Retirement should be a time when we reap the rewards of our working life, and being able to enjoy your preferred lifestyle calls for some planning.
Australians are living longer and if you hang up your work boots at, say, age 65 and live to age 90, you need to plan for the possibility of a quarter of a century in retirement. That’s a wonderful thought! But will your money last the distance? Along with everyday living costs, you may also need to budget for big ticket items like buying a new car every few years and enjoying some travel.
A good starting point is understanding your current financial position. That means adding up all your assets including your superannuation and then subtracting the total value of any debts you owe (your liabilities). The figure that’s left is your capital and this is what you could invest to support what will hopefully be a long and rewarding retirement.
The next step to maintaining your retirement lifestyle is drafting a household budget. This will give you a firm idea of how much annual income you need to support your preferred lifestyle. Bear in mind, as a senior you may be eligible for concessions and discounts on a range of regular expenses if you hold a Seniors Card or if you receive a full or part age pension.
If it turns out there is a big gap between how much money you need for your retirement lifestyle and how much you actually have, there are a number of options, or a combination of steps, you could consider to make it work.
One option to give your retirement income a boost, is returning to work on a part-time or casual basis or even doing some consulting or interim work. The added plus here is that more money coming in means the less you have to rely on your super savings, so it’s a great way to make your superannuation stretch a little further. Consider whether returning to work will impact your retirement plans and, more importantly, any age pension payments you may receive.
After years of growing your superannuation savings during your working years, retirement is the time when super really comes into its own.
You can access your super once you reach preservation age and retire, which is currently age 56, increasing to age 60 over the coming years. Otherwise you can access your super from age 65, even if you haven’t retired. It can be received tax free once you turn 60 but there are some great tax concessions between preservation age and 60.
The way you access your super is important. That’s because super is generally tax-friendly and while you may want to take a lump sum out of super to invest elsewhere, you could be transferring your capital from a low tax environment (your super account) to a fully taxable environment.
Purchasing an income stream
Rather than take your super as a lump sum, you can also receive the money as a super income stream – often called an account based pension. This means you receive a series of regular payments from your super fund and in this sense it can be just like receiving your regular wage or salary.
Along with super savings, your home is likely to be one of your most valuable assets and there are ways to access home equity in retirement. One option is by downsizing – selling your home and moving to a cheaper property and using the remaining profit from the sale as funds to live on.
A second option is a reverse mortgage. This is a financial product that works like a regular mortgage but in reverse. It’s basically a loan secured by your home. But instead of you making payments, the lender pays you a lump sum or you may be able to draw regular payments. No repayments are necessary until you sell up or pass away, though the loan does start accruing interest from day one. However, it is important to note that with this strategy you could well relinquish ownership of your home.
Planning for and managing the financial aspects of retirement can seem complicated and it is an area where good financial advice can make a difference. For specific financial advice contact our office on 03 8393 1000 and speak with Darren Foster.