I’m planning for retirement. What do I need to know?
Planning for your retirement may seem like a daunting feat or it may merely seem too far away. However, like most things: failing to prepare means you’re preparing to fail – nor can you start too early. Clichés, I know – but there’s a lot of strength behind both. I’ll attempt to show you why and cover 6 things to consider when planning for retirement:
- Start saving for retirement early
- Strategising at a set milestone of 50-55
- Rethink about going too defensive pre & during retirement
- What to do with your super
- Review your insurance
- Estate planning & writing your will
- Should I start saving for retirement early?
With life expectancies rising and advances in medical treatments and technology, means we’re living longer than previous generations and so, our retirement savings need to stretch longer. If you’re young it may also seem quite a while off – and is one of the most common excuses people make to justify not saving for retirement. If that’s you we think it’s best to reframe from ‘savings’ to ‘generating wealth’ – trust me, your future self will thank you. Those that a nearing retirement will tell you that the years fly by and building up a sizable amount of super or savings for retirement (your ‘nest egg’) becomes more difficult the longer you leave it. If you’re younger, you may not have a lot of disposable income right now, but you do have what older retirees don’t have: time. With time on your side saving for retirement comes less daunting and all the more powerful with compound interest.
Compound interest in the best reason it pays to start saving for your retirement, early. If you’re not familiar with compound interest, it will mean the amount of your savings will grow faster over time. To break it down, you will get interest on a) the money you initially deposit, which is called the principle amount and 2. The interest you’ve already earned. For example, if you had a savings account (or superannuation account) you will earn interest on the initial savings among and on the interest you’ve already earned i.e. you get interest on your interest. The power of compounding helps you save more money and the longer you save the more interest you earn. Hence, it pays (literally) to start saving (or contributing more to your super) early.
Making extra contributions to your super means you will benefit from compounding but it will also mean you may be able to claim a tax deduction for them as well, leaving you with a lower tax bill. Keep in mind there are limits for these super contributions, learn more here.
- Start strategising about retirement at a set milestone (generally a decade before you retire)
We hope you’ve started thinking about your retirement, for example, made extra super contributions before the decade that precedes your preservation age (the age you retire) comes about (and trust me, it will come about faster than you think). But a decade before you retire is a great milestone to set to really get down into the detail (also, there’s nothing like a deadline, am I right?) Forecasting how much you need for how long (remember a lot of people live longer than their ‘life expectancy’) can be a powerful way to check-in on your current super balance and measure if it will last for as long as you expect. There are also many investment and tax-effective strategies you can choose to make that may help you get there in the last decade. A licensed financial planner is best placed to weigh up your requirements and needs that are tailored to the way you wish to live in retirement – and the earlier you engage, the more they may be able to help you get there.
- Should my retirement investment strategy be conservative?
Don’t get me wrong, when you’re young you’re likely more able to take on more volatility and a growth-orientated portfolio may be something you go after because at the end of the day you have the time for the market to correct if something were to go wrong. But if you’re nearing retirement (or even in retirement) and personally still comfortable with the volatility (and you have some defensive assets) you don’t have to go super conservative. What you need to remember is when you retire in your 60s, you still may need the money to last another 30 years, so you may need the extra grunt that growth assets give you. At the end of the day, it’s not choosing one or the other exclusively – it’s about diversifying and being discerning and conscious about your investments and investment choices. If you go too conservative too early in a relatively low-interest-rate world (which is our reality right now) – the risk you take is that it may not last. If you’re too conservative, too early you do yourself a disservice by not making the most of growth time.
- What do I do with my super when I retire?
You’ve spend a lifetime saving for it, so when you’re able and ready to retire, what do you actually do with your super? It’s a good idea to start thinking about how you’d like to access your super before you reach your respective preservation age (the age in which you’re allowed to access your super) as there are a number of rules (and of course a bit of paper work) surrounding how and when you withdraw your super. Seeking out a licenced financial adviser at this stage may be beneficial as they’ll be able to help you decide the best way to access your super. To learn more about how to access you super click here.
- Review your insurance
It’s a reality that as we age, our bodies break down – or we’re simply not as resilient as our 30-year-old selves. If you’ve been pretty healthy and fit pre-retirement it may be hard to imagine a future riddled with major or ongoing health-related issues (and expenses). Pre-retirees often underestimate the cost of future medical care and so, it’s a good idea to review your Private Health Insurance because an unplanned ‘out of pocket’ medical expense can easily deplete your retirement savings. It’s also a good idea to look into other insurance option as such as Total and Permanent Disability Insurance which would look to relieve financial pressure on you, or your family should you suffer from an illness or injury. A financial adviser can help you prepare for the unexpected – and talk you through insurance options for example, setting aside savings to complement your private health cover and Medicare.
- Estate planning & will writing
Thinking about your legacy and estate planning needs may become more of a reality once you stop working and start a new phase of life. It’s a good idea to start thinking about, talking about and documenting how your assets will be distributed after you’re gone and how you will be looked after if you can’t make decisions later in life (i.e. lose capacity).
Click here if you would like to get in touch about any of the information above.