Working towards retirement? Here’s how to get your finances in order
Planning for retirement is an exciting time. However, it can also be daunting, particularly if you’re unsure of how much money you will need to live a comfortable life.
Most Australians retire around the age of 65. In 2020-21, men aged 45 are expected to retire at age 65.2, while women are expected to retire almost a year earlier at 64.3.
Working towards retirement is a different journey for everyone. Some people move into permanent retirement quickly, while others begin working less hours over several years. Regardless of your situation and what you decide, it’s important to implement a plan well in advance to ensure your finances are in good order.
Understand when you can access superannuation and boost your balance
The choice of super fund and the investment options they or you (if you’re in a self-managed super fund) invest in, can make a huge difference to your super balance when you retire. The Association of Superannuation Funds of Australia (ASFA), regularly estimates the amount of money a single person, and couple, will need to live after retirement. According to their Retirement Standard, to enjoy a comfortable retirement single people will need $545,000 in retirement savings, and couples will need $640,000. You can calculate your requirements using their calculator.
The first step when you’re preparing for retirement is to find out when you can access your super. There are rules in place to prevent early withdrawal. While some people meet conditions for early release, most have to wait until their preservation age. Your preservation age is between the age of 55 and 60, depending on your birth year. Learn more here.
The next step is to know your balance and perhaps give it a boost. Salary sacrifice is one way to increase your superannuation balance. These super contributions you make before tax (concessional) are taxed at 15 per cent. However, super contributions that you make after tax (these are called non-concessional) are not subject to tax. These include contributions you or your employer make from your after-tax income, personal contributions that are not claimed as an income tax deduction, or contributions that your spouse makes to your super. There are limits on the contributions that you can make each year so ensure that you adhere to these.
It’s also important to check if you have multiple super accounts, which often happens when you change jobs. Consolidating your super into just one account can save you hundreds of dollars in fees every year.
Stick to a budget
Adhering to a weekly or monthly budget not only helps you determine how much money you need to live, but it can also help you save a little extra for your retirement.
Ask yourself: are there things that I can live without? Perhaps you’re spending a significant amount on clothes or funding an expensive car that you will no longer need in your retirement? Create a spending planner to track your expenses. When you discover what is essential to your lifestyle and wellbeing, you can trim costs in other areas.
After all, sticking to a budget is crucial to spending confidently in retirement.
Diversify your investments
Diversification of your investments is a strategy that can lower your portfolio’s risk. In a time of uncertainty (thanks to the pandemic), this could be a wise move, particularly for those that are contemplating retirement in the next five years. By investing your money across a range of different asset classes such as property, shares, bonds and private equity, you spread your risk. As we’ve seen recently, when some industries boom (property and healthcare), others do not (travel and hospitality).
Find out about Government benefits
In addition to your income, investments and super, you may qualify for a full or part Age Pension from the age of 65 to 67 onwards. This would form part of your retirement income.
There are different rates of Age Pension payments for single people and those in a relationship. To find out more about the Age Pension and whether you can claim, click here.
Do you have your finances in order for your retirement? You can book a free consultation with us.