Retirement planning: five steps to ensure a financially comfortable retirement

Wealth Management Insights

More baby boomers are likely to retire over the next few years, as Australia’s population ages. Unfortunately, many of these people will retire without having adequately planned for their post-work living expenses, according to RSM Australia.

Nick Andrews, Financial Adviser, RSM Australia, said, “Planning your retirement means taking into account your unique goals, so a plan that works for one person may not necessarily work for another. However, it is possible to adopt a common planning methodology to ensure your needs are covered long after you stop working.”

There are five key steps towards retiring successfully:

1. Set a retirement start date

Knowing when you want to retire is important for any number of reasons, including investment accessibility. For example, if someone plans to retire before their superannuation preservation age, which is currently 55 but increasing to 60 for those born after 1 July 1964, they may have trouble accessing their superannuation.

Nick Andrews said, “The longer you work, the more assets you can accumulate. Working longer also reduces the number of non-working years. Deciding to retire early or work longer can significantly affect your retirement asset requirements.”

2. Understand the cost of living

A retiree’s investment assets will be drawn down to meet their living costs in retirement. Ideally, these assets will be sufficient to cover these living expenses. Current estimates put the cost of retiring on a comfortable lifestyle at $42,962 per year for singles and $58,915 per year for couples (ASFA Retirement Standard, (accessed 11 February 2016)).

Nick Andrews said, “Most of our clients’ key fears include death, public speaking, and developing budgets. But developing a realistic budget is essential to understand whether you can afford to retire or not.”

3. Investigate government assistance

Many older Australians are entitled to some form of government assistance, namely the age pension. From 1 January 2017, changes to the age pension assets test will mean many people who were formerly eligible for the pension are either no longer eligible at all, or will have their entitlements reduced.

At the same time, the assets test-free threshold will increase to $250,000 for single people who own their homes and to $375,000 for couples who own their homes, giving more Australians access to the full age pension. If retirees qualify for the full or part age pension, their costs will be offset by this.

4. Clarify your net investment returns

It is important to understand the returns investments will yield. This can be affected by tax legislation, market volatility, and other economic factors.

Nick Andrews said, “Future legislative changes to taxation will affect net investment returns so it’s important to keep an eye on tax legislation and the marketplace to ensure your investments will continue to yield the returns you expect. Significant changes may affect your ability to retire.”

5. Develop a retirement plan early and actively review it

It’s never too soon to start planning for retirement. Circumstances may change year to year, and it’s important to have an up-to-date understanding of your ability to retire, particularly as a chosen retirement date draws nearer.

Nick Andrews said, “Planning lets you break big picture goals into attainable, annual targets, which can help keep you on track to hit your preferred retirement date.”