The best way to approach and save for retirement will vary, but these are the basic building blocks that should be included in everyone’s retirement plan.
- Start Early. The majority of people wait until they are in their 40s or 50s to start seriously planning for life after work, and that is just way too late. Invest small amounts of money now for retirement so it will grow into a sizeable nest egg when it comes time to retire.
- Create a Retirement Budget. To help you stay on track you need a current budget. A current budget can help you calculate what is left after weekly expenses that can be designated to retirement savings. A budget for retirement spending is also important. Individuals should aim to have 85% of their current yearly income to maintain their standard of living. You need to estimate your basic needs plus what your retirement lifestyle is going to cost.
- Plan a Retirement Lifestyle. Your desired retirement lifestyle directly relates to how much money you will need to save. Outline your retirement plans and how your time will be spent: travelling, moving, taking up hobbies etc. and come up with an estimate on how much all of those plans will cost.
- Budget for Health-Care Costs. Since there is no way to determine an exact number. On average, it takes $125,000 to fund medical bills in retirement, varying by geographical region. Individuals with pre-existing conditions should plan for much higher costs.
- Evaluate Risk Tolerance. Your investment type and risk tolerance should change as you shift into different phases of life. You can afford to be more aggressive and risky when you are young. When you near or enter retirement most people will want to maximise income and minimise risk by moving to less volatile types of investments. That said, you might need to be riskier if you don’t have enough to retire.
- Get the Right Insurance. Everyone should go through an insurance audit as they reach different life stages. You should review your home, motor vehicle, personal, health-care and other insurances to make sure you are paying for coverage you need and use.
- Build Other Wealth. While retirement is important, creating an emergency fund outside of super to cover one year’s worth of expenses should be part of your planning. These savings should be liquid (cash) to cover any unexpected costs and to avoid credit card debt, which could jeopardise your retirement.
- Assess Taxes. How your retirement accounts are going to be taxed can have a big impact on how you liquidate your investments when it comes time to retire. You want to prioritise the order of the accounts you draw on to minimise the tax impact.
- Create an Estate Plan. It’s not fun to talk about, but everyone should have a financial plan for when they aren’t around anymore. There are three general ideas that should be part of an estate plan: what taxes you will pay and how they will be paid, how assets will be transferred to heirs, including the location of all legal documents and bank accounts, and the names of all beneficiaries.
Changes to pension asset threshold from the 1st of January 2017 will see the asset test limit to qualify for a full pension increase from $286,500 to $375,000 for couples (and from $202,000 to $250,000 for single people). The upper limit to receive a part pension will decrease from $1,151,500 to $823,000 for couples (and from $775,500 to $547,000 for single people).
Importantly, this means you still have time up your sleeve to plan for the impending changes. There are still some legitimate avenues available to reduce your assessable assets for age pension purposes. For more information please contact us.
‘The question isn’t at what age I want to retire, it’s at what income.’ George Foreman