Retirement planning done early and well ensures you a future retirement that answers to your needs and provides for the things you want. When you engage in retirement planning, you figure out your desired retirement income goals and then devise a course of action to realise those goals.
Setting up a plan with the right goals in mind—backed with good finances and sound professional advice—would certainly ensure you enjoy the retirement you’ve always dreamt of.
An effective retirement planning scheme requires you to:
- Know yourself—your financial self
- Get expert, professional advice
- Take control
- Set financial goals
- Design a long-term plan
- Grow your retirement income
- Strengthen your Superannuation strategy
- Be clear on how your retirement will look like
Know yourself—your financial self
The most effective and well-informed retirement planning scheme begins when you acknowledge where you stand financially before you set goals specific to your retirement.
Make sure your retirement planning scheme fits as a subsection of your life’s overall financial plan, not the other way around. This means your retirement plan should not stretch or require your overall financial plan to change directions only to accommodate your specific retirement objectives.
Understand that first, you have to make sure you have a sound overall financial plan before you commence retirement planning. To begin, take into account the following:
- Cost of living a comfortable retirement—specific to your reality
- Controlling your costs
- Risk tolerance and why it matters
- Your cash liquidity needs and preferences
- Your preferred retirement lifestyle
Cost of living a comfortable retirement—specific to your reality
Start by defining your reality, your situation, and how much it would cost you to lead a life in retirement comfortably. Doing this requires you to be honest with yourself about your current financial situation.
Your honesty, cliché as it may be, will enlighten not only your retirement planning scheme, but your overall financial plan as well.
Controlling your costs
You then proceed by designing your financial planning blueprint. To do this, you need to list your current living costs and how you could make some little adjustments on them to realise your retirement planning scheme.
This involves making tough but necessary decisions. For example, instead of renting that upscale downtown loft apartment, you could plan to purchase a property so you won’t be renting until you retire.
Risk tolerance and why it matters
When you engage in retirement planning, you actually invest: you invest in your future and for a comfortable lifestyle. Since retirement planning is an investment, you need to be clear with yourself whether you’re ready to take on a high-yield investment option, which, of course, mostly requires high levels of financial risks, too. Or, you can choose to engage in low-risk but low-yield investments which tend to be more secure.
Generally, retirement planning falls into the lower-risk-lower-yield category, but there’s nothing wrong if you decide on the other alternative. When you do decide on the high-risk investment option, make sure you follow through and still have a fallback in case unforeseen circumstances happen. Simply, design your retirement planning scheme based on how much you can afford and afford to lose.
Of course, you engage in retirement planning not to fail but to win, but part of securing your victory is predicting and planning for unfavourable eventualities. This, then, is when you gauge your risk tolerance before proceeding with customising your retirement planning objectives.
Your cash liquidity needs and preferences
Are you okay with having most of the chunk of your money tied to an investment—retirement planning fund—or, do you need convenient and easy access to cash? Having a clear and definite answer to this question will be the cornerstone of all your investment activities.
Bear in mind that particular stocks are some of the most liquid types, as they can be easily sold on the market. Buying a property, on the other hand, requires that you take out a loan and have a property collateral to get access to your money.
Understand all these and identify which works better for you and your current financial reality.
Your preferred retirement lifestyle
Envision the life you want to live and enjoy once you stop working. Do you want to go on a cruise, take annual international trips? Or are you content just exploring the other cities and great outdoors of the country besides your own?
Always remember that when you engage in retirement planning, you not only plan for your survival after you retire, but you’re planning for a life of freedom.
Really, it’s all about freedom—spending your days the way you want to, and engaging in activities you like without thinking about the financial costs and liabilities. All these future pleasures are dependent on the soundness of your retirement planning scheme. The sooner you start planning, the better.
Get expert, professional advice
You don’t need to start and complete designing your retirement planning scheme alone. It is important that you acknowledge the fact that there are experts and professionals out there who can assist you in crafting a retirement plan that aims to provide you with the retirement life you’ve always dreamt of—but you need a plan that still remains logical, realistic, and realisable, too.
Ask for financial guidance and advice if you think you need tips on investing. Financial experts can help you maximise on specific financial strategies so you could easily and expertly navigate the tax system. Your financial adviser will discuss with you different investment strategies, and both of you will then select from and/or combine these strategies to suit your specific needs.
Backed with sound financial advice, you proceed by understanding and then sorting out your specific financial considerations.
To do this, you need to identify the assets you have and their individual costs, the amount you have in your superannuation, and whether you are eligible for age pension and when you can apply for it. Doing so provides a clear picture of how much money you have, how much you will have in the future, and which source(s) will your money come from.
To qualify for the age pension, you need to satisfy age and residency requirements. If you are eligible, Centrelink (of the Australian Government Department of Human Services) will then work out how much age pension you will receive depending, of course, on your income, assets, and other considerations and circumstances.
As of March 2017, the maximum single-person age pension rate is $808.30 per fortnight. Couples get a maximum of $609.30 each in a fortnight. These exclude the clean energy and pension supplements, the additional payments you may receive.
Set financial goals
After figuring out your financial reality and considerations, you can now set specific financial goals, advancing further into your retirement planning. Again, make sure each goal is logical, specific, measurable, realistic, and realisable. To do this, you think about:
- How long you might need your retirement funds to last
- How much super you will need
- Your age pension eligibility and the amount of money you will receive from it
Based on current statistics on life expectancies, you will need to prepare your retirement income and make sure it lasts for 20 years or more. How much you will actually need will also depend on your foreseeable daily expenses and your outstanding debt(s), if any.
Remember to also prepare for any costs required by emergencies or unexpected eventualities. As discussed above, Centrelink will work out for you the amount you will receive from age pension, if you are eligible.
However, remember to not rely on the age pension as your sole source of income. Government policies can change, and you don’t want to just rely your retirement entirely on amendable policies.
Design a long-term plan
Next on your to-do list is to look realistically into your retirement needs, and the changes they might require over time. In the first few years of your retirement, for example, you might plan to go on a cruise or be the world traveller you’ve always dreamt of. No problem. Take note of this plan and now—or as early as possible—allot the necessary amount for this goal.
Later, however, you might need to replace your car or renovate your house, or a part of it. Or, further down the years, you might decide to move into a retirement home, where all your needs would be taken care of.
All of these possible changes require you to consider your different income sources for you to aptly fund all said stages and your decisions in your retirement life. This is planning for the long-term—predicting the things that will eventually happen and making sure you are ready for the uncertain ones.
Grow your retirement income
You now have a specific and realistic long-term retirement planning scheme. You can now focus on growing your income for your overall financial health, and consequently for a sound retirement fund.
Again, never hesitate to ask for help if you need the assistance of your financial adviser. The earlier you gain access to expert financial advice, the better it is for your retirement planning needs and goals.
Since your financial adviser has already helped you identify the best investment strategy or strategies you can use for optimal income generation, he or she will now assist you in actually employing and realising said strategy or strategies. These strategies will diversify your sources of income and will strengthen your total funds. Invest some of your money in assets that grow over time, such as shares and properties. Doing so will ensure your capital grows in value as it keeps pace with your income needs and inflation—a very real thing.
Spreading your investments will not only ensure you have multiple sources of income but, more often than not, help you avoid devastating financial troubles—certainly the last thing you want in your retirement.
Strengthen your superannuation strategy
It cannot be overemphasised that if you haven’t yet, you need to start retirement planning now. The earlier, the better. One of the things you need to plan for early on is your superannuation.
In your 30s or 40s? You have the long timeframe advantage, which means you can select the best superannuation strategies right now and streamline your life choices so they adhere to or at least lend support to your retirement planning goals.
If you’re in your early 50s, the wealth you have accumulated so far and your outstanding debt(s) if any, will largely dictate how much you shift into super.
You must bear in mind that until you retire or after your preservation age, you will not be able to access your superannuation funds. In some cases, however, without retiring, you may decide on taking a transition-to-retirement pension (TRIP) on or after your preservation age.
Pouring as much money into your super is likely the way to go when you’re already in your late 50s or early 60s. This, however, will still be dictated by your current lifestyle needs and requirements. By now, though, you're all ready to take advantage of the concessional contributions limit available to persons over their 50s. Again, you may also opt for the TRIP.
The super is the most logical thing when you’re retired and over 60. Once retired, you can withdraw your funds and pay zero taxes, except, of course, when you are a beneficiary of an “untaxed” source—a public sector fund, for example. When you have assets beyond your super, you may shift these assets towards super. These will be subjected to capital gains taxation and should be paid on profits from the sale of personally held assets.
Be clear on how your retirement will look like
Considering and then doing all of the above will help you form a clear image of your future retirement. When you are clear on how your retirement lifestyle will look like, it’ll be easier for you to make present life choices that will lend support, if not completely benefit, your retirement planning goals.
Again, developing an early retirement planning scheme is the best way to go. But it’s never too late to begin yours if you haven’t yet.
Retirement planning not only lets you decide on the grandness of your retirement picture, but it will help you break down the specifics of said picture, which, in turn, will direct and inform your current life choices and decisions.