No matter how far off retirement may seem, there are 5 important things you could be doing now to ensure your comfortable retirement.
1. Write down your retirement goals & objectives
There is a saying that goes “if you fail to plan, you plan to fail”. The same is true for a comfortable retirement. To retire happily, the first step in a successful plan is to clarify your desired outcomes.
People often describe their goal as a “comfortable retirement” but of course, this means different things to different people. So, it helps to be more specific.
Ideally, your goals are unique, specific aspirations across various aspects of your future life. Such aspirational categories might include: quality time with children/grandchildren (educational support, eventual inheritance), community activity, travel, holidays, home (renovations, downsizing, etc), hobbies (cars, boats, holiday homes), charities, volunteering, religion.
2. Understand your spending habits
One of the most difficult questions we ask our clients is “what are your annual living expenses”. Most people don’t really know, yet it’s the other side to a common questions we get asked – “how much do I need to save for a comfortable retirement?”
If you’re healthy and own your home, the Association of Superannuation Funds Retirement Standard says a couple can have a comfortable lifestyle on income of $60,000 p.a. ($44,000 p.a. if single). It assumes one Australian holiday each year, regular leisure activities, an occasional bottle of wine, good clothes, eating out regularly, private health insurance and one reasonable car.
This is only a guide because everyone is different. It’s best to confirm your own living costs – it will only take a few months for your picture to emerge. It’s something simple you can do now to assist with creating a plan for the retired life you want.
3. Create a savings strategy
Once you’ve discovered your living expenses, your savings capacity leading up to retirement becomes clearer. Is it better to save into super, pay off debt, invest in shares, buy an investment property, or something else? The answer depends and there are many ways to a good outcome. The right answer depends on a number of factors, but here’s a hint: it’s wise not to overlook the benefits of superannuation. Despite Governmental tinkering, it is deliberately designed for retirement and the sooner you start, the better.
So long as your savings program improves the probability of achieving your retirement goals, you’re on the right track. (Note the importance of clear goals and objectives).
4. Learn more about superannuation
‘Super’ is really just a tax structure – like a company or a trust, superannuation has its own tax rates. How you invest within each of these structures is a secondary decision. You can hold cash, deposits, shares, property, almost asset class you might choose. When used before retirement, superannuation is concessionally taxed; 15% for income and 10% for capital gains on assets held for over a year.
Once in retirement (after age 60), earnings on super balances <$1.6m are tax-free. Not only can you pay less tax on your investments when held in super, saving into super could also help reduce your personal income tax.
Assume you found your savings capacity in step 2 was $10,000 p.a. Let’s also assume your salary was $85,000 p.a., then you first must earn $15,152 so that after paying 34% personal income tax, you’re left with $10,000. But instead of taking this $15,152 as salary, you could salary sacrifice this into super and so end up with $12,879 to invest ($15,152 less 15% contribution tax). It’s much better than the $10,000 you’d otherwise have to invest in your own name. A 28% head start in super!
You can probably see that superannuation is a very attractive vehicle when used for saving towards retirement – it pays to get to know it well.
5. Find an Independent Financial Adviser
If you haven’t already got a plan in place, make one – it’s critical. This plan should articulate your goals and objectives for retirement and serve to inform the financial decisions you make. It should outline a strategy to optimise the probability of achieving these goals and objectives. And it needs to consider your unique comfort with risk/return and your money personality to ensure you see out the journey no matter what lies ahead.
Let’s face it, life is complicated. There’s much that contributes to a successful, sustainable retirement. Not only do our own circumstances and objectives change over time, the markets and legislative framework in which we operate also change around us. So, seeking professional, independent advice can make a huge difference. As clearly shown by the Banking Royal Commission (see: Misconduct amid Poor Governance), finding a skilled and trustworthy adviser can be a minefield. A friendly, empathetic person is not enough. Perhaps this blog can help you find out how to choose a financial adviser.
Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. You should not rely on it and seek personalised professional advice before making any decision.