Retirement Planning
Whether you are a new retiree, soon to retire, or still a long way from retirement, let the MBA Financial Strategists team help you maximise your income.
Are you thinking of retiring soon but aren’t sure where to begin? Are you worried you won’t get the most out of the money you have saved, or that you may pay too much tax? Do you feel like your financial situation is okay, but you could be doing better? Our passion is inspiring clients to take action to enhance and protect their wellbeing through the use of innovative planning strategies. Here are some of the common retirement mistakes – see if any of them apply to you. The information has been gathered over more than 30 years of experience in the financial planning industry and we trust you will find it helpful.
Not understanding your own investment profile
It is imperative that investors understand their own tolerance to risk. This ensures you are less likely to invest in opportunities that expose you to more risk than you can tolerate. Most investors have a basic understanding of the advantages in diversification; however, the relationship between risk and return is often misconstrued. It is important to note that a higher risk does not necessarily mean a higher return – it simply means the opportunity for a higher return.
Cashing out or not cashing out superannuation
Many Australians now have extensive funds in superannuation. Superannuation is a complex area of tax law and with complexity comes inconsistency. Many harness their superannuation in retirement to provide an income stream. In some situations, at age 60, an income stream may provide a tax effective way for your superannuation funds to grow, in a tax free environment environment. With transition to retirement strategies people may have purchased an income stream many years before retirement. The advantages of retaining the income stream should be weighed up against a commutation and repurchase strategy.
When a superannuation benefit passes to a person other than a financial dependent due to death, the proceeds may be taxed. A method to overcome this tax is by cashing out and reinvesting into super prior to retirement. This may not always be appropriate, as reinvesting the funds into super may not be available. Consideration should be given to the advantages or equalising super balances with a spouse or partner to leverage potential benefits a younger spouse may provide in this situation.
Gifting too late
More and more parents are looking to help their children as they reach retirement. Some contribute towards school fees whilst others assist in the purchase of a first home. By waiting until retirement to provide such gifts, the fund given away will continue to be assessed under the assets test for Centrelink purposes. This continued assessment occurs for five years after you have gifted the funds. Therefore it may be more appropriate to provide gifts at least five years before you may be eligible for Centrelink entitlements, in doing so ensuring that you will not be assessed for funds you no longer have.
Not planning to retire
Saving for retirement and retirement planning discussions are littered with cliches such as ‘Plan to retire before your boss does it for you’or ‘Fail to plan, plan to fail’. However over-used they are, they contain many truths. The best time to begin retirement planning is before you retire. By the age of 50, retirement should be a well-considered proposition, and by the age of 55, definite plans should be in place. To plan adequately you must first understand your current budget and also have a clear understanding of the lifestyle and budget you hope for and require in retirement. It should be recognised that life doesn’t operate like a tap and we cannot simply turn our existing life off and turn a new one on. It is well worth considering a transition to retirement or a wind-down period. This can be quite beneficial from a financial point of view as you are deferring the need to live solely from your own resources.
Saving too little or commencing too late
Once you understand the type of retirement you want it is imperative to start saving for it now. When mapping out a savings plan for retirement it is important to start out with a goal in mind. Once this is known, the amount required to be saved on a regular basis can be calculated.
There are three variables with respect to retirement savings:
- the amount required in retirement (the goal)
- the amount that can be saved
- the length of time to retirement
By starting now you are maximising the amount of time you have to save for retirement, and in doing so giving yourself the greatest opportunity to achieve your retirement goal. One should work with a professional to ascertain how your retirement savings can be best applied. Options they will consider include debt reduction, direct investments and superannuation.
Failure to consider the Age Pension
There are many tools online which assist in calculating the amount required to fund retirement. Many of these tools ignore the Age Pension. Most people will qualify for at least part of an Age Pension. By structuring assets and income appropriately you may be able to maximise this benefit.
Failure to understand the length of time in retirement
People are living longer. The average life expectancy for a 65 year old man has increased from 78 years of age in 1977 to 84 years of age and that of a 65 year old woman to 87 years of age in 2017.* Life expectancy continues to increase, and many people live quite a bit longer than the average. Retirement is the third phase of our life and for most will last beyond two decades, and for many, over 30 years. When assessing capital needs it is important to plan on this longevity to ensure we do no outlive our resources.
Retirement Planning is the key
How to boost your super
- Search for lost superannuation funds
- Review consolidating multiple funds into the one fund ( ensure your insurance cover isn’t affected and check for exit or termination fees)
- Review how your super fund is invested
- Review salary sacrificing
- Personal tax-deductible contributions
- After-tax contributions
- Spouse contributions
- Government contributions
It’s important to start planning early to plan for an enjoyable and comfortable retirement. Retirement funding is insufficient in Australia according to a range of key reports along with the average super balance of Australians. Retirement funding is not enough to fund a ‘çomfortable’ or’modest’retirement lifestyle as outlined by ASFA Retirement Standard. Many Australians retirees will have to rely on the Age Pension to fund their retirement.
For Ten Plus Years until Retirement
If you’re looking at more than ten years until you retire, planning may be the last thing from your mind. However we encourage you to get in touch with the team here at MBA Financial Strategists so we can help you review your current situation and start thinking about short and long term retirement goals.
We help you look at how much money you will need to retire based on your lifestyle goals. We do this by identifying your income and commitments and from there we work with you to develop a new budget and investment plan to achieve your long term goals. We also recommend strategies to accumulate the amount you need to meet your retirement plans. Click here for a short retirement planning video presentation.
So even if you think retirement is a long way off, it’s always a good idea to start the planning process early; in fact it may be more beneficial to get your finances reviewed and start the savings and planning process now.
For Five To Ten Years until Retirement
As you get closer to retirement you might start to think more and more about what you need to do to achieve the financial security and freedom to see out your retirement. This may be especially pertinent for you if you and your partner are looking to retire around the same time.
We work with you to establish when you want to retire and then forward plan to determine how much money you will need to retire based on your plans.
This planning will then inform what you can do to accumulate enough retirement savings within your timeframe. We work out the details with you and then review and recommend retirement income products so that you can manage your money and make sure you maximise any entitlements to social security benefits. We also make sure you aren’t under insured.
For Current Retirees
If you are currently retired and are concerned about your spending and budgeting because you are unsure if you can manage your savings on the aged pension alone, then get in touch with the MBA Financial Strategists team so that we can monitor your investments and retirement income.
We also offer to provide regular updates about social security changes that might affect you. Knowing what your options are can help you stay focused and in control when it comes to ensuring you are comfortable in your retirement.
Whether you are ten or five years off retirement or you are a current retiree we always ensure that we ascertain whether you need to talk to a solicitor to create a comprehensive will or update your current will.
Find out more about our seven-step process that works for financial planning or get in touch so that we can help you better plan for your retirement.
Sources: *Australian Bureau of Statistics Life Tables 2010-2012