How to Plan Your Finances Before You Retire

Retirement is a time for spending time with family, relaxing and doing the things you’ve always wanted to do. The earlier you put some thought into your retirement money the better.

Retirement is a time for you to do everything you wanted to do but never could because of family and work commitments. If you invest your savings and superannuation wisely, you could retire with no stress if you’ve secured a reliable nest egg for you and your partner.

After being in the workforce for most of your life, you deserve to be rewarded with peace of mind and security in your retirement. Generally, for most people, retirement occurs during their 60’s, but in some cases, people retire earlier. No matter when you stop working, one thing stands true - it is a time in your life when you can spend more time with your family, take on new hobbies and activities, or do more travelling. As they are your “golden” years, they are the years you should really take advantage of.

Speak to a financial planner today about planning your retirement

Rates last updated April 27th, 2017
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Work out how much retirement money you’ll need

Firstly, consider your lifestyle. Will you be travelling? Or moving overseas? Maybe you’ll be living a similar lifestyle but with a few trips interstate? Will you have a single source of funds or do you have a partner? Once you have figured out what you want from your retirement years, you’re ready to consider your expenses.To enjoy your golden years, you will need to consider how much money you will need in retirement. You will need to figure out how long you’ll be in retirement, what type of lifestyle you want and any future costs (like medical expenses, inheritance, or debts you will need to pay).

List the expenses you already know you will have to pay on an annual basis. This could include things like water and electricity bills, groceries, healthcare, transport, personal expenses (clothing or beauty). After you’ve calculated regular expenses, list estimated expenses for things like travel, entertainment (movies or musicals), hobbies, or possibly even buying a new house or car. Don’t forget any outstanding debts, or any inheritance funds you wish to leave to your family. It’s important that you try and budget for as much as you can, so you get a more reliable figure.

Once you have sorted out the expenses, you can calculate how much money you will need to fund them and your desired lifestyle. To do this, you will need to know at what age you plan to retire (the retirement in Australia currently stands at 65). The Australian Securities and Investments Commission (ASIC) recommends that if you retire at 65, you should multiply your desired annual income by 14. This means, judging by your expenses, if you estimate you will need $60,000 a year to fund your lifestyle, multiply this by 14. You will need to have $840,000 in your retirement fund for you to live comfortably and do all of the activities you accounted for in your expenses.

Although this will give you a rough estimate of what you will need, you should also consider the rate of interest you are making on your superannuation fund. The higher the rate of interest, the more you will be able to save. Make sure you know the balance of your superannuation, what interest it is making and how much you will earn by your retirement age.

If your funds do not seem to be growing towards your desired budget, you may need to reconsider your superannuation fund and how much you are regularly contributing to your nest egg. Shop around for the best rate of return to ensure you retire as comfortably as you can possibly be.

To get a rough calculation for your retirement fund, use the ASIC Retirement Planner. It will estimate how much money you will have by your retirement age and what actions you can take to get your superannuation fund on track.

Budgeting for your future is imperative if you want to retire without the stress of worrying if you have enough funds or not. You want to spend your retirement years relaxing, not worrying! Draw up a budget, or talk to a financial planner to make sure you will be able to enjoy your retirement years.

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What are your retirement options?

Before you retire, you will need to consider where your source of income will come from. There are a few different options you can choose from, so you need to decide which type of funding will best suit your desired lifestyle.

  • Age Pension. This is an allowance given to you by the government. The amount you receive will depend on what income you are receiving from other sources, as well as the value of your assets. The age requirement increases each year, so be sure to check with ASIC about how much you can earn depending on your birth year.
  • Superannuation. This is becoming the main source of income for retirees. Money is contributed into your super fund by your employer and is usually 9%-11% of your salary or wage. You can choose to make additional contributions to the fund if you wish to. You will have access to this fund when you have reached your retirement age.
  • Investments. Other than your superannuation, you may have investment properties, shares or high interest term deposits. It is important not to put all of your eggs in one basket as this gives you a better chance of making a good return on your money if one of your investments does not pay off.
  • Personal Savings. Some people choose to start a separate fund account to manage their money other than their superannuation fund. If you find the right type of savings account, this could be a great contribution to your retirement years.
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Ways to prepare for your retirement

In order to achieve your goals for retirement, you will need to make a plan to ensure you will have enough funds. Here are a few steps you could follow:

  • Consider your lifestyle. It’s important to have a rough idea of what you will be doing to make the most of your golden years. Whether it be travelling, buying a boat, or moving closer to loved ones, your lifestyle choices will affect how much income you will need.
  • Choose the year you will retire. This will give a clear indication of how many years you will be in retirement and how much time you have to save up until that year.
  • Clearly list your goals and budget. Include how much income you will need per year.
  • Work out where you will be getting your funds from and how much access you will have to these funds. You will need to consider whether your superannuation will be enough and whether you will need to start a separate savings account or consider investments.
  • Talk to a financial planner, or contact your superannuation host. It’s always a good idea to get a professional opinion especially if you are unsure that you will be able to meet your goals.
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The best way to retire

Your retirement years are your time to do the things you’ve always wanted to do. You shouldn’t need to worry and stress over where you will get your income, so it is important to get your funds on track as soon as possible. Make a projected budget, organise your superannuation and investments and talk to a financial expert as soon as you can.

For some of us, retiring might seem far away, but the more prepared you are, the more you will be able to get out of your golden years. So don’t put it off and start planning today. You’ll thank yourself when you’re jet setting around the world, or relaxing with your family on your new boat!

Shirley Liu

Shirley is's publisher for banking and investments. She has completed a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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