Retirement Planning

Retirement planning is often overlooked however the consequence is that a majority of 45-65 year old Australians have opted to ‘put their head in the sand’ when it comes to this important topic.

The problem becomes worse when the majority of retirement information is centred around aged care, going grey, becoming dependent on others and eventually dying.

Then there are the typical photos of the grey haired retired couples enjoying the sand at the beach or a coffee at the corner shop, suggesting that singles don’t matter and retired couples just play around each day.

How does this affect you? If you’re feeling fit, healthy and happy to work for a few more years at least – can’t your retirement planning wait?

It is never too late or too early to start planning your retirement.

What stage are you now?

Age 20-35 – Time to get in the game …

1. Avoid debt
Being smart with your money from an early age can be the difference between retiring comfortably and not having sufficient income in retirement. It is common nowadays for many people to fall into bad financial habits, taking on expensive debt such as car loans, credit cards and personal loans.  Life is about choice and making poor choices early can make it impossible to succeed financially. A good rule to follow is – “if you can’t afford it, don’t buy it”.

2. Compound interest
This element of investing is often described as the secret to wealth creation.  The main trick is to start early and continue with a savings plan all throughout your working life.  Even the smallest of regular investments with re-invested interest can equate to a staggering balance over time.

3. Income insurance
These days, younger generations change jobs every couple of years but it could be an unforeseen loss of employment, illness or injury that can, very quickly, have an adverse effect on a family’s income.  Reduce this risk by arranging income protection insurance.

4. Superannuation
This is where being young really pays offs.  Keeping superannuation in one, easily managed fund for your working life will ensure maximum benefits when you are ready to retire.  Make sure the focus is not only on the fees charged by the fund but also the investment performance.  Remember the power of compound interest on investment returns.

Age 35-40 – Young families and home loan repayments …

1. Life insurance
Make sure your family can pay the bills and retain the family assets if the main income earner were to become permanently disabled or pass away.

2. Extra repayments
With the cost of housing on the increase, so too is the average life of a home loan.  It only takes a few dollars extra each month to take years off the life of your home loan and save thousands of dollars in interest.  Better yet, consider making extra repayments whilst switching your monthly repayments to fortnightly and watch your balance reduce.  Remember, if your interest rate is 7%, any extra repayments you make are guaranteed to save you 7% interest on these amounts.  It is a guaranteed good rate of return.

3. Consider longer term investments
Longer term investments such as shares, property or a well diversified balanced portfolio that are held outside of your superannuation make sound financial sense.  Being outside of superannuation they can be accessed if needed.

4. Education costs
If you have children you may wish to consider starting a savings plan for future school fees.  Remember, the earlier you start the more compound interest will cover some of the cost.

Age 50-65 – You are on your way now …

1. Re-evaluate your insurance cover.  You may find that you no longer need as much income protection or life insurance if you are debt free or almost debt free and have no young dependants.  But there may be other areas such as house and contents insurance in which you are lacking sufficient cover.  It is worthwhile reviewing all areas of cover.

2. Salary sacrifice as much as you can into your superannuation to limit the amount of tax you pay on your income.  Those over 50 can sacrifice up to $50,000 per annum.  The forgone income may be able to be replaced by your super fund - talk to an adviser to see how.

3. If you have debt outstanding, reduce it now before you head into retirement.  As your income is likely to decrease in retirement, servicing debt becomes more expensive.  Once you have paid out your debt, remember to continue saving at the same rate otherwise you will simple frizzle away the extra income.

4. Understand how your super is working for you. Talk to a financial planner to make sure that your money is appropriately invested according to your preferred asset allocation. Consider changing investment strategies to ensure maximum return.

Age 65+ – Enjoy what you have waited for …

1. You could live for 30-40 years in retirement so don’t blow all your cash at once.  Financial planning is just as important now as it was when you were just starting out. Having said that, you may find that your income needs reduce as you get older and are less inclined to do as much travel.

2. Consider if your assets can work better for you.  Perhaps a reverse mortgage or downsizing your home can release much needed capital. You should talk with a financial adviser before taking up these options as they can be risky areas.

3. Ensure your superannuation income is being provided to you in the most tax effective way.

4. Explore your Centrelink options.  There may be entitlements that you were not aware of.  Every dollar of extra income or benefits counts.

How a financial adviser can help

Investment choices, portfolio administration and performance monitoring are very complex tasks that most of us cannot possibly keep up with. Just understanding the changing tax laws and social security regulations and their impact on your financial situation, is a time-consuming and complex task.

A professional financial adviser has the knowledge and expertise to help you plan for your goals, manage your investments and review their progress. The financial adviser will take many aspects into consideration, such as your lifestyle objectives, investment risk comfort levels and tax situation to help develop the most appropriate plan for you.

A financial adviser will develop an individualised investment strategy that will account for all of these considerations, help you access a range of managers and investment products across such asset classes as equities (Australian and international), property and cash or bonds to supply a diversified portfolio.

Diversity is important to reduce the risk of any one manager or investment under-performing, whilst optimising the opportunity of your total portfolio meeting your expectations.

A financial adviser will regularly review your portfolio and make the agreed changes to best suit your present situation and your long-term goals.

An important feature is their ability to supply consolidated reporting for your total portfolio, its specific investment components and your tax position.