Everyone comes into retirement differently, with different needs and different expectations. The only common factor for those approaching retirement? Planning is crucial. It is essential to have a solid idea of how you want to live in the years following retirement, and the financial income that will be needed to accommodate the lifestyle you envisage.
To give yourself an idea, the Association of Superannuation Funds of Australia (ASFA) has supplied some estimations on the income different retirees will need, depending on their lifestyle choices. Their estimations show:
- To live a modest lifestyle:
- o A single retiree will need approximately $23,469 per year or $450 per week
- o A retired couple will need approximately $33,766 or $648 per week.
- To live a comfortable lifestyle:
- o A single retiree will need approximately $42,604 per year or $817 a week
- o A retired couple will need approximately $58,364 per year or $1119 per week
With this in mind, we bring you 10 key steps for planning for the retirement to suit your lifestyle needs and budget.
1.MAKE A LONG TERM FINANCIAL PLAN
In the years before retirement, you should begin putting a long-term financial plan in place. This plan should incorporate how much money you already have for your retirement (including super), and how much money you will get from the Age Pension and other sources of income. Your financial plan should also cover how much you feel you still need to contribute to your retirement income before you finish working, taking into account money for emergency funds and the lifestyle you anticipate following retirement. Remember, many retirees live on a combination of their savings, the age pension and sometimes an additional income such as investment properties or shares.
According to a financial guide by the Australian Securities and Investments Commission (ASIC), the maximum fortnightly pension for a single retiree in March 2015 was $782.20 and, for a couple, the maximum combined fortnightly pension rate was $1179.20.
These amounts are less than half of the income suggested by the ASFA to lead a modest retired life. They show why it is important to have a strong, long-term financial strategy, with adequate savings in place, before you retire.
Finally, it is important to factor in any debts that will hang around after retirement. To establish which debts to pay off before you retire, and which debts to pay off during retirement, it’s a good idea to rank your debts according to interest rates. Some possibilities might include student loans, credit cards, car loans, home mortgages, and investments. By gaining a clear understanding of which debts are charging the highest interest, you will easily be able to priorities your repayments.
To get started on your financial plan for retirement have a look at ASIC’s MoneySmart Retirement Planner. This calculator will help you predict factors including what income you are likely to have from super and the Age pension, and how contributions, investment options and retirement age might affect your retirement income.
NOTE: this calculator does not take into account changes to the Age Pension that will occur in January 2017.
2. FIND LOST SUPER
It’s easy to lose track of your super, especially if you’ve changed your name, switched between jobs, or worked in casual or part-time employment. To find more about your super or your partner’s super, it’s best to register for the Australian Tax Office online service called myGov. This resource can help find details of all your super accounts, including lost or forgotten funds, and combine multiple super accounts into one, preferred super fund.
You can create an account here and remember, it’s a good idea to reduce the number of super accounts you have, because multiple fees and charges can detract from your overall super investment.
3. PLAN FOR EXTRA TIME
Australians are living longer and healthier lives than previous generations, so it’s essential to think about the costs you may encounter living for 20, 30 or even 40 years after retiring!
In November 2014, the Australian Bureau of Statistics reported, on average, a 65 year old man can expect to live for 19 more years, while a female aged 65 can expect to live 22 more years. With future innovations in health care and prevention, this life expectancy is certain to continue increasing and it’s important to ensure you’ll have enough income to keep you and your partner living comfortably throughout a long retirement.
Ideally, your financial planning going into retirement can prevent overspending, which might diminish your quality of life, and reduce underspending, which might mean you miss out on great opportunities to enhance your wellbeing.
4. PREPARE FOR THE UNEXPECTED
Planning for retirement also means planning for the unexpected. Factors such as loss of a spouse, medical costs, the needs of children or grandchildren, as well as the ongoing maintenance costs for cars, homes and other assets, need to be accounted for in a long-term financial retirement plan.
Insurance is a great way to protect yourself from unexpected incidents. Comprehensive insurance such as life, health, home, contents, car or funeral insurance can make a difference in dealing with difficult life events and easing the financial strain that often accompanies them.
The ‘unexpected’ also extends to investments in stocks and property. Not only can markets by fickle but liquidating these assets for fast cash might incur unnecessary fees or capital losses that could be a disastrous blow to your retirement income.
5. CREATE A HOLISTIC PLAN
Retirement will give you ample time to keep your mind and body active. It’s a good idea to set some goals to keep you motivated in a variety of mental, social, physical and spiritual endeavours. For example, do you want to travel during your retirement? Where and when and for how long? Do you want to purchase assets like a boat, vintage car or caravan? Maybe you’d like to join the local tai-chi club?
Create a well-balanced lifestyle for your retirement by determining if your goals are SMART:
Establishing SMART goals will give you an accurate idea of your retirement schedule over weeks, months and even years. It will also help you anticipate and plan for additional expenses that may occur along the way.
6. BEGIN YOUR TRANSITION FROM WORK TO RETIREMENT
It’s important to have an idea of when and how you will retire. A gradual transition into retirement is a great way to keep earning money for retirement, while also preparing yourself mentally. Staying in the workforce for longer than the retirement age might also suit people who enjoy the mental and social stimulation provided by working.
The Australian Government’s Transition To Retirement (TTR) pension allows Australians to supplement their salary and support a comfortable lifestyle in working towards retirement. This pension also allows users to save on tax and boost super.
A TTR pension can be achieved two ways:
- Working full-time and boosting super
- Reducing work hours and thus cushioning the reduction in income
TTR pensions involve ‘salary sacrifice’ which means:
- Your super balance will keep growing
- You’ll pay less tax because salary sacrificed contributions are taxed at a low rate when they go into super. Investment returns on a super pension account are also not taxed and once you turn 60 you won’t have to pay any tax on your pension income as well.
You are typically entitled to access a TTR pension once you hit preservation age, which is generally 55 years. From this age, you can begin withdrawing a pension from your super even if you are still working.
IMPORTANT: TTR pensions are only available to members of accumulation super funds and only if your super fund offers the pension option. However, if your fund doesn’t have this available, a potential solution is to open a new super fund that offers this service.
7. THINK ABOUT WHERE YOU COULD LIVE
Aged care services might not be on the agenda for several years, however, you shouldn’t overlook the potential need for them in the future. Aged care can be costly and, depending on you or your partner’s needs, it could very negatively impact the funds you have aside for your retirement if you’re not adequately prepared.
To help you determine the potential costs involved in aged care, the government has created home care fee and residential care fee estimators to calculate the expenses you’re likely to encounter. Although the Australian Government subsidises a range of aged care services for retirees, these are generally only available for those who cannot afford to contribute.
8. KNOW YOUR ELIGIBILITY FOR CONCESSION
If you are not eligible for the Age Pension, you may still qualify for other benefits that can save you money, these include:
- The Commonwealth Seniors Health Card – This card can be used to help with the cost of prescription medication and other health services. It is income tested.
- NSW Seniors Card – This provides discounts on travel and retail services. To be eligible you must be aged 60 years or over, and do no more than 20 hours of work a week. This concession is not asset or income tested.
- Senior Pensioner Opal Card – This card gives you a capped $2.50 travel concession on public transport in Sydney, the Blue Mountains, Central Coast, Hunter Region, Illawarra and Southern Highlands. To be eligible you must have a NSW Seniors card, Pensioner Concession card or a NSW War Widow/ers card. From January 2016 all pensioners wanting to travel on public transport in NSW will now need to apply for this card, as the pensioner paper ticket is no longer available.
9. BE ON THE LOOKOUT FOR SUPERANNUATION SCAMS
Between super funds, savings and investments, retirement typically involves a substantial sum of money. For this reason, it’s important to know the rules and be aware of scams involving superannuation benefits.
To withdraw money from a super fund as a lump sum or as a form of income you must meet a ‘condition of release’. Conditions include:
- Being 65 years of age or over or;
- Permanently retired or working no more than 10 hours per week or;
- Of ‘preservation age’ or;
- As part of a transition to retirement pension
In addition, situations such as permanent incapacity, compassionate grounds, terminal illness and severe financial hardship are also conditions that can be used to withdraw super before retirement or preservation age.
In preparing for your retirement, you might come across an individual or company offering to help you access your superannuation money early, without meeting any of the conditions mentioned above. This is a scam. It is illegal to use your super before the age of 55 and, by partaking in any such offer, you are not only risking your hard-earned savings but you could also be subject to fines.
If you are approached about accessing your superannuation early, report it to ASIC online or by calling their Infoline on 1300 300 630. You can also report superannuation scams directly to the Australian Taxation Office on 13 10 20.
As well as this, it’s important to be aware of the dangers of identity theft and protect your super against fraud. Quick ways to prevent this from happening include using strong passwords on all your online accounts, keeping your antivirus software up-to-date, never using public computers for banking, securing your mailbox and checking your bank and superannuation statements frequently.
You can find more information on how to protect yourself against identity fraud here.
10. SEE AN AGED CARE PLANNING SPECIALIST
If all this planning for retirement is overwhelming, it’s a good idea to consult an aged care planning specialist or retirement counsellor. Here at Pinn Deavin, we offer aged care planning for Australians looking to ensure they have adequate support in place to help them financially maintain their lifestyle after retirement.
If you’d like to know more about the aged care planning service that we provide, call us on (02) 8525 3700 or email us at firstname.lastname@example.org.