By Anthony Chimirri, Matthews Steer Wealth Advisory Team.
Retirement is a period of immense change that heralds a very different stage of life to anything you will have experienced previously, and the prospect of retiring can be scary or exciting. You may find yourself looking after grandchildren, renovating your house, travelling more, building furniture as a hobby, or a making a plethora of other lifestyle choices (some of which you might not have even thought of yet). Whatever you choose to do in retirement is going to cost money and, as you’ll no longer be able to rely on your employment income, it’s important to have a plan in place.
There is no hard and fast rule about when to start planning, but the earlier you start, the easier the process will be. I liken planning for retirement to planning a diet. If you don’t plan to fuel your body with the right foods, it could take you six months to get healthy. If you have a sound nutrition plan in place it might only take you six weeks! The message is clear: the sooner you get a solid plan in place the healthier you – and your retirement income – will be!
There is a great deal of flashy advertising asking: ‘have you got enough superannuation to retire?’ but really we should be asking: how much income would you like to live off in retirement, what’s your cost of living going to be and how much money will you need to survive? Ultimately it comes down to what you want to achieve in retirement, and that’s generally where I kick off the conversation. Once we all have a crystal clear picture of the things a client wants to do in retirement, we can work backwards and calculate how much income they need to live, to achieve those goals, and to have some fun along the way.
How do I calculate my post-retirement expenses and income?
Think about the things you want to do in retirement, list them, and calculate your total annual cost of living.
Entertainment - $80 per week
Dinner/takeout - $300 per week
TV Subscriptions – $25 per week
Watch the Formula 1 every year in the stands - $500 per year
Travel first class once a year - $20,000 a year
Cost of running the household (Gas, groceries, rates etc.) - $50,000 per year Total cost of living = $91,560 pa
Everyone's number will be different but importantly you need to understand where these funds are going to come from once you don’t have a monthly salary, and how long the money you’ve accumulated for retirement will last. You might have a low balance in your superannuation and still live a comfortable lifestyle in retirement. Think of all income (including super at retirement) you receive and ask yourself: ‘Is this enough to live off’?
-Managed fund distributions
-Rental income from investment properties (Commercial or Residential)
-Business interest or income
The job of your financial advisor is to look holistically at all the income streams you would have if you stopped work today, and create a strategy for your financial security in retirement.
What’s the best way to set myself up for a financially secure retirement?
The way I approach this, no matter a client’s age, is to understand how they spend, AKA their spending mindset. People tend to spend, spend, spend when they receive any kind of income. What I want them to do is flip this approach on its head and prioritise saving. That doesn’t mean saving so much money that you can’t afford to live, it just means tucking away some money every time you receive any kind of income BEFORE you go on a spending spree! That money will compound every single year and by building the foundations of a good saver, you set yourself up for a good retirement. Ultimately you want to give yourself income options in the form of savings, investment properties, superannuation and business interests.
How can I get my retirement finances in order?
The first step is to have a conversation with your spouse and agree that it’s time to consult a professional financial advisor to make plans for your retirement. . Think about the kinds of questions you might want to ask about your retirement finances in an initial meeting, then go and meet one or two financial planners and decide who you feel comfortable with. You are going to be trusting this person to help you look after your life savings, so it’s important that you click. Once you’ve had an initial meeting, both parties should have a decent understanding of what’s required financially for the retirement you aspire to and you should feel comfortable to build from there.
Planning for your retirement can be complicated and convoluted and one of the questions we hear most frequently from clients is: ‘How much money do I need in retirement?’. Without professional guidance, that can be a tricky question for any client to answer, but the best way to prepare yourself for a financially comfortable, even abundant, retirement is to seek professional advice as soon as possible. A licensed financial planner can help you assess your finances, identify your cost of living in retirement, structure any retirement income steams you might have, solidify your retirement plans and create a financial strategy for retirement that helps you achieve your dreams and goals.
If you have questions about planning for your retirement or would like to chat about what retirement looks like for you, don’t hesitate to get in touch with me on (03) 9325 6320 or email me.
Matthews Steer Pty Ltd is a Corporate Authorised Representative of Australian Unity Personal Financial Services Ltd. ABN 26 098 725 145, AFS Licence No. 234459, 271 Spring Street, Melbourne, VIC 3000.
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