Start planning now: It’s never too early
Receiving the right investment advice early on can help set you up for long-term success. When you first enter the workforce, retirement planning may be the last thing on your mind, but setting out a strong foundation is one way to create long-term financial wellbeing.
As you then get closer to retirement, the next consideration can be looking at your financial situation. As you reach your 40s or 50s, ask yourself:
- What costs do I need to budget for before retirement?
- How much debt do I have left to pay?
- Is it more beneficial to add money to super or pay down my debts?
- Do I have other significant costs to consider such as children’s education?
- Do I want to help my kids out with a home deposit?
Asking these questions will help you work out your current financial situation, your financial goals and the time frame in which you can achieve these.
Preparing a realistic budget: How much do you need?
It’s difficult to know where to start when preparing a budget for your retirement. In my conversations with clients I find this is where people are most unsure. How can you know how much is enough?
A financial adviser can help you look at how much you’re currently spending before considering what costs you may not have once you reach retirement. Examples of potential costs that you may no longer have are: home loan repayments, commuting costs or extensive travel expenses.
Once you have a realistic estimate, your adviser will index this by inflation to give you a good idea of how much you’ll be spending once retired and then help you quantify how much will be needed for retirement and then work backwards to establish a clear pathway to achieve the outcome.
Evaluate your financial strategies: Break it down step by step
Building your retirement plan can feel overwhelming at the start. But when each step is considered independently, it can feel a lot more achievable. Start by reviewing your investments and ask yourself:
- What strategies do I currently have in place?
- Are these working for me?
- Do I need to adjust these strategies to better achieve my goals?
These questions will help you learn about your current exposure, opening yourself up to new strategies that could improve your financial security.
For example, some people are unsure about entering the stock market as they see this as a risky investment option. I find clients are sometimes unaware of the level of exposure they currently have, especially if they are invested in the default investment option within their super. This default investment option could have up to 75% exposure to the stock market. Sometimes, this exposure to shares is far greater than what is suitable to them and sometimes it isn’t enough. Being open to this assessment allows them to adjust and access alternative investment options that could better suit their goals.
Consider all your investment options: Don’t put all your eggs in one basket
Having a variety of assets when planning for your retirement is a good option, so as not to put all your eggs in one basket.
For example, people often ask me if annuities are a good investment. In my professional opinion they’re a strong starting point - catering for people worried about longevity or outliving their funds. Annuities offer a guaranteed rate of return and a set income and can be beneficial for clients that are eligible or close to being eligible to some Centrelink entitlements. Annuities generally provide income that you can’t outlive. The downside being that they offer no growth potential, returns offered can be quite low and they are very restrictive- you don’t have flexibility if your situation changes. Once established, the capital is locked and although exit could be possible early on in the contract, it can attract hefty surrender fees.
This lack of flexibility is why it can be beneficial to have a range of investment options. By combining annuities with superannuation, account-based pensions and managed investments, you’re able to have the security of annuities while also having the flexibility to access lump sums and ability to adjust ongoing income from other investment options.
Seek unique advice that reflects your financial goals
Everyone’s circumstances are different, and what works for one person may not work for another. Having a clear idea of your financial goals and preferred route for investing ahead of time is a good place to start when requesting financial advice.
Having worked in the industry for 16 years I am passionate about helping you achieve your financial goals - assisting with the identification of risks and suggesting options that will maximise your investments.
Planning for retirement is something that changes as your situation does, but even if your plans change, being prepared and making smart investments will set you up for the best outcome.