Five ways to plan now for a more comfortable retirement

Jul 25, 2023 | Retirement

Fine sand beneath your feet, gently swaying palm trees overhead and a cool drink in your hand: retirement reality or mirage? It’s up to you.

Whether it’s 5,10 or 20 years away, retirement may seem far off on the horizon, but it’s never too early to take steps to help ensure you arrive at the lifestyle you want.

1. Determine how much is enough

If you’re losing sleep over your golden years you’re not alone – almost half of all Australians worry they don’t have enough money to retire on.

So, let’s start with a ballpark figure: $43,372 per year will provide you with a comfortable lifestyle, or $59,619 if you’re embarking on retirement with your partner. Then, after some initial high-cost years spent circumnavigating Australia or fulfilling your dream of trekking the Inca trail, your annual expenses should fall by about $4,500 to $5,000 by the time you reach 85. But just how much you need is relative to the lifestyle you’ve become accustomed to.

For a more tailored budget estimate, use the Colonial First State retirement calculator and speak to a financial adviser. A financial planner will generally start working out exactly what you’re spending now and then identify the expenses that will continue inretirement and subtract the ones that won’t.

Sounds simple, right? But you’d be surprised how often people have no idea what they’re spending now. Ninety per cent of the time, the first budget a client proposes isn’t right so we need to review it over a period of time.

2. Pay down debt

Commencing retirement with a Home Mortgage is certainly not ideal. The ongoing mortgage repayments alone will significantly eat into your annual budget. The case study to follow is a common real life situation we came across in our business:

Contractor David and Teacher Carolyn were only too aware of their need to reduce debt prior to retiring. “We were doing what most people seem to do – spending what we earned,” Carolyn says.

“We both had reasonable incomes but at that stage (the 1990s) we were still raising our children which tends to erode any extra cash.”

With the help of their financial adviser, Carolyn and David adopted a cashflow and asset management system, and built up a share portfolio. The proceeds allowed them to pay off their home and boost their retirement savings considerably.

Other strategies include downsizing, selling or re-allocating assets to your spouse in a way that boosts pension income, giving you more money to pay down debt.

Another option, if there’s a big gap between your ages, is to have the majority of the assets in the younger person’s name (as long as they’re under age pension age) as this can potentially increase your entitlement to the Centrelink Age Pension.

3. Look at your super

Your super balance may be a little underwhelming if you’ve been self-employed, earning a lower wage or had money sitting in a poorly-performing fund.

In most cases, but not all, the compulsory employer super contributions are unlikely to set you up for an early retirement.
But the options are there to help you achieve early retirement and these include commencing a regular salary sacrifice strategy sooner than later and if the budget allows you to ramp up your contributions in the last five years of your working life, this will make a considerable difference in retirement.

Salary sacrificing strategies will continue to be available once superannuation changes come into effect, as will transition to retirement strategies, albeit with some changes.

With most transition to retirement strategies, you can salary sacrifice to reduce your taxable income and start a transition to retirement pension to top up your income or pay your mortgage. But, if you’ve got time on your side, small changes can have a big impact on your super balance.

Speak to your adviser – it might just simply be that you’re contributing to super after tax and you should do it pre-tax.

4. Consider non-super strategies

Depending on your lifestyle and life stage, strategies that don’t tie up your funds in super will be important. You might have a desire to help out kids with university, a car or a house deposit. Non-super strategies can include property investments or shares, and can leverage the equity in existing assets.

You might look at investing in growth assets over a longer term to achieve a potentially stronger return and use that to pay down remaining debt closer to retirement, or build an income stream outside super.

You may also consider more tax-effective arrangements such as using a mortgage offset account, putting assets in your partner’s name or establishing a family trust.

5. Just do it – take the first step

Unfortunately most people don’t take that first step and many factors such as the fear of the unknown or general apathy can stop people from achieving the best outcome.

So, while your path to retirement will depend on your circumstances, one thing is certain: time is your greatest asset.

If you don’t get on the planning bandwagon early, things get really difficult and you may end up with a retirement that’s totally different to the one you pictured.

Secure your future with PRP Group today!