Planning Ahead for your Retirement

Retirement potentially means spending 20 to 30 years of your life either growing old and feeble, or relaxing and doing activities you love and enjoy. Retirement does not necessarily mean you must leave the workforce altogether, you may choose to undertake study or continue to work part-time. It is a change of career which allows you more time for leisure and sporting activities.

Planning for retirement can begin at any age but most people leave this important issue until they are into their 50s. However, the younger you are when you start, the better. It is important to start planning from now regardless of your current age, so that you can maximize the income available to you in retirement and so fund your desired lifestyle.

Planning to maintain your lifestyle in retirement requires patience and enough hard work to ensure your savings work hard for you. Your home and accumulated superannuation benefits may be your greatest assets and the same principles apply to your superannuation investments as to any investment.

When you are planning for your retirement, you need to consider you financial future and address the following questions:

How can I successfully manage my money in order to save and invest?
How can I reduce my debts, especially my non-tax deductible ones?
Can I put aside extra money for my retirement?
How much money do I need to save to provide myself a comfortable retirement?
How can I invest my saving to get the best return?
Where can I get good financial information?

Many people find it difficult to budget and save money while they are raising their children. Only after their children have grown up and left the home do some people start a retirement plan. However, this may be too late to achieve a financially comfortable retirement.

For most, retirement occurs between the ages of 55 and 70. While some may have no idea where their retirement income will come from, most expect it to come from their accumulated superannuation, an age or service pension, and/or from investments. You may use a variety of different types of sources to produce income for your retirement needs such as:

Investment accounts (income from interest payments)
Share and security investments (dividend income)
Investment properties (rental income)
Bonds (interest coupon payments)
Managed investments (distribution of income and capital gain)
Part-time work
Royalties (income from works such as books and copyright payments)
Age, war service or overseas pension

Your standard of living mainly depends on available income and living costs. Living costs include food, transport, leisure, health, household goods and services, clothing, footwear, communications and rates. Before you retire, you need to assess these costs. Once you have retired, you should review them regularly.

The level of saving required for retirement is based on your pre-retirement income, expenses and superannuation contributions. As a rule of thumb, you will need at least 65 per cent of your pre-retirement income in retirement, but preferably between 70 and 80 per cent. If you start planning early, you may have the same, or even greater, income during retirement than before it.

Retirement savings amount = 15 to 20 x net annual retirement income

A good retirement plan involves four main parts:

Creating a cash reserve for emergencies
Rearranging investments in order to establish a secure income and where appropriate maximize Government pension entitlements
Minimizing risk whilst retaining some assets that grow in value
Planning for your desired lifestyle in retirement.

A cash reserve for emergencies

You need to have some cash in reserve to pay for unexpected expenses. It is up to you to decide how much you need, based on the amount and type of your other assets. As a suggestion, you may keep about $5,000 that you can access immediately and a further $20,000 in a term deposit that can be accessed fairly easily should the need arise.

Rearranging investments

When you retire you are going to need regular income. It is important to review the investments you own and assess whether you want to continue to hold them or whether some other investment would be more suitable.

For example, you may own vacant land. This costs you money each year because you need to pay rates and other outgoings. That may be fine while you are working but it will drain your income when you retire. If the land is increasing in value, you may wish to keep it; however, remember the value needs to increase by the amount of income you are forgoing on the value of the land plus the costs of holding that land, otherwise you may as well sell it and find a better investment.

Minimizing risk while keeping some assets that grow in value

It is important for you to design a good retirement plan that maximizes your income, minimizes your risks and provides some assets that can grow in value. A good retirement plan should enable you to live comfortably, and receive at least some age or service pension where this is possible and appropriate.

Planning for your desired lifestyle

All too many people virtually ignore their lifestyle needs in retirement. The reason for this is because some advisers, who make their living from commissions on the investments you make, are all too often only interested in the financial aspect of retirement.

Some concentrate only on managed investments where they can receive both an upfront commission and an ongoing one that is paid each year your money remains in the managed investment. Many financial plans are computer generated and, all too often, focus more on compliance and disclosure issues that are required by law rather than being tailored to your particular needs.

Yet lifestyle issues are an integral part of retirement planning and you should be focusing on them just as much as financial issues – after all, we are talking about a phase of your life that should be happy, relaxed and fulfilling.

Don’t always listen to your head. Take the time to listen to your heart sometimes. Life is short each moment is precious and lost once it has passed.