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:

  • flexibility
  • 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.

Seek advice

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.* 

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