Managing Your Finances for Retirement
Retirement is something that many of us start to look forward to as we get older, as it means an end to the long hard hours of a working life and the ability to kick back, enjoy life, spend quality time with loved ones and even do some of the things we have dreamed of doing but never had the time and ability to, such as travelling. However, in order to enjoy retirement it is important to do some forward planning as otherwise you could find yourself without the necessary income to fund the things that you want to do when you retire. In fact, ensuring that you have the right retirement income stream in place is vital simply to ensure that you are able to continue the lifestyle that you have become accustomed to whilst working and earning an income.
However, for most people who are getting older and heading towards retirement age taking risks with money becomes increasingly daunting and many believe that volatile assets are best avoided as retirement looms. This is why many people who are coming up to retirement age tend to go for assets such as fixed interest, bonds and cash. When it comes to providing a regular income, stability and peace of mind, defensive assets can be very important. However, those nearing retirement age also need to take into consideration the importance of growth assets in order to benefit from both income and capital growth. This includes assets such as property, infrastructure and shares.
Start Planning for Your Retirement Years Finances
There are a number of key things that you need to look at when starting your retirement financial planning. These are things that you may have to look at in stages or review on a regular basis to ensure that you are still on track.
- Your plans for retirement: The things you plan or want to do when you retire will play a big part in the amount of income you are likely to need when you retire. For instance, if regular travelling is part of the agenda you will need an income that will provide you with the means of travelling. You also need to think about where you plan to live and bear in mind the effects of inflation when looking at affordability.
- Your outgoings: By the time you retire, your outgoings may have changed a lot compared to the present. For example, if you are current paying a mortgage it may be cleared by the time you retire. The same can be said of debts that you may current have such as loans and credit cards. However, you will still need to pay bills and pay for food when you retire. You therefore need to look at what your outgoings are likely to be at retirement age compared to now.
- Your income: You need to start thinking about where you income will come from once you retire, as you will obviously no longer be receiving a salary from work. Consider your superannuation and any savings you have, whether you may be able to get financial support from the government and even whether you have any skills that you can develop in order to earn a little extra income when you retire. You should also take into consideration the value of projected value of any assets that you have and are likely to still have by the time you retire.
- Knowing your options: Retirement planning is a very important consideration but it can be confusing and daunting for many people. In order to make informed choices you need to ensure that you are know what your options are when it comes to retirement. It is therefore worth considering taking advice from an expert financial adviser who specialises in retirement planning.
- Discuss your plans: It is important to discuss your retirement plans and goals with people such as your partner, particularly as you get closer to retirement age. The chances are that you and your partner will have similar goals with regards to retirement so you can work on your plans together to try and achieve these goals and enjoy the retirement that you want.
Why consider growth assets?
It is important to consider growth assets as part of your investment portfolio in order to be able to cope with inflation and ensure that you have investments that will last for several decades. In this day and age people are living for much longer than they did in the past, which means that when you stop working and earning a salary you will hopefully still have many years of healthy living ahead of you – and these years of healthy living will require funding, which is where your investments comes into the equation.
Although there is some volatility that has to be considered with many of these growth investments, this is a risk that many people decide to take in order to benefit from the potential to enjoy lucrative returns. With the right investments you could potentially increase your future income, which could make for a far more comfortable and enjoyable retirement rather than having just enough money to 'get by'.
Tips to Consider When Planning for your Retirement Income Stream
There are a number of things that you need to take into consideration when you are trying to work out which retirement income stream is going to be the right one for your needs. Of course, you need to make sure that you are comfortable and happy with regards to where your hard earned cash is invested but you also need to take into account a range of other factors so that you can make a more informed decision with regards to which income stream to opt for. Some of the considerations that you need to take into account include:
- The level of control you need or want when it comes to your investments. Some people enjoy or prefer having a more active role when it comes to the management of their portfolios whilst others prefer to leave it all in the hands of a trusted manager
- The level of access that you need to your capital. Liquidity is important to many people, and it is important to take into consideration your plans for the future in case you may need to access some or all of your investment. However, you need to bear in mind that drawing on your capital could have an effect on your future income
- The ability make alterations to the investments that you have chosen. We never know when another global financial crisis will hit – there are even rumours of one in the near future – so it is important that you are able to adjust your retirement investments to suit the times, as a lot can happen to a long term investment in the years leading up to, and after you retire.
- Being able to make changes to your income levels each year – this is something that could be important in the event that your circumstances change, your lifestyle changes or your living costs increase as a result of inflation
Another thing that you need to take into consideration is how much retirement income you are going to need. You need to look at factors such as how long you will be able to fund an income for yourself and your partner. You also need to try and work out what your retirement plans are, what you want to do with your golden years, what sort of lifestyle you are looking to lead and what sort of living expenses will be needed to ensure that you can maintain the lifestyle that you are used to.
If you are looking to guarantee your income in retirement you may want to opt for guaranteed income funds, which will pay you a set percentage of your super balance annually for the rest of your life. You also get to choose the investments that your money is invested in and you are able to access your capital whenever you want to.