Plan Your Retirement Right- A Detailed Guideline

The best way to predict your future is to create it.

-Abraham Lincoln

Everyone plans their retirement a certain way. You may want to maintain a specific lifestyle even after saying your career a final goodbye. To keep your ideal lifestyle post-retirement, you need to plan it right from today. Many Australians prefer to retire earlier nowadays because of their own will or some illness that does not let them continue working. Due to life’s uncertainty, it is wise to start planning your retirement today.

A Few Interesting Things You Should Understand About Retirement:

As we get overwhelmed handling everyday expenditures, it is tough to even think of the future 30 years down the line. This becomes the least of your priorities. You may also assume that there is plenty of time to think about the same. Before you put off retirement planning any longer, you need to consider a few facts stated below.

1. Your Retirement Period Can Last More than 30 Years:

As we are young now, we do not usually consider the number of years you will leave beyond retirement. Due to the excellent medical facilities available now, the age expectancy of both men and women is steadily extending. This means you may live longer than you thought. If you want to maintain your living standards, you will have to start planning for your retirement from today.

2. Do Not Rely on Age Pension:

You need to fit in several criteria to be eligible for the age pension. To just depend on the age pension is not a wise decision. Also, age pension provides much less money than your regular income, which means you will have to downsize after retirement, which you would definitely not want to. Hence, you can keep this as an additional option but not a primary retirement plan.

3. You Might Not Have Sufficient Super Either:

In Australia, employers must contribute to employee super, and it is a good start for your retirement. To live your entire retirement life out of the super money is not really a wise plan as there will be a shortfall for sure. Super gives a good boost, but you should also think about other investment options.

4. You Shouldn’t Depend on Your Inheritance:

Your parents may have a lot of savings, but you cannot rely on that for your retirement. For starters, it is their wealth that they may end up using completely, and later on, you may just end up with a fraction of the inheritance. This is why create your own wealth.

Steps for Retirement Planning:

1. Determine the Age Do You Plan to Retire:

There is no set retirement age in Australia. You can choose when to retire based on factors like your health, employment opportunities, financial situation, the age you can access your super for retirement, and your individual preference. You need to also plan for unavoidable circumstances when you need to retire early and plan accordingly.

2 Decide the Standard of Lifestyle You Prefer:

When you retire, you may prefer a particular lifestyle. Are you willing to downsize, or do you want to continue the present lifestyle? Decide upon what you really prefer before calculating how much you need to save.

3. Calculate the Money You Need In Retirement:

This may be tough to determine as you also need to keep in mind the inflation rate. Once you know the kind of lifestyle you prefer, you should get some financial help in understanding how much you need to save for retirement.

As per the Association of Superannuation Funds of Australia (ASFA), for a couple to maintain a modest lifestyle, they will spend about $675 per week. If you want to spend a comfortable lifestyle, the expenditure is almost double $1,160 per week.

According to March 2021 figures from the Association of Superannuation Funds of Australia (ASFA), the retirement budget is as per the below table.

These figures are based on the assumption that people own their own homes and are healthy. If you do not have a home until retirement, these figures will significantly increase.

4. Clear off your Existing Debts:

The thumb rule of retirement is not to carry any debts. This means if you have a mortgage now, you need to plan so that you finish paying off the balance amount much before retirement. You cannot spend your retirement amount of debts.

5. Invest in the Right Health Insurance:

As you retire, you may no longer get health benefits from your company. After retirement, the premium you will pay will be much higher because of your age. This is why you should take health insurance beforehand. Your insurance needs to cover all significant ailments so that you do not spend your savings on treatment.

6. Calculate Your Super Benefits and Rollout:

Generally, you can access your super when you reach the preservation age between 55 and 60, depending on when you were born. You need to know the super balance you will get after retirement as it forms a substantial part of your saving and plays a crucial role in planning your retirement.

7. Figure Out If You are Eligible to Get the Age Pension:

There is a possibility that you are eligible for an Age Pension from 65 to 67, depending on when you were born. Learn if this is applicable in your case, as this can be some additional retirement money.

8. Plan Your Investment and Savings for Retirement:

Now, as you have all the above details, you can start planning how much additional money you need to save for retirement. Instead of just saving the money, make a few profitable investments with calculated risks for the funds to grow. Speak to a financial advisor regarding the same as you cannot go wrong with this calculation.

Transition to Retirement:

Transitioning from regular income to retirement pension can be a significant step in your life. There are several ways you can receive the retirement super pension, though, once you reach your preservation age.

1. Account-Based Pension:

An account-based pension could be a practical option if you prefer a regular income every month after you retire. This could be an effective tax-saving option too. But take note that the payment will be based on the super amount, which does not guarantee you an income for life. There is no limit to what you can take out, but there is a minimum amount you need to withdraw each year.

2. Annuity:

This is another option that gives you guaranteed payments over a set number of years or lifetime, depending on what you opt for. This means you need not worry about outliving your savings. This is a secure option and guarantees you an income despite the financial market ups and downs. The downside is that you cannot take out lump sum withdrawals.

3. Lump sum:

As the name suggests, you can take out a chunk of the amount, which can be all your super savings too at once. This is not the best option, though, as you have to be clever in using these funds to last you through your retirement phase.

4. Transition to Retirement Pension (TTR):

A TTR pension allows you to withdraw 10% of your super savings every year even if you are still working full-time or part-time. Many individuals prefer t continue working even if they have reached their retirement age. This may be to save more money for retirement or just plain mental stimulation. Whatever your reason to continue working, setting up a TTR offers greater financial flexibility as you can access a portion of super every year even though you continue to work.

Start Planning Now:

Retirement planning can be a daunting affair, but thankfully, by gathering some knowledge on the subject, you can plan your retirement so that you continue living a comfortable life. It is never too early to plan for it. Hence, you should start today.

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