You probably know you should invest or do better things with your money to make sure you have enough for a comfortable, secure and fun retirement.
Deep down you want to make some decisions on putting a plan in place that gets your money working for you and your retirement because you know – soon enough – you will run out of time, which means your options may become limited and, so too, the success of any pending retirement plan.
The problem is there are an infinite number of experts giving their opinion on how you should use your money wisely towards your retirement. Many ‘experts’ are out there offering tips on investing in property or shares, budgeting, reducing debt. Both physical bookshops and Audible are full of personal finance books spruiking the latest money philosophy. Bombarded with bad advice, it can seem:
Wish someone could cut through all this and give you a brief list of things to do that are easy to action and you can make a start on today? Help us at hand! Here are the seven tips that put you on the right path to plan for your retirement
It’s extremely common for people to believe they have to retire at a certain age, which is usually the age at which you can qualify for government benefits, which were once known as ‘the pension’. That age has stretched out over time – it once was 65 for men and 60 for women, but as our health improves and our lifespans extend, these concepts no longer apply. The days of working in a 9 to 5 job until your mid-sixties, taking your gold watch and expecting to live only a few more years are long gone. Most Australians will need to fund their retirement, not for a few years, but for a few decades, and the fear is that we will run out of money.
While accessing your superannuation investments to fund your retirement does have some age-based conditions and penalties, the reality is, you can retire right now if you want to, so long as you have the money behind you to afford it.
The only age rule that applies then is, yours. At what age do you want the ability to choose whether you work or not?
Setting your ideal retirement age is important because it defines your target and focuses in
on how much time you have left to save or generate enough money to fund your retirement.
When you retire, you’ll most likely have so much more time on your hands for hobbies, travel, sightseeing, shopping and other activities. Start creating a vision for what you want life to look like in retirement. Try to imagine life just as you live now but with all the free time having no work to fill up your week, where would you go, what would you do and what things would you want to experience? Creating this vision will help determine how much money you will need each week to fund this quality of life once you retire. Try not to be limited by the activities you think you can afford. What have you always wanted to do? And who do you want to do those things with, and where – start there.
How much money will you need every week to maintain your quality of life plus cater for additional hobbies, travel and personal health or wellbeing costs that may arise?
It’s so common for people to assume they will live off half their current income once they retire. This simply isn’t true. An average guide is that you will need about 70%-85% of what you earn now or according to Association of Superannuation Funds of Australia, a comfortable living in retirement for a couple is about $62,000 each year. BUT it’s not fair to assume you are simply an average or you need to stick to an assumed guide so here’s three ways to determine how much you will need;
Total up the value of all the assets you know you can use when you retire. These include your superannuation, investment properties, businesses you own or part-own that you can sell, as well as stocks, shares, term deposits held in your name or that of a trust. It’s worth checking if you or your partner are members of any family trusts. The real value of these needs to be free of debt, so subtract what you owe from what you own, creating a ‘net worth’ figure.
To make this calculation, try using ‘the rule of seven/ten’. If an investment earns 7% each year, it will double in value every 10 years. The problem is, investments rarely grow at a constant 7% each year, every year and forever, but it is a guide to what net worth may be when you expect to retire.
Debts like mortgages and credit cards can really put the handbrakes on your ability to invest enough for your retirement. Here are some easy tips om how to pay down a loan of $500,000 faster and how much you could save:
For many Australians, superannuation is free money, a cost to your employer. For those who are self-employed, it’s an asset protection tool and can allow contributions to be used as a tax deduction for the business. Super is also more tax-effective than most investments (including the business) and current rules allow superannuation to be tax-free when you reach age 60.
Superannuation is a must in anyone’s retirement plan so here’s how to optimise your super:
Today’s retirees can expect to live to an average age of 84.9 years for men and 87.6 for women, or roughly 25 and 27 years respectively if you retire at 60. That’s a long time to be self-funded! You then you need to consider how much income you’ll draw down every year from your investments, the rate of return your investments earn, the effects a drop in your investment value will have, economic downturns and cost of living increases.
With so many factors involved, you want to be as certain as possible that your retirement plan will be successful.
The following table outlines how much money you will need to support an income of $70,000 p.a. (in today’s dollar equivalent). We have outlined the lump sum required based on a 50%, 80% and 95% probability of your retirement plan succeeding. It’s probably safe to assume you would prefer your retirement plan to have a 95% probability of success;
|Retirement Age||50% probability||80% probability||95% probability|
Assumption; Broadly 50/50 mix of growth assets and defensive assets assumed to be invested through super.
If you’re facing a shortfall in retirement, there are several things you can do to get your retirement on track. You could consider boosting your super through additional contributions, delaying your retirement, adjusting your retirement lifestyle expectations, making additional investments or selling other assets.
By simply having an idea of your current and projected retirement savings, you could work to improve the situation. The earlier you start, the easier it may be for you to reach your retirement goals.
Disclaimer: The information in this article is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any of the information you should consider the appropriateness of the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acting on any financial product or implementing any financial strategy.
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