Planning for retirement
Good planning for retirement now could make your retirement years smooth sailing – but you need to make sure that your plans take your unique circumstances and goals into account.
When do you plan to stop work?
Don’t just think about when you’d like to retire, but also at what age it would be realistic and financially feasible for you to do so.
Obviously the most common factor influencing when you intend to stop working is financial security. Generally, higher paid workers and those with a well thought out retirement plan are far more confident of their estimated retirement age.
Bear in mind that unexpected things might happen, and that retirement sometimes occurs earlier than planned due to the decline of a person’s health or that of their partner. If such a thing were to happen to you, having a good plan in place could be very helpful.
How much money will you need?
The first things you need to work out when planning for retirement are how much money you’ll need to retire and how much income you can expect from your superannuation fund.
When you retire from full-time work, you’ll need enough money to live at the standard you want for the rest of your life. Start by working out a rough yearly budget and look at your current living expenses and work out how they would change if you retired.
"The first things you need to work out are how much money you’ll need to retire and how much income you can expect from your superannuation fund."
Your housing costs will be very different if you expect to have paid off your mortgage by retirement. If you have children, consider whether they’ll need financial help from you after you retire.
As well as ongoing living expenses, it also pays to plan for occasional one-off expenses. For example, some people may want to make the most of their newfound freedom by taking a holiday overseas or a trip around Australia, while others may want to treat themselves to a new car. If you have goals like these, include them in your plans as the first step towards achieving them.
You’ll also need to plan for more mundane but necessary expenses, such as repairs to your home and replacing your appliances as they wear out.
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When you retire you may be eligible for the Age Pension and a number of other benefits, including discounted public transport fares, concessions on your power bills, and free or discounted health care.
Your superannuation is your investment for your future. The law now requires superannuation contributions for employees, so retirement planning will be easier for many younger people in the future as a lot of the responsibility for super contributions had been taken away from them.
If you’re self-employed, working as a sole trader, or in a partnership, superannuation contributions are not compulsory, but it’s still recommended that you contribute to a super fund as a way of preparing for the future. If you meet minimum contribution requirements, the money you deposit into your super account may be able to be claimed as a deduction from your taxable income.
It’s important to understand what you’ll be entitled to from your superannuation after you retire. You may be able to choose whether you receive your benefit as a lump sum, a pension or a mixture of both.
You can use your superannuation (or other money) to buy special retirement income products offered by superannuation funds and life insurance companies. These products receive tax concessions, and you may also have to pay less tax on income you receive. There are many different types and they have different effects on your eligibility for government assistance.
The earlier you retire, the longer you’ll need to be able to live off your savings. You might have to support yourself for 30 years or more. In addition to any age pension you may receive, take a look at what your superannuation will give you and check how your savings are going. If you don’t have as much as you need, you may want to consider working a little longer or working part-time so you can build up some extra money.
Ask an expert
Good financial advice can really help you get your plans in order. It can also help you decide when will be the appropriate time to retire. Retirement is all about preparation, so make sure you’re thinking ahead.
What planning for retirement have you done? We’d love to hear about it!