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, only 44% of Australians over age 40 feel prepared for retirement1, which is why we’ve pulled together a 9-point retirement planning checklist 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. You can really retire whenever you want to, but your health, financial situation, employment opportunities, individual preferences, and wanting to coordinate with your partner, could play a big part.
2. How much money will I need for retirement and where will I get it?
Industry figures from March 2018 show that individuals and couples around age 65, who are looking to retire today, need an annual budget of $42,764 and $60,264 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 better than living on the Age Pension, an individual would need an annual budget of $27,368, and a couple an annual budget of $39,3533.
Looking at the figures, consider how you want to live your life in retirement and add up any potential income sources you may have to support yourself. This could include things such as super, government entitlements, investments, savings or an expected inheritance.
3. What recreational activities are on my to-do list?
Australians are living and remaining active for a lot longer, so spare a thought for your physical and mental wellbeing. Think about 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.
4. How and when will I access my super?
Generally, you can start to access your super when you reach your 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 access a portion of your super via a transition to retirement pension (TTR), which you can do while continuing to work full-time, part-time or casually if you want greater financial flexibility.
Alternatively, if you want to retire, 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. Note, there will be different tax implications for different people and your super doesn’t guarantee an income for life.
5. Will I be eligible for government entitlements?
Along with your savings, government benefits such as the Age Pension, Carer’s Allowance and Disability Support Pension, could be an important part of your retirement income, should you be eligible. This is why it’s a good idea to be aware of what payments you may be entitled to.
6. Will I be entering retirement debt free?
An AMP.NATSEM report found nearly four in five people aged 50 to 65 have household debt4, so if you’re going to be carrying debt into retirement, you may want to think about ways to reduce it sooner rather than later.
Some things you might do:
- Work out your debts and what they total
- Do a comparison of what you earn, owe and spend
- Look into whether you might benefit from rolling your debts into one
- Pay your debts on time to avoid additional charges
- Try to pay the full amount rather than the minimum owing
- Look at whether you can afford to make extra repayments
- Shop around for providers with lower interest rates and no annual fee.
7. Do I have other matters that need addressing?
- 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.
- Investment preferences - Regarding your investments and the options you’ve chosen, you might also consider a more conservative approach, as when you’re a youngster you generally have more time to ride out market highs and lows.
- Estate planning - On top of that, think about your estate planning needs. Have you documented how you want your assets to be distributed after you're gone and how you want to be looked after if you can’t make decisions later in life?
8. 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, as you can assess any out-of-pocket costs in advance.
9. Do you 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.
Whatever your goals and future plans happen to be, remember that even a little bit of planning today could go a long way tomorrow.