such an early age."

Fortunately, Roberta's concerns resulted in a fully consultative managed withdrawal over 12 months. Additionally, the services of a financial adviser were provided as part of the redundancy package. Roberta regarded this as a godsend, but with one proviso: avoid consultants pushing a particular product. In other words …

Seek professional, independent advice

It goes without saying that decisions around retirement income dictate to an enormous degree the quality of your retirement years. It's therefore crucial that any decision be an educated and informed one.

To do so, Roberta suggests you "shop around". She did. And now enjoys the serenity and security of a comfortable income stream without compromising her lifestyle aspirations. Her prime time looks in pretty good shape.

Educate your spouse or partner

Let's face it, as much as the situation is changing, men are often still the main money earners because of time-out taken by women for child-rearing reasons. As such, men have tended to take on more of the responsibility (for better or worse) of asset allocation and investment strategies within a marriage. Which doesn't make a whole lot of sense when - statistically speaking - the wife will outlive her husband by a good many years.

Jonathan is very conscious of the fact. Mind you, it only dawned on him well into his 50s. "I've made a conscious decision to educate my wife," he says. "And she'll need to accept the responsibility of knowing what makes our whole family asset position tick".

He's amazed however, at the number of male friends "whose wives do not have a clue where the assets are, what form they're in etcetera". It's a situation he feels should be addressed at an industry or professional level. "Men need to educate their wives of their financial and retirement planning".

Do your sums

One of the first steps towards retirement planning is assessing how much you'll likely need to live on. According to Kate Deering, the consensus suggests around 70 to 75 per cent of your pre-retirement salary might be a general guide. If your annual earnings were $60,000 a retirement income expectation of between $42,000 and $45,000 would not be unusual.

With inflation rate predictions and after-tax investment return projections, you can then calculate the lump sum needed to generate that income. And the earlier such calculations are carried out, the better, says Kate. "Imagine a 40-year-old person with little or no super - they would have to save about 25 per cent of their existing salary each year to reach an adequate level of retirement income," she says. "And that can be a big ask: too big for some."

It's your life ...

It's your money: it's up to you. What you plan for today will invariably be what you can count on tomorrow. So, as for the design of your prime time, how do you shape up?

More information

For more information, please contact your financial adviser.

Zurich can assist you with contacting a financial adviser.

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