Life is busy enough with all the moving pieces around family, home and work life, often pushing planning for the future to the back of the list. Addressing your eventual transition away from the work force into retirement can seem insurmountable and far away at first, but setting some time and resources aside now for this eventuality will provide you with some much-needed breathing space in your later years. Below is a guide to retirement planning and why you should think about your retirement now rather than later.
When should I start looking at retirement planning?
This will depend on what age you want to retire however it’s never too early to start laying the groundwork for a comfortable retirement. Those approaching 60 wished they’d started planning at 50, and even those that start at age 50 would benefit from addressing their needs in their 40’s.
Often juggling and prioritising other aspects of family life, such as the home mortgage and kids’ education, takes centre-stage early on in the piece, without any consideration of your future needs. However, allocating some of your household income to superannuation can save the average Australian family tens of thousands of dollars in tax over the longer term amongst other benefits.
Sometimes your career can be cut short due to unforeseen work circumstances, or you may suffer from ill-health, which only increases the importance of planning early for this important life milestone. Getting started now is the best approach to retirement planning.
What does retirement look like for me and how much is enough?
This will depend on what kind of lifestyle you want to lead in retirement and the answer is different for everyone. What will you do in your newly found spare time and will any of your current fixed costs such as commuting to work and other work-related costs drop off? Do you plan on travelling more or spending more time on expensive hobbies? These are both important questions that need to be factored into your overall retirement budget.
From September 2022, The Australia Age Pension will provide for a maximum benefit of approximately $26,689 annually for a single person or $40,238 annually for a couple, which often falls short of lifestyle needs. The Association of Superannuation Funds of Australia’s (ASFA) guidance on a comfortable annual income in retirement sits at $47,383 for a single person and $66,725 for a couple, illustrating the importance of not relying completely on government support to get by.
What can i do to assist my retirement planning ?
Get on top of your budget
It’s important that you have a good idea of what your costs look like now, so you have a starting point on how this may change in your retirement planning.
To get started:
- Record where your money goes for a month and categorise each item into either essential or luxury. Don’t forget to include essential costs which you usually pay yearly such as car and home insurance and apportion to a monthly amount (divide by 12).
- Add in any additional costs you plan to have in retirement and apportion this monthly also. This might include an allowance for holidays, gifting to the kids or sports club memberships.
Know what’s important to you
Having a clear understanding of your purpose and what drives you now and in your later years will help you to gain perspective on your needs in retirement. There may be luxury costs you could give up now to save for these important aspects in life. These same luxuries may not be your focus when you retire and could allow you to go on that extra family holiday each year or provide for increased financial comfort which is important for your own peace of mind.
Use superannuation to save
Planning around your superannuation now can have a significant impact on your eventual pool of funds in retirement. Contributing to superannuation from an early age will allow you to harness the power of compounding over time and can help achieve your longer-term goals and aspirations. Your super investment effectively ‘snowballs’ over the years, with any income or growth reinvested into the fund providing you with a further return on your original return.
Additionally, some contributions allow you to claim a personal tax deduction on the amount you deposit into superannuation, which can reduce your tax payable each year. Once funds are within the superannuation environment and invested, any future earnings are only taxed at 15% and are tax-free when retired should you meet eligibility.
Additionally, there are several attractive concessions available to small business owners which can help in your retirement planning. You can potentially reduce any capital gains realised on the eventual sale of a business, potentially allowing you to maximise the rewards from years of hard work.
Seek Advice
Sorting through your guide to retirement planning can be a daunting and overwhelming task for some, especially with the tangle of legislation surrounding superannuation and eligibility for the different types of contributions available to you. Consulting a financial planning professional who can guide you through this process and alleviate you of this responsibility will enable you to make clear and confident decisions when it comes to planning for retirement.
This is just one step of your financial life journey, so it can pay to establish a long-standing relationship with someone you can trust throughout your lives.
Sean Hocking works with individuals and their families to provide peace of mind and clarity around their financial future. Having a roadmap in place which clearly articulates what’s important in the years to follow gives his clients the confidence to make clear and informed decisions throughout their financial life journey.