Planning for retirement
When you’re planning for retirement, understanding your current financial situation is necessary to determine what your circumstances might look like once you stop working.
Understanding your financial position
First, look at how much money you have currently. This is usually made up of assets such as your home or investment properties, savings and other investments, as well as your superannuation. You should also assess any outstanding debt, such as bank loans or credit cards. Add up the value of your assets and subtract your debt to get a clear idea of your current wealth.
Looking to the future, consider how your current financial position might change. You may be planning to sell certain investments, change your investment strategy entirely, or downsize your home, leaving you with some extra cash. Also calculate how many years until you can access your super, as well as if and when you can apply for the age pension.
Look at your spending
Being honest about how much money you spend can help you work out whether your lifestyle will remain affordable throughout retirement.
This is where a budget can come in handy. When creating a budget, list necessary expenses such as your rent or mortgage payments, bills, insurance, groceries, fuel and any other ongoing costs. Also, look at how much you spend on extra things such as travel, fitness, eating out, entertainment, clothing and other purchases.
Once you’ve assessed how much you spend each week, think about how you want your lifestyle to look when you retire and how much it might cost (taking into account that your expenses may change, such as if you pay off your mortgage before retirement or decide to downsize).
To get an idea of your expenses use our budget planner.
Understanding your retirement needs
It pays to be aware of what will happen once you reach retirement so you know what to expect and how this will impact your financial situation.
Accessing your super
Generally, you’ll have some form of access to your super when you reach ‘preservation age’. Depending on when you were born, preservation age is between 55 and 60 years old. You’ll also need to be permanently retired to withdraw your super. Otherwise, you can access it once you’ve turned 65 or when you have ceased an employment arrangement since turning 60, even if you’re still working. When you retire you can receive your super as a lump sum or income stream.
When you reach preservation age you also have the option of accessing some of your super through a ‘transition-to-retirement’ pension. This kind of pension allows you to continue working and receive money from your superannuation savings to supplement your income, which could be worthwhile if you want to reduce your work hours while maintaining your lifestyle. Just note that this pension does get deducted from your super balance, which could mean less money in your super come retirement.
Depending on your financial situation, when you reach age pension age you may be able to apply for the age pension. A government pension or allowance is the main source of personal income for around 65 per cent of Australian retirees.
The amount you could receive on the age pension depends on a few factors. So, the income and assets test will be applied to your financial situation to gauge how much pension you’re eligible to collect. Your income includes streams such as the money you receive from employment and money from investments, like rental income. Your assets include investment properties, savings and other investments. Your principal home may be considered an exempt asset and not be included in the assets test. If your income or assets surpass the income and assets test limits, you’ll receive a reduced pension payment or no payment at all.
Depending on your circumstances, other government entitlements you may be entitled to include carer payment or allowance, rent assistance, energy supplement, disability support pension, or a Pensioner Concession Card, Health Care Card or Commonwealth Seniors Health Card.
What your retirement will look like
When you’re getting an understanding of your retirement needs, one of the most crucial things to think about is how you want your retirement to look. It’s likely your retirement lifestyle will be pretty different to your current one. With a bit more spare time on your hands you might want to pick up a new hobby or sport, spend time volunteering or looking after grandchildren, or travel regularly. Or you may desire a lifestyle change such as moving to a new home.
The financial preparation you do now will have a big impact on the lifestyle you’ll get to enjoy once you stop working. By carefully examining your financial situation you’ll likely be better positioned to achieve your ideal retirement.
What financial planning can do for you
Seeking professional help when planning for retirement can be a good idea if you want to reach certain financial goals. A financial planner can help you meet your objectives by providing a tailored financial strategy suited to your circumstances. Their job is to help you transition from working life to retirement as well-prepared as possible.
Boosting your super
Boosting your super now can make a big difference to your retirement. A financial planner can assist in designing an effective strategy for your super so you can increase the money sitting in your fund. They might recommend changing or consolidating your super funds or sticking with your existing fund(s). They may also ensure that your superannuation investments are in line with your growth goals while bearing in mind your appetite for risk. Another strategy they might suggest is boosting your super through salary sacrifice or voluntary contributions.
If you need assistance working out a budget for your retirement, a financial planner can help you manage your spending. They’ll look at your current lifestyle, as well as the one you intend to have once you retire, and suggest where you can make modifications to your spending to ensure a comfortable retirement.
Managing your investments
When you’re approaching retirement your investment strategy may change, or it might even stay the same. A financial planner can help you with an appropriate investment strategy to help you meet your financial goals.
You may be planning on downsizing your home once you reach retirement. This could be to free up some extra money or to be closer to friends and family. Whatever the case, a financial planner will help you understand how it might impact your age pension. They can also advise how the proceeds from the sale might be used to help you improve your retirement.
An ANZ Financial Planner can assist you with your estate planning concerns, including, where necessary, referrals to a legal professional for advice on wills and powers of attorney to ensure your assets are distributed the way you would like them to be when the time comes.
Plan for retirement with ANZ
To learn more about financial planning you can check out our answers to frequently asked questions, discover how much a financial planner costs, and read more of our financial-planning articles.