How to plan your retirement
To adequately plan for your retirement, it’s helpful to understand where you’re starting. Depending on the lifestyle you’re accustomed to and what you hope to do in your golden years, the amount you’ll need to have saved will vary. Often, your wealth strategy can shift as well, moving from growing your nest egg when you’re more comfortable with risk to the stage of generating income with more stability.
Plan the life you want to live
What kind of life do you want to live in retirement? Considering this now will help shape how hard your savings have to work – from downsizing and retirement living to aged care, or to sea-changing, tree-changing and exploring the open road. Now’s the time to build your nest-egg. Things to consider:
- Assets – the value of your personal assets (i.e. properties, savings, investments)
- Structure – how you hold those assets, such as in your super or a family trust
- Super – how much you have and when you can access it
- Age – how much time do you have for planning and if you’ll be eligible for the Age Pension
Six steps to preparing for your transition
- Think about what you plan to do with your days. Do you want to join a community group? Volunteer? Spend more time with the grandkids? Take up a new hobby?
- Set or review your goals for retirement – want to travel? Relocate? Write a novel? Take a course? Whatever you’re interested in, it’s an exciting time to make plans.
- Talk to friends and family about what you want your retirement to be like. It’s important that they respect your wishes and plans.
- Consider gradually reducing your work hours. This could help you slowly transition into life as a retiree without a cold turkey approach.
- Focus on your health and fitness by looking at sporting clubs that combine social with fitness. Fresh air and exercise are great for physical and mental health during this time of change.
- Review your financial plan, including a look at changes to your income and super, and determine what (if any) government assistance you may be entitled to. It’s also a good time to review your SMSF succession and overall estate plans.
Streamlining your super
Most working Australians hold super in an accumulation fund – this lets their money grow over time. Another type of super is a defined benefit fund – generally corporate or public sector funds – where the value of your retirement benefit is determined by a pre-existing formula. Whichever fund you have, there are three key tactics to consider employing now to get the most from your super in retirement.
1. Make the most of before-tax super contributions
Make the most of opportunities to contribute extra to your super before you pay tax through salary sacrifice payments. You can transfer up to $1.6 million into the tax-free retirement (pension) phase of super when you’ve retired and want to use it as an income stream.
2. Split before-tax contributions with your spouse
If you’re a couple, consider splitting before-tax contributions and/or contributing to your spouse’s super account (if you’re both eligible).
3. Watch your after-tax contributions
Once your super balance hits $1.6 million, you’re not allowed to make any more after-tax contributions – that is, voluntary contributions you make outside salary sacrificing and employer contributions. It’s important to keep an eye on these to avoid penalties.
If you hold an SMSF, you have an extra advantage over retail and industry super funds – the ability to choose your own asset classes and specific investments. This flexibility can help you acquire assets like gold or property directly and make your own investment decisions.
Think about esate planning
Estate planning is an emotional part of wealth management but is integral to all aspects of your personal wellbeing. The fact is, if you have any kind of assets, marry, have children or work and have super, you should consider your estate planning well before retirement. Even someone who has minimal assets but holds insurance in their super may actually have a sizeable estate, so now is the time to establish or review your succession plans, especially these four key areas.
1. Asset distribution
Decide how you want to distribute your assets to support your loved ones and beneficiaries. Specific structures such as superannuation, jointly held assets and assets held in a trust may require specific estate planning strategies and tailored legal advice.
2. Trusted people
Plan your beneficiaries, choose your executor and identify your Power of Attorney and guardians in place for dependants. Ensure you have a team of advisers able to assist your nominated persons.
3. SMSF succession
Plan the operational structure of your SMSF and the management/distribution of your fund assets in a manner that minimises tax and ensures that those you intend to benefit do.
4. Legal documentation
Implement estate planning strategies by preparing specific legal documentation such as a tax-effective will with testamentary trusts and a binding death benefit nomination directing how your superannuation passes.
Talk with experts
Whatever your plans for retirement, one of the more overwhelming and complex aspects is how to pay for it. Getting reliable information is vital and this is where a financial adviser can be invaluable. They can help you with setting and achieving your goals, building and structuring your wealth, and supporting you on the path to financial freedom in retirement. Keep in mind your plan needs to be long-term and adaptable to meet your changing needs and expenditures as well as being able to respond to a dynamic investment landscape.
- ASIC’s MoneySmart – great tools including a retirement calculator to plan how much income your retirement savings along with the Age Pension will provide during retirement, as well as an overview of what to look for when seeking financial advice.
Department of Human Services – find out how much Age Pension you could receive and other support services available in retirement.