5 things you need to do to ensure you are ready for retirement

Some of us dream about the day we can finally retire and do all the things we never had time for. The opportunity to travel to Africa, the sea change, or that food safari in Japan. Others feel they’re too busy to think about retirement or fearful they won’t have enough to retire comfortably so they put off thinking about it.

Yet we all know the sooner you start planning, the better your chances of making the most of your retirement years. The fact is, many of us could spend almost as long in retirement as we did in the workforce.

An independent industry research reveals only 44% of Australians over the age of 40 feel prepared for retirement, down from 49% in 2015. More alarmingly, 51% of those already retired expect to outlive their retirement savings, up significantly from 33% in 2013.

In this article, you’ll learn about:

• The biggest issues that can impact your retirement;
• The steps you need to do to plan for the retirement lifestyle you want; and
• How you can close the gap between your retirement dream and your projected savings

Issues that can impact your retirement

Some people enter retirement financially secure but that security disappears over the years. Here are 5 common reasons that cause retirement plans to go off track.

Not understanding your time horizon. This is the length of time you need to hold an investment before you sell and get your money back. Generally, the longer the time between today and retirement, the higher the level of risk your portfolio can withstand.

No spending plans. If you don’t have a rough idea of what your ideal retirement lifestyle will cost, you’ll find it hard to work out how much you would need to save to fund it.

Unrealistic expectation of returns. How much risk can you tolerate to meet your objectives? You’ll need to be comfortable with the risks being taken in your portfolio to achieve the projected returns. For example, when the market declines, buy more – don’t sell. Refuse to give in to panic.

Not calculating how much you’ve got now. How close are you to your goal? If you have debts that need to be paid, will you have enough money saved to live on for at least 20 years after retirement?

Not tracking your progress. While future market performance, interest rates, and government policy are impossible to predict, do you know how much extra contributions you need to make to meet your goal? Is there a gap between your retirement dream and your retirement savings?

As you can see, it’s not always the investment market declines that are the cause. It’s a lack of planning.

Here are 5 simple steps to help you get the ball rolling to plan for a successful retirement.

Step 1: Design your dream retirement

Planning for retirement starts with thinking about your retirement goals and how long you have to meet them. You need to plan for how you want to live and what you want to do. Do you want to go overseas each year? Do you want to buy a caravan and tour around Australia? Do you want to be able to eat out regularly or buy a new car every 2 years? Perhaps you want to help the kids financially.

If you are part of a couple, share your thoughts and expectations. Make any changes now while you can.

Step 2: Determine your spending needs

Most people believe that their annual spending will be lower at 60% to 80% of what they’ve spent previously. This assumption is unrealistic especially if you still have a mortgage or have unforeseen medical costs. We believe it should be closer to 100% because as a retiree, you will no longer be at work for 8 hours a day so you’ll have more time to travel, shop, start a new hobby, socialise and generally spend more.

One way to begin thinking about your needs is to visit the ASFA Retirement Standard which benchmarks the annual budget needed to fund either a modest or comfortable standard of living in retirement. According to ASFA, singles aged 65 would need around $27,913 a year to live a modest lifestyle while couples need $40,194. A comfortable lifestyle is estimated at $43,787 for singles and around $61,786 for couples.

Considering the full Age Pension is currently $24,268 a year for singles and $36,582 for couples, they are even below ASFA’s modest budget. It’s even more challenging if you still have a mortgage or rent, in addition to other expenses.

ASFA’s sample budgets are a good start to get you thinking about your likely costs on a weekly and annual basis.

Step 3: Find ways to save to fund it

Once you know how much your desired lifestyle will cost, it’s time to work out how you plan to save for it. On top of that, you also need to know how long your money needs to last.

For example, if the average life expectancy is 20 years from age 65, then that’s 20 years of income. Singles would need around $545,000 to fund a comfortable lifestyle of $43,787 a year while couples would need a lump sum of around $640,000 to fund a comfortable lifestyle of $61,786 a year (based on a 6% per annum return). So, if your preferred rate of return is lower than 6%, then you will need a bigger nest egg.

Check your superannuation balance, then add your assets outside of super, and then subtract your debts to arrive at your net savings. This will give you a good starting point to work out a savings strategy.

Once your strategy is set, you’ll need to invest it to grow. Will you invest in equities? What about managed funds? Cash? Maybe a combination? What’s important is that you know the projected return on your investments. If you’re 30+ years away from retirement, then your assets should be invested mostly in growth assets such as shares and property. If you’re less than 3 years away from retirement, then your portfolio should be focused more on income-producing assets and preservation of capital.

Are you close to making your retirement dream a reality?

Step 4: Plan for longevity

Australians are living longer, healthier lives. Your longevity needs to be considered when planning for retirement, so you don’t outlive your savings. If you want to retire early, it may mean running out of cash and having to depend on the Age Pension for the rest of your golden years.

Another difficulty is if you have a younger spouse who will likely be dependent on the income from the investment on your demise.

A big factor in the longevity of your retirement asset is your withdrawal rate. Estimating what your expenses will be in retirement is important because it will affect how much you withdraw each year and how you invest your portfolio. If you understate your expenses, you easily outlive your portfolio. But if you overstate your expenses, you risk not living the type of lifestyle you want in retirement.

Step 5: Are you on track?

To work out how much you are likely to have by the time you retire, you can use the ASIC MoneySmart online calculators to help you with this.

If there’s a gap between your retirement goal amount and your projected savings, you can always make additional contributions through salary sacrificing to superannuation or making after-tax contributions.

Alternatively, you can delay retiring to accumulate more money. You can also lower your expectations to have a more modest lifestyle. The choice is yours.

Everyone has different needs with their retirement income. The important thing is to start planning today.  If you’ve already started planning your retirement with the JBS Team, you know you’re in safe hands. If not, you know there is still time to ensure you’re going in the right direction and you’re on track to meet your goals. Reach out to us here and let’s see how we can help!

Final word

Don’t fret. It can often take a bit of time to start planning. Think about your retirement goals. Think about how long the money needs to last. And keep saving. The great thing is, you’re now armed with the tools you need to work out how much you will need to finance the retirement lifestyle you want. All the best!

It’s fair to say that most of us aren’t crazy about budgeting. Even with the latest budgeting apps that aim to make this common sense habit into something easy and fun, the thought of keeping tabs on what we’re spending from month-to-month fills many people with boredom or anxiety.

In their Know your Numbers survey results from February 2018, UBank revealed that 86% of Australians don’t know their monthly expenses and only 28% actively use financial management/budgeting tools. The survey also found that being in the dark about your spending can be a big source of stress, with 59% of Australians saying their current financial situation causes them stress or loss of sleep.

Taking it back to basics

When finances are this much of a worry, what does it take to face up to things and take control? One way is to put the fun back into budgeting by taking a step back in time.

Remember when you were young and had pocket money? Maybe you spent the lot every week on lollies or saved it up for a favourite toy. With Mum and Dad picking up the bill for clothes, food and other essentials, pocket money was there to spend on whatever you wanted, guilt-free

It feels great to know you can treat yourself to something without any concern about the impact on your finances. Thanks to credit cards and Buy Now Pay Later, it’s still easy to buy something just because you feel like it. But when you’re borrowing to buy, it’s not such a carefree experience. In fact, it’s a purchase you might regret if the cost of servicing debts makes it harder to just keep up with essential expenses.

Why fun should be in your budget

So instead of spending in an ad hoc way when the urge to splurge strikes, it’s well worth trying. By making fun money an essential ingredient in your budget and cash flow formula, you’ll be giving yourself a much more positive reason to keep an eye on money going in and coming out. And this is important for three key reasons:

1. It makes your budget real and achievable

The problem with most budgets is that they start with what you need to pay for.  Rent, electricity, travel passes are all important for day-to-day living, but generally aren’t things to get excited about. So instead of basing your budget on needs, make a list of your wants and what they cost first. If the holiday of a lifetime is at the centre of your budget, doesn’t that give you a much greater incentive to be in control of your money?

With money in your budget dedicated to these future plans, you’ll have a good reason to bring more discipline to daily spending. But we’re only human, and it can be hard to wait for weeks on end to reap the rewards of self-control. By including a provision in your budget for some ‘pocket-money’ you can use to spoil yourself every month or so, you won’t have to feel like fun is always just out of reach. This kind of fun money in your budget is like the icing on the cake. It gives you that sweetener to keep you on track with your whole budgeting effort.

2. It makes the fun money count

This monthly splurge budget doesn’t have to be much. $100 may be all you to need to spoil yourself a little and perhaps that’s all you can afford right now with your other day-to-day commitments and bigger fun goals to save for. But it’s an amount you should stick to. If you don’t put it towards something worth enjoying, you can be sure it will get spent anyway. And this can teach you an important lesson about why a budget works wonders for lifestyle goals, large and small. If you don’t take control of where your money goes, you’re very likely to spend it anyway and have little to show for it

3. It gives you permission to spend – but not too much

Knowing that your fun money is finite can help you think more carefully about each spending choice. Keeping your monthly limit in mind when shopping or out with friends can remind you to put the brakes on spending when you’re at risk of getting carried away. Giving yourself permission for a couple of small splurges or one bigger one can feel more like a real treat when you know it’s money you can genuinely afford.

If you need some help with managing your spending and saving then perhaps a financial coach is the answer. Chat to the JBS Financial team about what steps you need to take to live the life you want to live.

Source: FPA Money and Life

We check out the three largest contributors to household spending in Australia and where people would source additional cash if living expenses rose.

If you worked a full-time job in Australia in 1975, the average amount you would’ve earned a year was about $7,600, whereas today, that figure would be closer to $72,000, according to research by McCrindle.

That’s welcome news, but while we’re earning more than what we did in 1975, things are also costing us more. A loaf of bread is 10 times the price, a litre of milk is three times the price, a newspaper is 20 times the price, not to mention petrol has doubled, with house prices in some capital cities up thirtyfold.

We check out the largest contributors to household spending today and where people say they would source additional money if day-to-day expenses increased further.

Housing, food and transport

The three largest contributors to household spending in Australia have been the same for many years, according to the Australian Bureau of Statistics (ABS).

ABS figures reveal three-and-a-half decades ago the largest contributors to household spending were food (20%), transport (16%) and housing (13%), with housing now at the top of that list (20%), followed by food (17%) and transport (15%) respectively.

A separate report by Deloitte highlighted that around 37% of Aussies were concerned about their ability to cover expenses, with more than 50% indicating that they expected to pay even more on housing and energy costs going forward.

What people would do if costs rose further

When asked, if your day-to-day living expenses increased, where do you think you’d source additional money from, here was the top eight responses in a survey of Australians:

Reduce luxury spending – 20%

Buy fewer groceries – 12%

Spend less on transport – 12%

Borrow money via a loan or credit card – 10%

Draw on savings – 5%

Spend less on food delivery and eating out – 5%

Cancel subscription services – 4%

Cancel streaming services – 3%.

After more tips and insights?

Now that you’re aware that housing, food and transport are generally the biggest expenses for Aussie households, you may be looking at ways you could cut back and save in these areas.

Source: AMP News & Insights October 2018

Want to boost your financial wellbeing without giving up completely on being spontaneous?  Get on top of your finances and enjoy life more at the same time with our five step guide to living in the moment while saving for the future.

Don’t be a slave to your savings

Mastering money starts with a budget and there’s no doubt that feeling in control of your money is linked to your overall wellbeing. But you might be reluctant to set a budget when it makes you feel like all your money is spoken for. Life can seem very limited if you’ve already decided on the exact destination for each and every dollar.

So instead of becoming a slave to saving for the future, here’s a five-step approach that keeps your options open for doing some spontaneous spending once in a while, without losing out on your future financial stability as a result.

1. Get cash flow savvy

Figuring out just where your money is going right now night seem like a hassle. But it’s absolutely necessary if you’re going to achieve your goal of saving and also spending a little just for the sake of it. Understanding your spending habits and patterns can shed some light on where you’re spending more than you need to, so you can start to make better choices with your dollars in step 2.

Doing this weekly makes it much easier to take control of cash flow. A week of overspending can be balanced out quickly in the following week simply by making a few small sacrifices.

2. Budget based on what matters

Now it’s crunch time for making good on those cash flow lessons you’ve been learning. By looking at where your money has been going, you’ve got the knowledge you need to stop spending on things that are less important. This frees up more dollars for your savings and what you really value.

Let’s take dining out for example. If you have your heart set on an overseas holiday once a year, ask yourself if weekly restaurant meals are as important?  By cooking at home for three out of every four Saturdays and saving that money towards travel instead, you’re directing your budget towards what matters to you.

3. Limit fixed commitments

Having more to spend in the present also depends on limiting how much of your income is already spoken for. Mortgage and loan repayments, utility bills, insurance premiums, memberships and subscriptions are all regular payments that can add up to a big chunk of your outgoings. While some of these are essential, avoiding buying things on credit or using a loan can reduce your ongoing costs and free up money to save towards your goals or spend spontaneously.

4. Automate your savings

Whether it’s saving for a new car – so you won’t have that long-term commitment to paying off a loan plus interest – a holiday, or just a rainy day, setting up separate accounts for these goals helps you see that you’re making progress. And making automatic deposits from your income into these accounts is the ideal way to ensure you’re making regular contributions towards your goals.

5. Plan to spend spontaneously

As these savings balances start to grow, it can bring a sense of freedom in your current and future spending choices. Knowing your goals are getting closer allows you to spend money freely and still be financially responsible for your future. And if you want to look forward to a guilt-free splurge, think about dedicating one of your savings accounts to spontaneity.

With a pot of cash on hand to spend at will, you can enjoy ‘live in the moment’ experiences now and again without your future goals or cash flow taking a hit.

How can you get to a stage where you can live your dream today and tomorrow? Speak with the JBS Financial team to help you get started…

Source: Money & Life January 2019 

People can often run into financial problems because of poor decisions that compile over time. Bad financial habits can keep you swimming in debt, creating financial stress and can often lead to other issues within your family and even affect your work. Good financial habits can take years of experience to develop however, below are some handy tips to help you take control of your spending and help adopt some good financial habits in your life.

Pay Your Bills Ahead of Time

Paying bills late can often incur additional charges which is money that could be in your savings account each month! If you struggle to remember what is due when, grab a copy of all your bills for the past 3 months and create a spreadsheet of due dates. You can create calendar reminders 1 week prior to remind you to make the payment. Another option is to future date or schedule payments for the due date when you receive your bill, the payment will come out automatically on the day you set.

Redundant Spending

Do you have a mobile phone and a landline home phone? Is it necessary? Do you pay for Foxtel and streaming services? Do you need both? Are you and your partner/family all paying to stream music separately? Redundant spending is a matter of not making the right choices with the products and services you buy, which causes you to spend money that you do not need to spend.

Do an audit on the services that you currently have and get rid of any service that is redundant. Before you purchase a product, think about whether you already have a product that can do the same tasks and save yourself the money.

Learn to Say “No” to Yourself

Taking control of impulse buying is difficult, you’re out somewhere and you see some item you like, you buy it because it doesn’t cost much. The ability to purchase items online nowadays and have it delivered to your doorstep in just a few days, makes shopping something you can do in your lunch break.  If you do that several times a week, the spending can really add up.

Simply making 10 impulse purchases (yes that includes coffee) a week at an average of “only” $5, adds up to $50 spent on stuff you really don’t need. That’s potentially $200 a month which isn’t going into savings, investments, or to paying down debt.

Try enforcing a “72 Hour Rule” on purchases, especially online items. After 3 days you should get a good feel whether you really need the item or if you just want it (and don’t need it at all).

Learn to Say “No” to Your Kids

If you have children, learning to say “no” to them is doubly important. Kids are always wanting something, whether it simply be a drink while you are out at the shops or the latest toy. That “something” tends to get more expensive as they get older.

This doesn’t mean depriving them of birthday or Christmas gifts, or things they truly need. Rather, it’s about their own impulse buying – seeing something and wanting it – but instead, using your money.

The second issue is even more important.

How you spend money, particularly how you spend it on your kids, has important implications for your children’s attitude toward money as they grow. Saying “no” isn’t always easy however, it’s a way of teaching important financial lessons and embedding good financial habits in them early.

Track Your Spending

If you don’t have a budget, then you probably don’t know where all your money is going. This is one of those good financial habits you absolutely must adopt you if want to get control of your finances.

Tracking your spending will help you identify the areas of excess. Eating out for 50% of your meals? Cut that back to even 25% and you’ll have a nice chunk of change to contribute to paying down debt or building up your savings.

Don’t harp on mistakes

It happens. When we try to create new and better habits for ourselves, we can sometimes slip up. It can be difficult to stay disciplined and doing it on your own can be even harder. What’s crucial during the process of forming good habits is to not let yourself be derailed by mistakes. If you use your credit card or make an unnecessary impulse buy, remember that improvements take time, and you must be persistent.

Just like having a personal trainer at the gym to help keep you on track and motivated, having a financial adviser by your side means you receive that additional support to help you achieve your financial goals. If you need help becoming financially free, get in touch with the team at JBS.

Over the next few years the age at which you can begin to start receiving the Age Pension will gradually increase from age 65 to age 67 (depending on your birthdate), with most people now having to be 65 and a half before they can access the Age Pension. Every time the Age Pension age increases or there’s talk of it increasing, you’ll hear all over the media people who now can’t retire because they have to wait a few more years before they can access the Age Pension.

Unfortunately for some, the Age Pension will be critical to fund their retirement, but the Age Pension age doesn’t need to be your Retirement Age. There’s a few things you can do to help reduce your reliance on the Age Pension and retire when you want to retire, our motto is that we’d rather you be working because you want to, not because you have to.

Super Contributions – Your employer pays 9.50% of your wage into Super as a Super Guarantee Contribution (SGC), but if your cash flow allows for it, you can top that up through a Salary Sacrifice arrangement or making Personal Concessional Contributions, up to an annual cap of $25,000 (which includes your SGC). This allows you to boost your Super Savings while at the same time helping you save tax personally.

You also have the opportunity to put up to $100,000 in as a Non-Concessional (After-Tax) Contribution and even up to $300,000 utilising the bring-forward rule in one year (if you haven’t made large contributions previously). Depending on your Super Fund, this can be a transfer of any cash you may have or even other assets such as shares. Remember that the new $1.6mil balance rules need to be taken into consideration.

Depending on your income, if you make a Non-Concessional Contribution the government may give you a Government Co-Contribution up to $500 on a $1,000 contribution (you can contribute more, but the co-contribution is based on a maximum $1,000). If your income is below $36,813 for FY18 you will receive the full $500 Co-Contribution, and you will receive a pro-rata amount if your income is above $36,813 but below $51,813.

Consolidate your Super – For some you may have multiple Super accounts, each time you start a new job your employer may start a new Super Fund for you if you haven’t given them the details of your existing Super Fund. If you’ve got multiple Super accounts it may be worth consolidating them into the one account which may help to reduce the total fees you’re paying on your Super accounts. However, you need to be careful that when you rollover any Super into another account you will lose any insurance you may hold.

Review your Insurance – Most Super accounts come with default insurance cover, and insurance is a very powerful tool to protect you and your family in case something happens to you. For those later in life, who are empty nesters, paid off the mortgage and are close to retirement, your need for cover may not be as important as someone who’s just starting a family and recently taken on a mortgage. Although insurance may be needed, it is always worth reviewing it on a regular basis to ensure your level of cover is appropriate and you’re paying for what you need, as the premiums come out of your Super balance. In some circumstances it may also be worthwhile holding some of your insurance cover outside Super.

JBS can help provide a full review of your Superannuation and Insurance and help you put strategies in place to ensure that you’re working because you want to, not because you have to. We’d rather you work towards your Retirement Age.

– Peter Folk –

My partner and I have always taken it upon ourselves to build towards our family’s financial future. Having a roof over our heads and bills paid was one thing but we also wanted savings put aside each week for a rainy day, some savings in the kid’s bank accounts and back up plans for unexpected life events. From time to time I get asked how we’re able to have a mortgage, with 2 kids and think about saving all with me being the only one working. I simply explain that it all comes down to planning well before committing ourselves to any major long term commitments. Then it’s just a matter of defining the steps required and sticking to our guns.

Before we bought our home we decided that it was important to set out the financial ground work regarding what we needed to do in order to fund our loans, living expenses and at the same time able to save each week. So we sat down to determine what our repayments and bills would be once we moved into our home. From there we were able to work out the exact amount we were realistically able to save each week and made a commitment to put those funds aside without fail. Furthermore we made a commitment to put aside funds each week into our son’s bank account. Again this was a realistic figure and we stuck to it each week.

The main point we focused on was to be realistic in what we set out to achieve and how much we could achieve. Often I would think to myself that I’m able to save a certain amount each month; however my bank account does not reflect my theory. Once our second child was born, we again went through the same process to ensure we were continuously building towards our family’s financial future.

We also knew that having a saving’s plan and strategy in place wasn’t enough. Being the sole income earner of the family, I also took it upon myself to ensure my family was protected if I was suddenly unable to earn an income. Several months before we bought our house, we discussed the amount of personal insurance I would require in unforeseen circumstances, which takes into account future long-term loans and living expenses. I then made sure my personal insurance cover was all in place months before we started to look for a house. As you never know what might happen.

Having a financial goal for our family’s future is great but to achieve it, planning and commitment is key. Time and time again we have experienced that thorough planning has many benefits. It firstly provides us with a realistic expectation of what we’re in for and more importantly provides motivation to achieve the financial goals we set. Once our plan is in place it was then up to us to commit, keep each other accountable and more importantly encourage each other to achieve what we set out to achieve.

– Andy –

Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Who are we to argue?

Compound interest is when interest is earning interest not just the original capital. I.e. you invest $100 at an interest rate of 5%. After year one you have $105. After year two however, not only does your original $100 earn another 5% interest, but the extra $5 is also earning 5% interest so that at the end of year 2, the money has grown to $110.25. Yay an extra 25 cents. Where compounding really gets interesting is when you extend it over long periods of time.

Let’s take two examples. Example 1 is a 25 year old who has a decent income and is able to put away $100 a week into an investment that generates 6% p.a.

In the second example, however, the person tends to spend all of their money on fun stuff, living life to the fullest until the age of 45 where they decide to start saving for retirement. They are on quite a bit more income than the first person who is only 25 and instead of being able to save $100 a week, they can save $400 a week.

Person 1 ends up with approximately $861,457 at age 65 after contributing $213,200 over the 40 years.

Person 2 ends up with slightly less at approximately $835,851 at age 65 however they have astoundingly put in $436,800. Over twice as much as person 1. Imagine what person 1 would have been able to do with the extra $224,600 that they didn’t need to contribute over the last 20 years? Me personally, I’m thinking holidays.

While returns are important when investing, the single most important thing that can grow your wealth the most is time. Compound interest makes this possible, and so when is the right time to start saving? No matter how old you are, the right time to start saving is right now.

PS. Compounding also works in reverse when you borrow money. Having to pay interest on interest deteriorates wealth just as quickly as earning interest on interest creates wealth.

– Liam Rutty –