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What’s your financial independence date?

Published 22 June 2018

Setting a retirement date at least a decade out gives you time to get finances in order, writes Gayle Bryant.

We’re all waiting for that magical day when we stop working and retire. But what date is that?

Chances are you haven’t thought much about when you might finally down tools – but choosing a date can be a major motivator to get your retirement plans in order.

Findependence Day by Jonathan Chevreau is a narrative about a young couple dealing with financial struggles and decisions through various life stages. One decision they make is to set their own financial independence or “findependence day” – the date they’ll have enough money so they don’t need to work.

Setting your own financial independence day is a great idea, says financial adviser Gordon Schauer of Financial Planners Inner West, and is something he suggests to his clients.

“Getting clients to set a retirement date is a way of getting them to start thinking about the strategy they need to get them to the goal of financial independence,” he says.

“Once they have named that date we can plan their investments and organise their savings so once they reach that age they have enough to live on.”

When can you afford to stop working?

He adds that most people don’t know when they are going to retire.

“Many think they will keep working as long as they can and if they get retrenched or a health issue comes up then they’ll think about retiring,” he says.

“However, I encourage clients to set a date and prepare for it. It can always be changed later on, but having a set date really helps focus the mind on how much money they want to live on and the strategy to get to that goal.”

Once you have a date then you can organise your investments so they’re in the best position to bring in the returns you need, balanced with how much risk you should take. Schauer says there is an amount people should aim for but it varies between clients.

“Some retire on a few hundred thousand dollars while others have $2 million,” he says. “There is no right answer to how much you need. Someone on $200,000 would need to allow for a part aged pension, so it’s important to sit down with clients and discuss the super rules and do it well in advance so they know what to expect.”

How Phil set a retirement date

So how do you choose a date? One of Schauer’s clients – 66-year old Phil Canaway – successfully set his own retirement date for July 7, 2017.

Canaway worked in the banking and finance industry for 46 years – mostly as an information technology and business project manager – and worked out his retirement date with his employer. He told them the date a year in advance and they reviewed it together.

“I wanted to set a date because I believe if you fail to plan then you plan to fail,” Canaway says. “I always said to my employer I would give them plenty of notice as I wasn’t going to retire on the day I turned 65 – it was a little bit more complex.”

He adds it was good to agree a date with his employer as it meant the exit strategy could be carried out properly.

“It also meant my financial planner and I could sit down and work out what I needed for retirement,” he says. “Having that date in mind allowed me to better focus on all aspects of retirement. For example, I had some long-service leave owing and knowing my retirement date allowed me to minimise the tax payable on it.”

Canaway said in his case everything worked like clockwork.

“It was a planned ramp-down where I transitioned into retirement,” he says. “I was moving to the Gold Coast permanently after I stopped work and my employer was happy to let me trial it by allowing me to work three days in Sydney and two days from the Gold Coast.”

He advises anyone who is considering setting a retirement date not to rush into it.

“You’ve worked all your life for your retirement goal so you want to make sure that every dollar you’ve earned and put away is going to work hard for you,” he says. “You also need to have a financial plan in place. But having that date in mind really helped with my planning.”

Invest so you’re ready for your ‘findependence day’

Schauer explains that when clients have a date it helps him advise them on their investments and strategy to ensure their goals are met.

“People should start thinking about a retirement date about 10 years out,” he says. “This is because the sharemarket generally moves in 10-year cycles. It’s difficult to time markets, but if you’re 10 years out you can implement a more aggressive strategy and then closer to the peak of the cycle you can pull back and make a portfolio more conservative.”

He adds if a client wants to retire sooner, say in around three years, you would have to be more conservative.

“The important thing is to set the date,” he says. “And don’t forget it can be adjusted according to how your strategy is performing.”

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