Thu, 17 Jan, 2019
Make your retirement funds go the distance
You only get one shot at going into retirement, so it is essential that you go in with your eyes wide open. That means being aware of where your income may be coming from, how to plan for living and recreational expenses, and making decisions that are balanced and have an eye on the long term.
The earlier you start preparing, the more options you will have, so here are some top tips to get the ball rolling.
Where do you stand now?
Even if you haven’t been especially concerned about financial planning throughout your working life, it is important to do so as you enter retirement, where you are no longer able to rely on earned income.
The first part of the planning process is to get a clear understanding of where you currently stand financially. What assets do you have and what are they worth? This includes your home, your savings and investments accounts, your superannuation, and your possessions.
Key dates to be aware of
The next step is to establish the key milestones as you transition to retirement. The first milestone is your “preservation age” — the age at which you can access your super. Provided you have retired from the workforce, the minimum preservation age is 55 years if you were born before July 1960. This age increases on a sliding scale up to age 60 for those born after June 1964.
The second milestone is the age at which you are eligible for the age pension. For those born before July 1952, this will be 65. For those younger than that, it can be as high as age 67, depending on your date of birth. Eligibility also depends on the income and assets tests.
Plan around your lifestyle decisions
Once you know when your super and pension income will kick in, you can start to plan your finances around the lifestyle activities you want to engage in during the potentially long years of retirement ahead. For example, you may want to:
- Travel in the earlier stages of retirement, before settling down
- Make some renovations around the home in the earlier years, so you don’t have to worry about them later
- Make major recreational purchases, such as a boat or motorhome
- Downsize your home or move to a retirement village down the track
Ideally, all of these major lifestyle decisions should be projected early, so that you can allocate funds for them, decide where those funds should be drawn from, and ensure that you have enough left to generate an ongoing income.
Assess your income options
Get a clear picture of where your retirement income may come from. This could include:
- Income from super
- Investments outside super
- Part-time employment
- The age pension
- Home equity release or selling the family home
In assessing these income sources, you need to consider whether one may impact another. For example, selling the family home or working part-time may impact your age pension.
Take full advantage of entitlements
While the age pension on its own may not be enough to fund the lifestyle you want to enjoy, it can certainly be a handy supplement to your ongoing living income. Apart from the pension itself, there may also be other benefits, such as travel concessions, cheaper medicines, and reduced council and water rates, which can translate into a significant amount of savings every year.
Structuring your investments to maximise entitlements is therefore a critical issue and some professional financial advice can make a big difference in that regard.
Is work an option?
Not everyone is particularly keen on making a sudden shift from full-time work to full-time leisure, so if you are still interested in continuing to work part-time, it can help you delay drawing down on your super and other assets.
There are incentives within the social security system to encourage this, so seek advice to see how it may be a good option for you financially.
Budgeting is essential
There may be a temptation to splurge a little when you first receive a large lump sum from your super, but make sure you project your living expenses properly before taking the plunge.
More than ever, a simple budget is essential to ensure you don’t outlive your income in retirement, so ask for advice and get things in writing to make it as tangible as possible.
Don’t forget to include emergency funds in your budget to take care of any surprises or spikes in expenses, such as unexpected illness, a house move, or a family crisis.
Get advice early
As you can see from the factors mentioned here, there are many interconnected elements to planning income and expenses for retirement: speak to a financial planner to help put the puzzle together, structure a diversified investment strategy, maximise entitlements, and map out your lifestyle and living expense needs.
What are your biggest concerns about getting through retirement without financial worry? Share your thoughts below.
Written by Bridges. Republished with permission of Wyza.com.au.