If you have ever taken part in a running marathon, you will be fully aware of what is needed to get to the finish line – namely, sufficient preparation, a lot of flexibility and of course, perseverance. Planning for your retirement should be treated like this as well. Here are a few of the most important aspect to take into consideration when planning for this stage of your life:
Be Aware of why you are Planning for Retirement and Committing to Getting Started
When you are ready to take the first step with regards to planning for your retirement, one of the main drawbacks is learning to change your mindset. It can be quite challenging to engage with the topic of retirement in many cases, especially if it is still quite a way off for you and you are struggling to deal with other issues at the moment. One of the easiest ways to get started with planning for this phase of your life is to decide on the type of lifestyle you’d like to be able to afford during your retirement.
There is a financial safety net available in the form of the Age Pension. This is for anyone who doesn’t have sufficient superannuation or any other financial means available to them to provide a reasonable amount of money to live on during retirement.
The maximum amount of Age Pension on its own will enable you to live an extremely modest lifestyle because the current full rate of payment (including the energy and pension supplements) is a mere $23,096 per year for single people and $17,410 per year for each member of a couple. As of July 1, 2017, those who are at least 65.5 years old could qualify. However, this age limit is set to be increased by six-month increments every two years until such time as it reaches 67 years on July 1, 2023.
If you are aiming to enjoy a decent standard of living while retired or you would like to retire before you are eligible to receive an Age pension, it will be crucial for you to build your own personal financial fitness. This can either help supplement your Age Pension or even self-fund your retirement years.
Planning for your retirement may require you to make bigger payments towards debts, such as getting your home loan repaid as quickly as possible, boosting your superannuation contributions, repaying credit card and other consumer debts to ensure that you reach your desired financial goals.
Proactively working on your retirement plans as early as possible will enable you to benefit from compounding interest over time and provide flexibility in the event of something going wrong along the way (it does sometimes happen). This will also allow you to get to your intended retirement goal more comfortably and with a lot less stress along the way.
If you delay your retirement planning any longer than necessary, you will find yourself under a lot more stress to achieve the same goal – or you will have to be willing to alter your initial retirement plans. Below is just a basic guideline regarding the amount of funds you will need to put aside each month (with a 6% return per year) if you intend reaching the $1 million mark by the age of 65 if you get started at different times of your life:
Age 20 = $361.04 pm
Age 30 = $698.41 pm
Age 40 = $1,435.83 pm
Age 50 = $3,421.46 pm
Gathering your Support Team, Gauging your Current Situation and Training
One of the most important aspects of planning for your retirement is gathering a supportive team of relevant people around you. For instance, a reputable financial advisor will assist you with plotting the right path and provide support along your journey.
Determining the right path will be based on assessing your financial situation and from there, setting up a plan that will focus on everything that needs to be done to reach your desired goals. Depending on your situation, your tailored plan can cover several aspects regarding your personal finances, including:
- Drawing up a realistic budget and carefully monitoring your income and expenses
- Controlling your consumer debt levels and making extra repayments whenever possible
- Saving and setting up long-term investments
- Taking full advantage of your superannuation account(s) to help build as much wealth as possible
- Setting up some form of contingency plan regarding personal insurance(s)
When combined, all of these actions will help you achieve your retirement goal. For instance, compiling a budget could help you find surplus income, which could be used to repay debt quicker. Eliminating debt will free up income that can then be paid into your superannuation or other investments you may want to make. Ensuring that you have sufficient personal insurance in place will help you keep on track to achieve these goals if something unexpected such as illness or injury occurs.
Milestones, Determining your Progress and Blasting through Plateaus
As with marathon running, planning for your retirement is by no means a sprint. As a result, you should aim for working towards smaller milestones and then reassessing or making changes whenever required along the way. This will help keep you enthusiastic and ensure that you remain on track for getting to your goal. An example of milestones could include paying off debts by a specified date, perusing your progress could involve annually reviewing your finances, and making changes could include tweaking your plans to make allowance for potential legislative changes over time.
Regardless of where you may be in your race to retirement, you could experience hitting a plateau at some point. This could happen because of other priorities that may arise such as a change of employment or expanding your family. If you want to get through these stages as unscathed as possible, it’s essential that you collaborate with your support team, make changes if needed and then refocus your attention on your end goal again.
Pushing through, Getting Over the Finish Line and Post-planning
With regards to approaching the finish line finance-wise, this is often the point where debt has been paid in full, your superannuation account has a sizeable amount of money in it, you may have additional investments and are in your prime income earning years. This is the time when you can start considering whether you want to build on to what you already have or not. For instance, further boosting your superannuation contributions by maximizing non-concessional and concessional contributions – while keeping limits in mind, of course.
When you get over the finish line, you will most likely feel a sense of relief and accomplishment because all of your preparation, hard work and sheer perseverance have enabled your financial goals to become a reality. During this time, you may need to reassess your existing situation and start relaxing. Although this next stage of your life might not be as demanding as you have become used to, it is still essential that you remain abreast of your financial situation.
If you would like to find out more about how you can ensure that you will be able to retire comfortably, contact us today. We will be more than willing to help you cross the financial finishing line.