How To Start Planning For Retirement

Are you nearing retirement age but have no idea how to get started planning for it? Don't worry; you're not alone.

Retirement can be a difficult adjustment, but it doesn't have to be. There are plenty of things to keep you busy and entertained in your golden years. The most important thing is to start planning for retirement early on, so you can make the most of your later years.

One of the most important things you can do when planning for retirement is start saving as early as possible. Try to set aside a fixed amount each month or year to know that you're slowly accumulating savings.

Another tip is to think about investing your money in stocks or mutual funds; this can help your savings grow over time. Finally, make sure you have a solid budget in place, so you know exactly how much money you'll need each month once you retire.

Many people wait until the last minute to start thinking about retirement, and by then, it's often too late. If you want to enjoy a comfortable retirement, it's important to start planning for it now.

This blog post will outline some steps you can take to get started. Keep reading for tips on how to save for retirement and make the most of your golden years!

So don't wait – start planning for retirement today!

Australian Retirement Age: Things to Take Into Account

Even if the majority of us harbour secret ambitions to retire in our 40s or 50s, the timing of our actual exit from the workforce is contingent on a number of different variables.

Some people choose to retire at the same time as they become eligible for the age pension, while others wait until they are able to use their retirement savings before doing so.

Once upon a time, it was common practise to retire at the age of 55. However, the ideal age varies greatly from person to person. Your choice of retirement age is likely to be influenced by a number of different factors, despite the age you select.

What Is The Typical Age Of Retirement In Australia?

According to the data provided by the Australian Bureau of Statistics, the typical age of retirement in Australia is 55.4 years.

Because the life expectancy of someone who is 65 years old is currently 84.9 years for men and 87.6 years for women, many of us can anticipate enjoying our retirement for a significant portion of our lives. This indicates that it is necessary to give some thought to the means by which we will finance our retirement.

How Confident Am I That I Will Enjoy My Retirement?

The ASFA Retirement Standard, which is produced by the Association of Superannuation Funds of Australia (ASFA), is a guidance that estimates the approximate amount of income that one may require in order to enjoy a retirement that is either modest or comfortable.

The numbers, which assume that you own your own house, show that a single individual who is 65 years old requires an annual income of $28,220 for a retirement lifestyle that is considered moderate and $44,183 for a retirement lifestyle that is considered comfortable. The numbers go up to $40,719 and $62,435 for a married couple who is approximately 65 years old.

It is generally agreed that having a modest retirement lifestyle is preferable to receiving an age pension because it indicates that you will be able to pay basic activities. On the other side, if you have a comfortable retirement lifestyle, you will be able to participate in a wide variety of leisure and recreational activities while still maintaining a high quality of living for yourself.

You will have the financial ability to purchase things for your home, obtain private health insurance, purchase a quality automobile, quality clothing, a variety of electronic equipment, and enjoy vacations in the United States as well as other countries.

Consider which of these categories you wish to focus on when calculating the amount of money you require using these suggestions as a starting point for your thinking.

9 Easy Ways to Improve Your Retirement Income at Any Age

There is a good chance that you will have a lengthy retirement. The Australian Institute of Health and Welfare reports that the average life expectancy for a man is currently 84.5 years, but the average life expectancy for a woman is 87.3 years.

Even if you just survive to the average age and decide to retire on your 65th birthday, you will need your savings to last between 20 and 23 years. This is the case even if you only live to be the average age.

Do not give up hope if you are getting close to the end of your working life and the idea of stretching your money seems like an insurmountable challenge to you. No matter how old you are or even if you've already reached retirement age, there are steps you can take to secure a more comfortable retirement for yourself.

In your 40s: time to start planning

When you're in your 40s and even when you're in your early 50s, it's common for retirement planning to take a back seat to other, more urgent financial commitments, such as your mortgage and school fees. However, the earlier you begin making preparations for retirement, the simpler it will be to have the kind of retirement you see for yourself.

1. Determine what you'll need

The guides provided by the Association of Superannuation Funds of Australia (ASFA) could be of assistance to you if it appears to be difficult to determine how much money you will require during retirement.

According to estimations provided by ASFA, an individual who possesses their own home will require an annual income of $24,506, and a couple will require $35,189, in order to maintain a lifestyle that is considered to be modest.

If you want to live a life with some degree of ease and comfort, you should anticipate needing an annual income of $44,011 for a single person and $60,457 for a couple.

ASFA also believes that in order to provide the amount necessary to live a decent lifestyle during retirement, a couple will require at least $640,000 in assets other than their family home, while an individual will require $545,000 in assets other than their family home. These figures are based on the assumption that you will also get a portion of an age pension.

2. Sort out your super

A significant portion of the income that retirees get in Australia comes from superannuation. Therefore, now is the moment to start taking it quite seriously if you haven't done so in the past.

Even while it's possible that your company currently contributes the mandatory 9.5% of your salary to your retirement account, now is an excellent moment to increase those payments through salary sacrifice.

A maximum of $25,000 can be contributed to super each year, not including the amount that must be contributed by your employer. This amount, together with your employer's payments, is taxed at a concessional rate of 15%.

Your partner's annual income must be less than $40,000 for you to be eligible to make a spouse contribution to their super fund and receive a tax offset of up to $540. If your partner's annual income is less than $40,000, you may be able to increase their super by making a spouse contribution to their super fund.

In addition, if you have more than one retirement account, now is the time to combine them all into a single fund so that you can avoid having to pay several fees.

3. Deal with your debts

After you retire, if you still owe money on a mortgage or rent an apartment, these expenses will cut into the amount of money you have available for day-to-day expenses.

Therefore, it is highly recommended that you pay off your mortgage before you officially retire. This could require you to make additional payments towards your mortgage each month in addition to the required minimum amount.

A financial adviser can help you conduct a cost-benefit analysis to determine whether it is more beneficial for you to make further super contributions or invest in other assets with the additional money you have available to pay off your mortgage faster.

If you're aged between 55 and 65: transitioning to retirement

The good news is that by this age, many people's children have moved out and are now able to support themselves financially; the bad news is that the mortgage has either been paid off or is getting close to being paid off; and any way, there is more disposable income available.

Having said that, you are most likely increasing the amount of money you spend on travelling and other interests, and it is likely that you will also wish to begin working less.

4. Create a workable retirement strategy

It doesn't always have to be an all-or-nothing decision when it comes to giving up work. Regrettably, a large number of people opt to ease into their retirement rather than to make a clean departure from the workforce. If you are between the ages of 55 and 65, a Transition to Retirement (TTR) pension may be able to assist you in cutting back on the number of hours you work without negatively impacting your income.

If you have a TTR pension, you will be able to transfer some of your retirement savings to a separate pension account. After that, you will be able to withdraw a certain percentage of that account's balance as income. This income will either be exempt from taxation or taxed at a rate that is 15% lower than your marginal tax rate.

Working with a financial consultant can assist you in formulating a TTR strategy that maximises your income while minimising the amount of money it takes out of your retirement savings.

5. Increase your super

The latter part of your 50s and the beginning of your 60s may be the optimal period for you to work on improving your super balance. This is due to the fact that you can continue to make additional non-concessional contributions (also known as post-tax contributions) of up to $100,000 per year until you become 65 years old.

You may be able to take advantage of the 'bring forwards' rule to make up to three years' worth of non-concessional contributions in a single transaction if you have additional funds available to invest as a result of the sale of a property or another asset, for example. In this scenario, you would have additional funds available to invest.

You are eligible for this in most cases if the balance of your superannuation account is less than $1.4 million and you are younger than 65 at the beginning of the income year. After that, but while you are still under the age of 75, you will typically need to be working approximately 40 hours per month in order to be eligible to make contributions to your retirement account.

6. Exercise more control

At this point in their lives, many people make the decision to transfer their super into a fund that is self-managed (SMSF). By the end of June 2017, there were over 1.1 million SMSFs, and the average age of a member of an SMSF, as reported by the ATO, is 58 years old.

A Self-Managed Superannuation Fund (SMSF) has the ability to provide you greater control over your retirement savings while also decreasing the fees you pay. Additionally, it enables you to make direct investments in real estate and other assets that are typically inaccessible to an ordinary pension fund.

On the other hand, SMSFs are subject to a great deal of regulation and have significant duties, which means that not everyone is a good candidate for them.

There are other options available, such as the sophisticated Master Trust or Wrap-style super funds, which may provide you a similar level of control without the same level of duties. However, you should always seek the counsel of an expert in order to determine what is best for you.

If you're over 65: time to act

The majority of people still decide to retire at the age of 65, despite the significant increase in life expectancy over the course of the last few decades. On the other hand, sadly, this is also the age when a significant number of the supreme rules change.

7 . Take a long view

When it comes to your superannuation balance, you have three alternatives available to you after you reach retirement age, and you are free to employ any combination of these options.

• taking it out as a lump sum
• putting it to use in order to launch a phenomenal income stream (a pension)
• otherwise, you could just leave it in super.

Because earnings from superannuation are subject to a tax rate of 15% and the money still needs to endure for a significant amount of time, many people decide to keep the majority of their wealth in their existing superannuation accounts. On the other hand, you can opt to reevaluate your investment approach if you make the decision to do so.

When you quit working, your ability to weather any short-term volatility in the price of shares or property decreases, despite the fact that it may be the case that the value of shares and property is expected to increase over time as a general trend.

The investing of some of your funds in more defensive assets, such as fixed income and cash investments, shares of stock, and property, is one possible course of action for you to take into consideration.

8. Think about where you'll reside

Even while making contributions to a superannuation fund may be more challenging than it was in the past, if you are over the age of 65, there are still options available to you.

People who are over the age of 65 and who sell their own homes are now eligible to make contributions to their superannuation of up to $300,000 under a new provision that was implemented by the federal government.

This is quite encouraging news when one takes into account the fact that the present moment is frequently an ideal time to relocate, whether one is moving into a smaller dwelling or into a retirement community. Nevertheless, by the time you reach your late 70s or 80s, you might require additional care, and it is helpful to consider this into your decision-making process.

9. Leave a legacy

Even if we are living longer than ever before, it is still in your best interest to make preparations for what will take place when you pass away. That requires, at the absolute least, having a legal will in place.

Because your superannuation will be handled in a manner distinct from your estate, this also involves ensuring that your nominations for the superannuation death benefit are up to date.

In the event that you are incapacitated due to a serious illness or are unable to make decisions for yourself, having an enduring power of attorney can ensure that someone you trust will make decisions on your behalf.

What Exactly Is The Age Pension, And Do I Qualify For It?

After they have retired, some people are able to better afford the expense of living thanks to the age pension. To be eligible, you need to be at least 66 years old and pass certain means tests regarding your income and assets.

It is essential to take note that the age requirement will gradually climb from 44 years old by a total of six months every two years until it reaches 67 years old on July 1, 2023. Your date of birth will determine the minimum age at which you can submit an application for an old-age pension.

When Will My Super Be Available?

When you reach your preservation age, which can range anywhere from 55 to 60 years old depending on your year of birth, you will be able to collect your supplemental retirement income.

You may be able to access the benefits of your superannuation plan earlier than the age at which you are permitted to do so if you are confronted with extreme financial hardship or a disability that is permanent.

After you retire, you can manage your superannuation account in one of three different ways. You have the option of picking any one of these choices or combining two or more of them. You can:

1. Don't touch the money in your retirement account

If you keep your funds in the accumulation phase of your superannuation plan, your nest egg can continue to be invested even after you retire, and the earnings from those investments will be taxed at a maximum rate of 15%7.

2. Establish a source of income or a pension

The security provided by a pension comes in the form of consistent payout. If you are at least 60 years old, any investment earnings that accumulate in your pension account will not be taxable, and any pension payments that are distributed to you will also be exempt from taxation.

3. Take money out of your retirement account

Once you have satisfied all of the conditions necessary for release, such as retiring after reaching your preservation age, you are free to access your superannuation anytime you please. After you reach the age of 60, you can take money from your retirement account without being subject to taxation.

Transition to Retirement

With a "transition to retirement" method, often known as TTR, you can access some of your retirement savings while continuing to work.

Because the process of setting this up might be complicated, you should get help from your super fund or a financial consultant.

1. The process of transitioning to retirement

You can utilise a TTR strategy to: If you've reached your preservation age, which is between 55 and 60 years old, but you're still actively working, you can:

• if you choose to cut back on the number of hours you put in at work, or
• while you continue to work full time, you can increase your super and save on taxes.

Starting a TTR pension

You can initiate a transition to retirement pension (TTR) by moving a portion of your superannuation into an account-based pension.

In order to continue to receive the mandatory contributions from your employer, you are required to maintain a minimum balance in your superannuation account. Or any other contributions that are made on a voluntary basis.

Government advantages and TTR

The beginning of a TTR pension could have an effect on the government benefits that you or your partner get. For further information, please consult with an officer from the Services Australia Financial Information Service (FIS).

Life insurance and TTR

It's possible that your retirement plan includes life insurance. Check to see if your coverage is reduced or eliminated entirely if you begin a TTR pension.

2. Using TTR to reduce work hours

If you want to cut back on the number of hours you put in at the office, a TTR plan can supplement your income.

Advantages

• Continue to receive contributions to your superannuation account; doing so helps to replace the money you withdraw.
• Save money on taxes: If you are at least 60 years old, your TTR pension payments are exempt from taxation. Your pension is subject to taxation at the highest rate applicable to your situation if you are between the ages of 55 and 59, although you are eligible for a 15% tax credit.
• You can ease into retirement by beginning to prepare what you'll do with your free time before you officially retire from your working life entirely.

Drawbacks

• Affects retirement income: If you start taking money out of your retirement account before you retire, you will have less money to live on.

3. Using TTR to save on tax

A TTR pension allows you to increase your super and reduce the amount of tax you have to pay in the years leading up to retirement.

If you are at least 60 years old and make a moderate to high income, then this tactic will work in your favour.

Advantages

• Boost your super — As you get closer to retirement, you can beef up your retirement savings by combining pay reductions with a TTR pension.

• Save tax — Salary sacrificed contributions are subject to a tax rate of 15%. Once again, this is likely to be lower than the tax rate that applies to your marginal income.
• Pay less tax on income — If you are 60 years old or older, or a TTR pension recipient, your payments are exempt from taxation. If you are between the ages of 55 and 59, you will be taxed at your marginal tax rate; however, you will receive a tax offset of 15%.

Drawbacks

• Complexity — It is possible that you may need to pay for professional financial guidance in order to determine whether or not you should pursue this method.

What Else To Bear In Mind

1. Taking care of money and debt

In the years leading up to your retirement, you have the option to make larger contributions to your savings and to arrange any final contributions that will help raise your retirement account.

Even though your retirement benefit from your employer is likely to constitute a significant portion of your post-employment income, it does not have to be the only component of your retirement plan. Outside of the scope of super, savings and investments are also potential sources of alternative financial resources.

If you want to have a comfortable retirement, it's important to pay off as much of your debt as you can. While you are putting money away for retirement, you should also think about a strategy to proactively clear your debt by putting any extra cash flow towards reducing the amount that you owe. This will strengthen your financial situation and allow you to save more for retirement.

2. Stopping work

Whether you want to gradually wind down your employment or jump headfirst into full-time retirement, it is crucial to ensure that you are mentally prepared for either option. In addition to this, you might have to become accustomed to surviving on a lower salary.

Or, retirement could occur much earlier than intended as a result of being made redundant. If you are laid off from your job, it is in your best interest to consult with a financial advisor so that you may maximise the value of any payment you may receive.

It is also a good idea to create a budget for retirement living expenses in order to obtain a better idea of what lies ahead. Then, give living on this income level a go to gauge how well you can handle the financial strain.

No matter what you have in mind for your retirement years, the earlier you begin planning for them, the better. This is the most effective strategy for maximising the quality of your retirement years.

And finally...

The decision to retire can be gratifying, but the preparation process can be difficult and involved. Always consult a financial consultant first, especially if you want to make sure your loved ones are taken care of and that you have the finest retirement possible for yourself.