Retirement Planning

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? When you begin planning for your retirement, these are just some of the questions you may be asking yourself.

At MBA Financial Strategists, our aim is to provide our clients with tailored retirement advice that is dependent on each individual situation.

Common Retirement Mistakes

After working in the industry for over 30 years, there are some pretty common retirement mistakes that people seem to make:

• Not understanding your own investment profile
• Cashing out or not cashing out your superannuation
• Gifting too late
• Not planning to retire
• Saving too little or commencing too late
• Failure to consider the age pension
• Failure to understand the length of time in retirement

Learn more about common mistakes people making when wanting to retire.

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 investment returns 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 their super fund. 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 the form of an account-based pension. 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.

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

With no set retirement age in Australia, 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:

1. the amount required in retirement (the goal)
2. the amount that can be saved
3. 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 options 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 man age 65 has increased from 78 years of age in 1977 to 84 years of age and that of a woman age 65 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.

Planning for your retirement

Retirement Planning is the key in your transition to retirement.

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 fund 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.

How to boost your super fund:

1. Search for lost superannuation funds
2. Review consolidating multiple funds into the one fund ( ensure your insurance cover isn’t affected and check for exit or termination fees)
3. Review how your super fund is invested
4. Review salary sacrificing
5. Personal tax-deductible contributions to your super
6. After-tax contributions to your super
7. Spouse contributions to your super
8. Government contributions to your super

How to Plan for Retirement

Making sure you are prepared for retirement is essential when it comes to ensuring you are going to be financially secure. Whether you are looking at retiring in the short term or the long term, it is important you begin retirement planning as soon as possible.

Retirement Planning – 10+ Years

If you’re looking at more than ten years until you retire, life in retirement is likely to be the furthest thing from your mind. However, working on a financial strategy early is only going to ensure you are prepared for retirement.

At MBA Financial Strategists, we will help you determine how much money you will need to retire based on your lifestyle goals. We do this by identifying your income, as well as your commitments. From there, we work with you to develop a new budget and investment plan to achieve your goals.

Retirement Planning – 5 to 10 Years until Retirement

As you get closer to retirement, you might start to think more about what you need to do to achieve the financial security and freedom to see out your retirement. This may be especially relevant 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 begin forward retirement planning to determine how much money you will need based on your plans.

This planning will then inform what you can do to accumulate enough retirement savings within your timeframe. From here, we will work out the details with you and then review and recommend retirement income products. These products are aimed at maximising any entitlements, as well as social security benefits. We will also ensure you aren’t underinsured

Retirement Planning – Current Retirees

If you are currently retired and are concerned about your spending because you are unsure if you are managing your money correctly, we can help.

By monitoring your investments, retirement income, and providing tangible retirement advice, we can get you back on track to leading a comfortable retirement. We also have the ability to provide regular updates about social security changes that may impact you.

Retirement Planners in Adelaide

At MBA Financial Strategists, our financial advisers provide financial planning services tailored to your personal circumstances.

We will work with you to understand your goals and current financial circumstances and create a plan to ensure you have a comfortable retirement when you stop work.

Find out more about our seven-step process that works for financial planning or get in touch for professional advice so that we can help you better plan for your retirement

Sources: *Australian Bureau of Statistics Life Tables 2010-2012