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!

If it is indeed better to give than to receive, then Australians are a happy lot. According to the Financial Planning Association of Australia, 85% of us find more joy in giving gifts to others than in getting them ourselves.

We’re also a generous bunch, spending an average of $93 on a significant Christmas gift. Those with young families splash out even more, averaging $117. The top three categories are cash or gift cards (31%), food and alcohol (14%) and tech and gadgets (12%).

Snow laughing matter

Though we love the sound of ripping wrapping paper, much of this generosity is unplanned. Almost three quarters of us don’t budget for gifts, which can lead to increased pressure on household budgets well into the new year.

Here are five ways to keep enjoying – and a firm lid on – spending for the next special occasion.

1. Have a plan

With 73% of Australians without a budget for gifts, there’s plenty of scope to improve. Although there’s much to be said for the spur-of-the-moment splurge, more of our generosity can be planned.

Weddings, for instance are the biggest outlay, with an average $137 spent on celebrating another’s big day. Most save-the-days go out well in advance. That gives plenty of time to shop around for that state of the art toaster at a tasty price.

Alternatively, if, you’re one of the 44% who give cash or a gift card to newlyweds, you have time to cost it into your budget.

As many events such as Christmas, anniversaries and birthdays fall on the same day each year, it should be easy enough to plan well in advance.

2. Go early and in bulk

Bulk buying multiple gifts that aren’t intended for a specific occasion is a growing trend, with one in three of us doing it, saving time and money.

This way you can shop the end-of season sales, craft markets or even check out a Christmas shop in January to capitalise on discounts.

Taking advantage of a bargain pack of birthday cards direct from the artist at a market stall can save you from a more expensive last-minute purchase at the newsagents, and you also get the feel-good factor of rewarding the creator direct.

Checking out resellers such as Gumtree or eBay with a discount offer can also help you make substantial savings along the way.

Women (31%) are more likely than men (24%) to be wise to the blessings of the bulk buy, though it’s also popular with young families.

3. Give the gift of time

There’s more to giving than things you can wrap – experiences matter too. Instead of another power drill, peach-scented candle or ironically-embroidered pillow, your significant other might prefer your company at a favourite restaurant, or a day out at that music festival.

4. Everybody gather round

Group giving is the go. Whether it’s colleagues, friends or family, nearly three quarters (73%) of us get together to give gifts. As well as reducing individual costs, it harnesses the purchasing power of the collective for something more expensive.

There’s more to this than money.

Playing to the strength of individuals gets everyone involved and means we can avoid stressing about every last detail. Younger generations prefer to share ideas and more naturally involve themselves in non-material ways such as buying the gift, wrapping it, or writing the card. Older generations have a stronger inclination to simply give cash and leave the rest to someone else.

5. Australians all let us regift

Some might think it’s a no-no, but 41% of Australians have re-gifted to someone else or for another occasion. If you don’t share your aunt’s taste in holographic horses or Christmas jumpers, think about passing the love on to someone who might find it more their bag.

Whether we don’t like what we’ve been given, or ethically choose to reduce waste and lengthen an item’s lifespan, it’s an increasingly acceptable approach.

Gen Y is the regift generation, although young families are Australia’s most serial re-gifters. Three in five families with young children aged 0-12 (60%) have re-gifted.

One in five of us still believes they’ve never received a regift. So, remember the golden rule and re-gift responsibly.

Source: AMP, 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.

When you embark on anything new, you are bound to make mistakes.  But when those mistakes are in relation to money, they can have big implications.  So how do you avoid those rookie mistakes when you start your retirement?  The first step is to know the common mistakes others have made so you can learn from and avoid them.

No financial plan – Whether you think you have enough money and you’ll be right or you think you can do it yourself, money matters are complicated.  It’s best left to a professional to structure a plan for your money in retirement as it could be the difference between a lavish retirement and a basic one.

Failure to plan is the biggest mistake made by those about to embark on retirement, and it shouldn’t be left to the last day.  Retirement planning should start much earlier to ensure the you can achieve your goals by implementing appropriate wealth building strategies early.

Money changes – retirement (meeting a condition of release) gives access to your superannuation but it doesn’t mean that you should automatically jump to take it out.  The superannuation system provides significant tax savings and taking your money out could mean that you now pay more to the tax office.

Alternatively, some retirees just change part of the investment allocation in super to cash and other conservative assets because they’re in retirement so it has to last.  Don’t forget that with modern medicine we are living longer so your retirement investment timeframe could be 20, 25, 30 years or longer depending on what age you retire.  Without some growth during this period, your funds may not keep up with inflation.  You are after all investing for the rest of your life.

Overspending – the thrill of retirement and the ability to access all those savings can sometimes go to our heads.  New car, new caravan and holidays are all set for one day but jumping into them all at once when retirement hits could mean you have significantly less to live off throughout retirement.
Budgeting will help with overspending, allowing you to work out what you can and should be spending now and further into retirement.

Retiring too early – without the financial plan (mistake 1) how can you tell if you have enough to live off for your entire retirement?  Some retire because it was their goal to stop working at age 60 but rather than do the numbers they end up with a much less quality of life in retirement as they don’t have sufficient assets to fund the life they wanted.

Relying on Centrelink – many think they have worked hard all life and paid taxes and so are entitled to Government benefits to fund their retirement.  However, you must understand that the maximum Age Pension benefit available to a couple is around $36,000 per annum combined.  In addition, to qualify to receive this maximum pension benefit, you would have to hold under $387,500 in assets outside your home and receiving under $304 per fortnight combined. (You should refer to the Human Services website or speak with our office for your Centrelink estimation).

If you’re thinking of retiring soon, make sure you come to see us so that we can make sure you’re in the best financial place possible to have the retirement you want now and into the future.