By Matthew Hoang
Retirement Planning – 5 Practical Steps
Retirement is a milestone that many look forward to, but it also brings along a set of new financial considerations on how to spend wisely to make sure retirees do not outlast their savings.
The Association of Superannuation Funds of Australia (ASFA) reports that at age 60, the median superannuation balance for males is approximately $180,928, while females typically have a median balance of about $139,056. Even with a booming superannuation sector, is this median balance still enough for a comfortable retirement?
The Australian Prudential Regulation Authority (APRA) says the size of Australia’s total superannuation assets now stand at around $3.54 trillion, up 7.6 percent from the prior year’s $3.29 trillion.
Managing your retirement spending wisely is essential to ensure financial security once you step away from the workforce. Whether you're nearing retirement or you have already, strategic planning can help you retire with some confidence.
1. Create a budget
Begin by categorising essential expenses like housing, healthcare, utilities and groceries when creating a retirement budget. Then, allocate funds for discretionary spending such as travel and leisure. A well-structured budget acts as a financial roadmap, guiding spending decisions and preventing overspending. It empowers people to take control and identify areas where expenses can be minimised.
For instance, if healthcare costs loom large, explore government-issued concession cards like the Low Income Health Care Card or the Commonwealth Seniors Health Card. These cards offer discounts and benefits that can ease the financial burden. By incorporating these concessions into any planning, you can optimise resources for a secure retirement.
2. Take stock
Once you have a clear understanding of potential retirement expenses, it's crucial to devise a strategic plan for managing assets to meet future income needs. A common guideline in retirement planning is the so-called “4 percent rule” which recommends withdrawing 4 percent every year of your initial retirement savings. This approach is designed to preserve capital, ensuring a steady income stream assuming your investments earn 4 percent per annum.
However, existing capital can alternatively be used to fund a retirement lifestyle. According to ASFA, couples targeting a comfortable retirement at age 67 should aim for approximately $690,000 in savings, while single individuals should target around $595,000. While these figures are just estimates, they can provide useful benchmarks for retirement planning.
3. Asset structure
The choice and structure of retirement assets (such as superannuation income streams) is a crucial factor that can significantly influence retirement outcomes. For example, different superannuation income streams can offer different features in relation to:
- investment choices
- pension payment adjustments
- lump sum withdrawals
The choice and structuring of retirement assets can be tailored to a person’s goals, objectives and preferences, and may also take into account their eligibility to receive the age pension. Professional advice can be invaluable in finding which structure is appropriate for your personal circumstances.
4. Lifestyle choices
Consider your desired retirement lifestyle and align a financial plan to complement it. Be mindful of the delicate balance between enjoying retirement and preserving savings, and your own personal preferences. Remember, retirement is a dynamic journey with many variables that may range from picking up casual work to spending more in the first 10 years of retirement. Your capital requirement may change as your assets depreciate, government benefits kick in, or if downsizing becomes an option.
5. Reassess regularly
Financial needs and goals may change over time. Regularly review your retirement plan to ensure it aligns with your current circumstances – adjust your budget, investment portfolio and withdrawal strategy as needed.
If you require advice on your retirement needs, please contact one of Active Super’s financial planners. Feel free to contact us on 1300 547 873 or make an appointment to see how we can help.*
Matthew Hoang is a Financial Planner with Active Super, offering superannuation and retirement planning advice to members in Sydney’s west and the south-west regions of NSW. He holds a Bachelor of Applied Finance and a Diploma in Financial Planning and is also a member of the Financial Planning Association.
*Please note, should you choose to meet with one of our planners and decide to not obtain personal advice, no additional fee will be payable. However, fees may apply should you choose to proceed to personal advice. Your financial planner will discuss any fee payable when meeting with you and, if a fee is applicable, will advise you of the fee should you decide to proceed with obtaining the advice.
Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321) (‘Active Super’). This article does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser. Active Super has engaged Industry Fund Services Limited (ABN 54 007 016 195) (AFSL No 232514) (IFS) to facilitate the provision of financial advice to members of Active Super. Advice is provided by one of IFS’ financial planners who are Authorised Representatives of IFS. Fees may apply. Further information about the advice services that can be provided is set out in the relevant Financial Services Guide, a copy of which is available for download at www.activesuper.com.au or by calling 1300 547 873. IFS is responsible for any advice given to you by its Authorised Representatives.