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When you decide to retire, you’re launching into a new phase of your life that could last for over 30 years. To live comfortably when you’ve stopped working, it’s important to be prepared. Here are some simple tips and facts we’d like to share to help you plan ahead.
When to retire?
Put some thought into when you want to retire. Setting a timeframe for your retirement designates how many years of working and saving you can commit to your retirement.
When deciding when to retire, take into account your own health and your lifestyle ambitions, but also be aware of the possible superannuation and taxation implications of your age at retirement. For example, if you retire after you’ve turned 60 you will not pay any tax on your superannuation as you withdraw it. Speak to a financial adviser for confirmation of how your age at retirement will influence your financial situation.
Your retirement income
The income you expect to receive during your retirement could come from many sources, including superannuation, rental income from an investment property, a pension or dividends on investments.
As you get closer to retirement age, map out your potential income sources in retirement and begin considering whether you will invest in a retirement income stream such as an account-based pension when you retire. Develop a realistic expectation of your income potential during retirement to avoid any large surprises when the time comes to retire and to keep you motivated to save for your retirement in the interim.
Take a good look at the expenses in your life now and think how you would like to live in retirement. Work out exactly how much money you will need for each year of your retirement to maintain a lifestyle that you’re comfortable with. Generally, retirees require around 75% of their working income as replacement income for their retirement however this proportion may be higher if you choose to spend your leisure years traveling the world, or substantially lower if you opt to live modestly in retirement.
Your retirement gap
Based on your family history, your personal habits and your lifestyle form a picture of how long you think you will be retired for. Compare your expected retirement income against your anticipated expenses. Many retirees find that there may be a gap between the amount of money they’ll need in retirement and what they’ll have. This difference is your retirement gap – the amount of additional income you’ll need to produce to live the way you want during your retirement years.
Bridge your retirement gap
There are some straightforward ways to get closer to achieving your desired standard of living in retirement. You may save more now, perhaps by contributing more to superannuation and cutting down on incidental expenditure, working a little more if possible, downsizing from the family home to a smaller home or even considering a later retirement.
Setting up a regular debit from your bank account into a savings account also allows you to regularly keep your savings on track without necessarily compromising your current lifestyle. Small changes to your financial situation now can make a big difference to the years ahead.
If you’re planning to retire as a couple, plan your financial future together. Often in a relationship, one controls the family finances, which unfortunately can leave one partner unprepared for financial management should something happen to their partner. Educate your partner or family on your financial situation and retirement strategy to improve their financial future.
Just in case the worst should happen, be prepared for an injury or accident by obtaining life insurance and income protection insurance. If you haven’t done so already, make a written Will and consider a binding nomination on your superannuation fund to transfer your superannuation money to your dependents in the event of your death. Contact your adviser for more information on making a binding nomination.
Every year or so, you should review your retirement plan with your financial adviser and make sure your plan is still in a position to meet your ever-changing needs. Reassessing your retirement strategy can also provide timely motivation to maximise your savings and retirement income potential and build yourself a stronger financial future.