Like any new chapter in your life, when it comes to retirement, preparation can go a long way in ensuring you’re not only emotionally but financially ready for the road ahead.
Despite the obvious benefits, less than 50% of Australians over age 40 feel prepared for retirement1, which is why we’ve pulled together 11 key points to consider to ensure you’re on the front foot.
1. Do I have to retire by a certain age?
The age you retire in Australia isn’t set in stone, so you can retire whenever you want to, however health, financial commitments and your ability to fund the lifestyle you desire will all play a big part.
2. How much money will I need?
Industry figures from June 2017 show that individuals and couples around age 65, who are looking to retire today, need an annual budget of $43,695 and $60,063 respectively to fund a comfortable lifestyle (assuming they own their home outright and are in relatively good health).2
To live a modest lifestyle in retirement, which is considered slightly better than living on the Age Pension, an individual needs an annual budget of $24,270, and couples, an annual budget of $34,911.3
3. How and when will I access my super?
Generally you can start to access your super when you reach preservation age, which will be between 55 and 60, depending on when you were born. As for what you do with your super—which from age 60 you can access tax free—you’ll have a few options.
You may choose to take your super as a lump sum, or move it into an account-based pension or annuity if you want a regular income stream. Just be sure to do your research as there may be tax implications and you may need to fund more years in retirement than what you think.
4. Will I be entering retirement debt-free?
A 2015 AMP.NATSEM report found nearly four in five people aged 50 to 65 had household debt4, so if you’re going to be carrying debt into retirement, you may want to think about ways to reduce your debt and our online education module may be able to provide some additional ideas.
5. Have I reviewed my insurance?
You might have insurance, but it’s worth checking you have the right type and enough of it. After all, what you require in retirement could be quite different to when you are working.
And, if you’re feeling tempted to reduce your outgoings by cutting back on things like insurance, keep in mind more than 60% of AMP life insurance claims were made by people 50 and over in 2016.5
6. Has my attitude to risk changed?
As a youngster, you’ve got more time to ride out market highs and lows, but as you get closer to accessing super and retiring, a more conservative approach to your investments may be appropriate.
That’s because a share market crash can be a lot harder to recover from when you’re older than if you’ve still got decades in the workforce, which is why it’s important to review your investments.
7. Will I relocate or downsize?
Your living arrangements in retirement should be based on more than just your finances. Your health, partner, family and what activities you decide to pursue once you stop work will all play a part.
If you are set on moving to a new home to release money from your property, planning ahead can help you feel more in control and provide greater peace of mind.
8. Will I be eligible for government entitlements?
Earlier reports suggested more than 300,000 age pensioners would have at least part of their pension cut as a result, with just under 100,000 people losing all their entitlements.6
9. What recreational activities are on my to-do list?
Australians are living and remaining active for a lot longer, so give some thought to your physical and mental wellbeing, and whether you’ll need a bit of extra money to do the things you enjoy, such as various sports and hobbies, travel and eating out.
10. Have I thought about estate planning?
Estate planning is about more than writing a will. It’s deciding how you want to be looked after if you can’t make decisions later in life and documenting how you want your assets to be distributed after you’re gone. It can be a complex exercise, so professional advice may be worth considering early on.
11. Do I want to make any final super contributions?
The more you can put into super, the more money you’re likely to have when you retire. And, if you salary sacrifice some of your before-tax income into super, these amounts will generally be taxed at 15%, which is lower than the tax most people pay on their employment income.7
More than one in two Australians aged over 40 are concerned they won’t have enough money to retire on, while nearly 70% believe they won’t reach their retirement goals without the help of a professional.8
With that in mind, it may be a good idea to speak to your adviser sooner rather than later and if you don’t have an adviser, call us on 131 267 or use our find an adviser tool to locate one in your area.
1, 8 Investment Trends October 2016 Retirement Income Report p12
2, 3 http://www.superannuation.asn.au/resources/retirement-standard
4 http://media.amp.com.au/phoenix.zhtml?c=219073&p=irol-reportsNATSEMArticle&ID=2121926 p13
Taking your super as a lump sum might be tempting, but it won’t be the best option for everyone.