Retirement should be a time to be free of financial stress. Most of us dream about the day when we can finally stop work and do the things we’ve never had time for. It's important that you plan for retirement well.
These are key points that should be part of every retiree's planning process:
Put it all in the table
In retirement, your income requirements are effectively the same as your expenditure. This doesn’t mean that your earnings need to match your expenditure but rather, that your total cash
flow needs to match your expenditure. As a guide, in Australia, a retirees cashflow is often made up of the Aged Pension from Centerlink plus what they draw from earnings on investments and income streams from superannuation pension. And calculating your cashflow isn’t about planning for year 1 - it’s about forecasting for the remainder of your life.Retirees who don’t carefully consider their retirement needs usually spend a lot of their retired life worrying about if they can afford to do things, there is an unspoken fear that they have, that they may run out of money and sadly the consequence of this fear is evidenced by them choosing not to do things like travel overseas or buy that new car that they need. So put it all on the table, think about the future carefully, create a comprehensive buck list, make assumptions about how often you may want to replace big-ticket items like cars in the future and if you have children, think about weddings and the costs or contributions that you may want to make to their lives and the lives of your next generations.
Give consideration to if or when you may want to move home and what the financial consequences of this may be.
Give consideration to if you may be a beneficiary of an estate at some point in the future. And of course, try to calculate how much you may need to live comfortably from week to week.
After you have collected this information together it’s time to financially model this against your estimated future cashflow.
Consider using Online Calculators
There are some free online calculators that are ok. Most of these are not robust enough to capture the detail that will give you enough comfort to feel like you can retire with the peace of mind most retirees want, knowing they have enough put aside to live the rest of their lives and this is why people seek advice. Because retirement planners have sophisticated financial modelling software that integrates your goals, cashflow requirements, expenditure requirements, assets like you home, investment properties, shares, managed funds, super funds and of course they can blend and forecast earnings of the different investments together with relative ease. They can also blend centerlink, tax rates for individuals, super funds, SMSF’s, pensions companies and trusts, like estate trusts or discretionary trusts.
So you can use the simple, free online calculators in the market or if you want a comprehensive plan that can accurately fit your needs, I’d suggest that you use a planner to create a comprehensive retirement planning solution.
Compare product and service providers
We recently compared over 10,000 managed investments that exist in Australia. We compared fees, performance and many other variables. Don’t assume that because you’ve been with a product for a long time that it’s right for you or that the investment options you are in today are right for you in retirement. Here is a graph that shows the performance of one of our clients retirement portfolios compared to the Australian Share Market the growth fund index, which is the average of all growth funds and also the Aggressive index what shows the average of managed high growth investment portfolios for just 3 months. The difference in returns are real.
As a guide to how real this is, If you have invested $500,000 in our portfolio, you’d have made $95,000 in this three month window. If you were in an average growth fund getting the benchmark return, you’d have made $34,000, which is OK. The difference however is $60,000 and that for most retirees represents their income requirements for an entire year. So choose your investments with care or ask for help if you’re not sure what you should be investing in.
Check Government Support
Check how much you may be entitled to receive from Centrelink in the form of an aged pension. Seriously, a couple who get a full aged pension are entitled to over $35,000 a year from the Australian Government. So if you need say $50,000 a year to live comfortably and the government is going to kick in $35,000 of the $50,000, it means you only need to draw $15,000 a year from your own savings. And this in turn means that your savings will last a lot longer or that you have more to spend. Either way, it’s a win for you.
Decide where and how you want to live in retirement
Do you want to live where you are now for the rest of your life? Some people plan to downsize, some people move to the water, commonly known as a sea change, others move to the country, this is called a tree change, there are those who will move where their family moves and others that are perfectly happy staying put. The important thing is to consider where you fit into the mix and if there may be a change in where you live in the future and if this is going to change your bank balance in the future. If there is a change, you should make some assumptions and model this as part of your retirement planning process.
Talk to a Professional
We researched a little while back the value of individuals getting professional advice, primarily to see if there was any evidence of value. Here is a summary of our findings.
People can be categorised as non-advised, advised or Do it Yourself. The non advised are just that, people who probably started a job, were given super forms to complete, found there way into whatever the default fund was, paid little attention to their super each year and find themselves knocking on the door of retirement a little worried about how they might survive the next chapter of their lives. The DIY set are on average more highly educated and financially literate than the Non Advised and they take an active interest in controlling their personal wealth. The professionally advised acknowledge the need for support in areas of wealth management and are prepared to pay for guidance and advice in areas where they lack knowledge or simply have no interest. The difference in accumulated wealth over time is significant.
To put your toe in the water with the professional advice you may want to attend seminars or online webinars, you could consider our services. Finding a good advisor can
be a little tricky because whilst most retirees have common needs, there are many different personal preferences so it’s important to consider carefully what you want from an adviser. I’d suggest that you go to ASIC’s MoneySmart website. They have information on how to choose your advisor. They give you specific guidelines which you can follow along with questions you may like to ask a planner.
Retirement should be the reward you deserve for living a full life. Planning for it can be complicated and complex, but it’s so important to invest time and effort into setting yourself up well. Talk to us if you need help, that’s what we are here for. We have retired many Australians and have a deep knowledge of what works, what doesn’t, the tips and traps you need to know and how to apply them in retirement. Good luck.