Preparing for your retirement years
Nobody wants their retirement years to be years filled with financial stress. Retirement planning is imperative for everyone looking to spend their final years in a financially secure position with enough money to cover their day to day expenses and live out their last days in happiness.
Early retirement planning starts with your first job
While it may not occur to you to start thinking about retirement when you just got your first job, let alone planning for it, it is important to you are well informed on what you need to know to get started. Here are the reasons why:
- Maintain and manage your super - Because we expect to live in retirement for so long it's important we start planning as early as possible and most of us are lucky in that our superannuation begins as soon as we start our first job after leaving school and continues to be a part of our lives throughout our working years. A part of the superannuation contributions we make every pay day into our superannuation fund contains a premium to pay for life insurance cover. This means we have a two way protection as the life insurance component will pay a benefit to our dependents should we die before retirement and if we survive the journey we'll benefit ourselves from the accumulated superannuation contributions and its investment returns. You would think we've got it made but there remains one further obligation we have to take care of and that is to make certain of two things; (1) That the final pay out from our superannuation fund will be adequate to pay our way for at least 20 years after we stop working and that; (2) we have enough life insurance cover to properly care for our loved ones should we unfortunately die before retirement.
- You’re working and planning now to look after your retirement plans and your loved ones - Positive retirement planning means you've fully recognised the fact that when you finish full time work a new life awaits you. It means you haven't come to the end of your life, exactly the opposite, you've planned to start a new phase of your life and there are exciting times ahead. It's a time in your life where you can actually do what you want without having to get up every morning to go to work to earn a living. You've already earned your retirement living with the money that's been invested in your superannuation fund over your working years. With your financial affairs taken care of you can now travel, paint, mentor others, write, go fishing where you want, grow that vegetable garden out the back, in fact the whole world is yours to enjoy. Money is not the issue, not yet anyway.
Good retirement planning means you'll be financially free
The tricky part now is to plan your retirement so that you can stay financially free. You may have an income stream organised from a business or investment, there is of course your superannuation and you'll also have to make sure you get the best deal you can from a taxation point of view. This part of your retirement planning you have probably been putting off as you probably haven't known exactly how you were going to spend your retirement years but it remains important that you start thinking, well before retirement, of how you are going to spend those years so you can then anticipate the level of income you'll need to see you through and start putting a retirement plan in place. To this end you'll need to know the following:
- If you intend to travel or not, if so what will the cost be?
- When you return will you be selling the family home to move into a flat, or will you remain where you are?
- If you have a hobby will you be pursuing it and generally how will you be putting in most of your time?
- What will be your living expenses?
- How can you create an income stream to see you through?
To bring all these things together you'll need to do the following four things:
- Form a clear picture in your mind of all your retirement goals and the issues involved
- Use your current position as the benchmark
- Convert your retirement goals into practical plans you can work towards
- Put the steps in place that'll allow you to convert the plan into practical use
Easing your way into retirement
Many people get to their retirement years without planning, then all of a sudden they're hit with that much time on their hands they don't know what to do with it. If you're one of these people who is approaching retirement and you're not sure what you want to do with yourself it's often a good idea to slowly cut back your working hours while you're still in the workforce. Cut your five day working week down to three and then two as retirement approaches. You might take on part time work after you retire. Everybody is different but the main thing is that you prepare yourself and not be hit with a significant realisation at the finish when you wake up one morning with no job to go to. Some of us may love this to happen where others can find it quite depressing and start feeling they are not wanted and have nothing to contribute.
Play on what you're good at
One of the best attitudes to take into retirement with you is to concentrate on what you have been good at during your working life and if possible take that to new heights. If you've been good at drawing see how you go at painting, if you've always been good at writing put that skill to use with writing your memoirs, or a book on what interests you most. It's a good time to start going to auctions if you're a bit of a collector. You'll soon find there isn't enough time in a day to do all you want.
Shake off the fear of the unknown
One of the biggest problems many people have of facing their retirement years with anticipation is the fear of the unknown. We have gone to work every day for so long that it’s become part of our psyche and just thinking about not having to do that anymore makes us feel apprehensive. We feel it represents aging, perhaps it does but this has been occurring ever since we were born. Retirement represents freedom and that's how it should be viewed. If you undergo a sound retirement planning procedure you'll fully understand where you're going, what you'll be doing and you'll actually be looking forward to the day when you can start putting it all together.
There's no doubt that people who plan for their retirement in a sensible manner can enjoy active and fulfilling lives and continue on with their lives feeling proud of what they can still achieve. It's a smart thing to do to start planning for your retirement, so you can enter your new life enjoying a lifestyle you want and can afford.
Meeting your retirement living costs
The main thing we all must aim for in retirement is that of meeting our basic living costs depending on the lifestyle we want to live. To help you understand what these costs will be there is a regular study undertaken known as the ASFA Retirement Standard. This study measures the cost of living in retirement in real money terms and adjusts their findings along with any movement in the general cost of living. The study covers such things as how to budget for transport, recreation, household goods and services, clothing, energy, health and communication. It also makes the following findings:
- You can survive but not thrive on the pension. If you have to rely on the age pension throughout your retirement years you'll currently receive around $19,643 a year if you're single and $29,614 if you're a couple. This is kept at around 27.7 percent of the average weekly working age. It's an amount you can survive on but not an amount you can travel around on.
- If you’re willing to live frugally you’ll still need more than a pensioner’s income. If you want to live a modest lifestyle in retirement you'll have to be able to earn an extra $3,000 a year over the basic pension amount.
- Live out your retirement dreams with more income. To live a comfortable lifestyle in your retirement you'll need at least another $20,000 over that again.
To be able to reach this comfortable figure you'll need to create an income stream from your superannuation. Money earned from such a source isn't taxed as long as you're over 60 years of age. A comfortable lifestyle will allow you to take part in various recreational and leisure activities, enjoy a good standard of living and allow you to purchase such things as a reasonable car, electronic devices such as a computer, smartphone and occasionally travel overseas.
Helpful tips on planning your retirement
Early retirement planning does not just involve saving or investing, it also means you start reducing your debts now. Therefore, when concocting your strategy, don't just list investment opportunities, but the non-essential expenditures you need to eliminate to boost your retirement savings.
Some of the debts you need to eliminate before retirement are your house mortgage and car payment. These two are the biggest burdens that will greatly affect your retirement money if you fail to settle this before you retire.
Moreover, cut down the things that you can do with less. For example, instead of buying coffee at your favourite coffee shop or buying lunch everyday, why not start packing your lunch and lessening your coffee consumption.
In order to assess where you are at in your retirement savings, review your investments. Do you want to keep the investments you have now or do you want to explore other possibilities which will be a perfect fit for your new lifestyle? You need to review whether these investments are giving you the profit you are expecting from it, or there is a need to change your strategy and look for other options.
Reviewing your assets and investments also include reviewing your super fund. You can take advantage of tax concessions through your super fund, another step to let you save more.
After eliminating the unnecessary and reviewing your assets, it's time to decide how much you are putting towards your retirement plan. The amount of money you will save now will determine the kind of retirement you will have in the future. In preparing for the budget, you have to take into consideration the activities you are going to do when you retire. Which activities will require money and how much are you going to save up for these activities? Will you be travelling? Therefore, if you plan to have a budget of $10,000 a month, you will have to put more compared to a $5000/month plan.
Investing was mentioned earlier because it is one of the major income boosters for you if you are keen on retiring early. However, be careful where you are putting your eggs in. Between stocks and bonds, stocks are your safest bet because it is more sure and steady than bonds. Its return is also designed for the long term.
Getting yourself and your assets insured is another way of protecting your retirement finances. Remember that as you grow older, the possibility of medical or health problems surfacing is big. Therefore, you have to consider an insurance policy that will cover your income, investments, and your final expenses.
Tax concessions towards a successful retirement plan
Another way to bulk up your savings is to take advantage of tax concessions. One of the best places where you can look for these is through your superannuation fund. Some of the tax concessions you can have through your super includes concessional contributions and salary sacrifice.
The steps you will do right now will affect the kind of lifestyle you have during retirement and whether you will decide to retire early or not. Save and invest wisely now, and you will be able to live your dream when you retire.
Seek a financial adviser for professional retirement planning advice
Making sure you engage in proper retirement planning can help to ensure that you get to enjoy your retirement by helping to maximise your income in your retirement years. However, unless you are a financial expert, the chances are that you are not entirely certain with regards to the best way to do this. Retirement planning is something that should never be taken lightly, as it is something that could affect you for many years during your retirement and could make the difference between a comfortable and enjoyable retirement and a retirement that is fraught with financial stresses and struggles.
With this in mind, it is well worth considering speaking to the experts for assistance with your retirement planning, as this can help to ensure you make the right choices and decisions with regards to your retirement finances. Financial advisers are experts within the financial field and some specialise in retirement planning. Speaking to someone with specialist knowledge and expertise in this important area of finance could be of huge benefit to you if you are uncertain with regards to how best to plan for your retirement.
Some of the benefits of seeing a financial adviser to get help with your retirement planning include:
- Knowing your options: Many people who want to plan for their retirement actually have no idea with regards to what their options are. When you use the services of a professional financial adviser you will be able to find out what the options are as well as discussing which ones are going to be best suited to your needs and circumstances.
- Peace of mind: If you go it alone when it comes to your retirement planning, there is always that nagging doubt that you may have made the wrong decision or you could have done something differently for greater benefit during your retirement years. By using a financial adviser you have the peace of mind that you have received guidance from someone with expertise in this area in order to make informed decisions.
- Maximising your retirement income: A good financial adviser will be able to offer you advice and guidance that will enable you to maximise your retirement income, which means that you can look forward to enjoying a comfortable retirement with sufficient funds for your golden years.
- Saving you time: Many people spend a lot of time going over and over their retirement plans but not actually reaching any decisions because of their uncertainty. Using a financial adviser can help to save you a lot of time as well as frustration when it comes to your retirement funds.
Using a financial adviser means that you will be able to sort out your retirement finances and planning far more easily and conveniently. Whilst the fees and commissions that these industry experts may charge for their services can vary depending on which adviser you use and the level of assistance you need, many people find that it is well worth going to the effort of finding a good adviser because of the assistance they can provide when it comes to their retirement.
Retirement planning checklist
Retirement planning is not something that you should start thinking about just a few years before you retire. Ideally, you should be planning your retirement up to twenty years before your planned retirement. Although retirement may seem a long way off at this stage, planning ahead means that you have plenty of time to develop your retirement plans and start thinking about your financial needs, giving you the ability to work towards your financial goals for your retirement.
Having a retirement planning checklist is something that can help to make the task of planning less daunting and could spur you on to get the ball rolling with regards to your retirement planning. Being organised with regards to your retirement means that you can start planning early and get things sorted out in stages, which makes the whole process more manageable and can therefore increase your ability to plan your retirement efficiently.
Between 15-20 years before you retire
- Between 5-10 Years Prior to Retirement:Think of your expectationsThinking about your expectations for your retirement years, such as the types of things you expect to be able to do/want to do, where you expect to be living and whether you can develop any skills that could benefit you in retirement.
- Develop financial plansGet the ball rolling and start making financial plans based on your financial goals for your retirement. Consider getting a professional advice from a financial expert.
- Write or update your willIt is also a good idea to start thinking about preparing a will at this stage. This is something that many people also put off, but getting it sorted out sooner rather than later is advisable, particularly if you have assets or wealth.
- Revisit your financial plansThings may have changed since you first started thinking about your retirements, so this is a good time to revisit your financial plans and look at factors such as how much money you are likely to need when you retire, what sort of age you plan to retire at, what your investment options are, whether there is any government assistance available, how your superannuation plan will contribute to your needs, and what your plans are when you retire. You may also need to look at revising your will at this stage if there have been any notable changes in your situation, circumstances, household, or finances.
- Look at your current skills and avenues for additional incomeIt is worth considering whether you need to further develop any skills that may help you in your retirement years and might even enable you to earn additional income once you have retired
- CommunicateAt this stage it is worth not just thinking about your plans for retirement but also discussing them with people such as your partner and a financial adviser.
As you get closer to your retirement age, you need to continue with your financial planning.
A year or two before retirement
At this stage you should once again revisit and if necessary revise your financial plans and your will. Take time to discuss your retirement plans with your employers, consider whether you want to move to part time working before fully retiring, and determine whether you are still on course to retire at the age you planned to.
Six months before retirement
At this stage you should pretty much have all of your retirement plans in place. However, it is still important at this stage to once again look at your financial plans and will to ensure that there have been no major changes. Also, take the time to look at things such as reviewing your health insurance and life insurance and also getting superannuation statements. You can also look at your outgoings to determine which ones, if any, will no longer be in force by the time you retire (for example, you may finish paying off a debt by the time you retire). Again, this may be a good time to speak to a financial adviser to ensure that all of your final plans for retirement will keep you on track for the retirement that you want.