What’s the best way to plan for your retirement? Truth is there’s no one right answer, but there are some fundamentals all successful retirees have in common. Read on to see if you’re on the right track.
Fundamentals to good retirement planning
- Know when you want to retire.
- Determine the lifestyle you want to live, are you planning to move, do you want to travel or take up hobbies? This will help calculate the funds you will need to live comfortably.
- What assets do you have, what are they worth, and are they debt free?
- Do you have a business you need to sell, or are you looking to exit and hand the control to a family member? If so, will you get continued income from the business?
- What funds can I access from my super fund and can I get access to any government pensions?
When to Plan
The sooner you start planning for your retirement the more comfort you will generally have when the time comes. Most individuals start planning in their 40’s, as this is generally when more disposable income can be put towards wealth development in super.
Having a successful retirement depends on three key things:
- Setting financial goals for your retirement
- Building you Super savings in the lead up to retirement
- Successfully managing your retirement income, so you continue to have the lifestyle you planned for the length of your retirement.
How long should my Super last?
On current life expectancies, and depending on what age you plan to retire, your retirement income ideally should be able to last 20 years or longer. You’ll need to determine how long your retirement savings will last and what the shortfall is in order to plan your contributions and wealth development strategies in the lead up to your retirement. You may be able to access a Government Pension to supplement your Super, but rules are continually changing in this respect, so best to plan your retirement independently.
Building your Super
Contributing extra to your super with either before or after tax funds will go a long way to building your super nest egg. There is a $25,000 pre-tax contributions cap on funds you can contribute to your superannuation, and if you exceed this cap you could be up for significant penalties and higher rates of tax on your super. Be sure any additional contributions fall within the annual cap.
Another way to build your super nest egg is through a transition to retirement strategy. If you’re still working and have reached your preservation age, you may be able to get early access to your super, reduce your tax and develop a recontribution strategy to grow your wealth. You may also be able to reduce your working hours without dropping your income, as you prepare for retirement.
Fred and Ginger are both 57 and plan on retiring at age 59. They have planned their retirement and know roughly the different income streams they will use to pay for their retirement plans. Because both Fred and Ginger have reached preservation age, they will implement a transition to retirement strategy so they can reduce their tax and top up their super in the last 2 years of work.
When they retire, their first step is a $15,000 holiday which they have saved for independently, and will take as soon as they retire. Their superannuation will be used to pay for living expenses until they are old enough to access the age pension. After this time they will live on a mix of super and aged pension funds. If they live past age 90 they will probably have exhausted their super savings, so plan to access the equity in their home to supplement the age pension if that time comes.
You can never start too early to plan for your retirement. A self managed superfund can be a great way to have more control over your investment strategy. If you’re keen to explore this option or want to discuss your plans, please call your trusted PJT advisor for a confidential discussion and referral to specialist financial advisors if required.
GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
PJT Accountants & Business Advisors Pty Ltd CAR Number 1243046 ABN 75 116 182 873 is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361
Jodie Thompson ARN 277884, Wayne Patten ARN 277883, Matthew Dunn ARN 1243039 are Limited Authorised Representatives of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361