You’re at the stage now in your life and career where you’re contemplating how to plan for retirement. Retirement is an opportunity for you to cast away the stresses of working life, rest, rejuvenate and pursue new opportunities. In order to secure the happy retirement you deserve, what are the most important considerations, financial and otherwise?
The first thing you need to think about is exactly what you want to accomplish in your retirement. According to Wes Moss, retirement guru and author of You Can Retire Sooner Than You Think: The 5 Money Secrets of the Happiest Retirees, happy retirees are those who are passionate about three to four “core” pursuits. This contrasts with “unhappy” retirees who have less than two core interests. Deciding what you want to get out of your retirement is the first step in ensuring that it is a happy one. While only you can decide what you want to do in retirement, a good starting point is examining what you like to do in your spare time. With more time available in retirement, this could be a great opportunity to do more of these things. Undoubtedly, there are also new activities that you would want to engage in when you’re retired, like travelling. You shouldn’t wait – start having a go now, whether it is volunteering, contributing to your local community or taking a class to learn a new skill. By dipping your toes now in the retirement experience, hopefully you’ll be alot more excited (and hence motivated to start planning for) about what an amazing experience retirement is going to be.
While it may seem oxymoronic, you may want to still work in your retirement, in the same or a different field. For many, having a job is personally and professionally fulfilling. If working is something that is gives you a sense of purpose and satisfaction, then by all minds you should continue to do it. A 2009 study published in the Journal of Occupational Health Psychology found that retirees with part-time or temporary jobs have fewer major diseases, including high blood pressure and heart disease, than those who stop working altogether, even after factoring in pre-retirement health.
Once you’ve decided on what you want to do in your retirement, the next step is determining how much money you need to save in order to maintain a comfortable standard of living. The Association of Superannuation Funds of Australia (ASFA) estimates that the lump sum needed to support a comfortable lifestyle for a couple is $510, 000 (or $430, 000 for a single person) assuming a Partial Age Pension. This assumes a retirement age of 65 and a life expectancy of 85. Of course, if you opt for early retirement or choose to stay in the workforce longer, this will affect how much you will need. For those born after 1965, you will be able to access your superannuation from the age of 60. Those born after 1965, however, will only be able to access the Age Pension from the age of 70, a change announced by Australian Treasurer Joe Hockey in the Federal Budget last year. Deciding when you want to retire needs to take this into account.
The Australian Securities & Investment Commission provides a retirement planner, which helps you work out what income you are likely to have from super and the Age Pension after you retire, and what actions you can take to boost your super and retirement income: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/retirement-planner.
The third step is paying off your mortgage as quickly as possible: having a home that has been paid for is the bedrock of financial independence. You don’t want to be paying for your mortgage longer than you have to, when you could be putting that money into your retirement fund.
Finally, you should be cultivating three or four income streams, rather than relying solely on your salary. Unhappy retirees are those are dependent only on their superannuation and the Age Pension. Happy retirees are those who have for a long time cultivated multiple streams of income. It doesn’t matter so much that some of these streams of income might be quite small. The important thing is that you start developing and diversifying your sources of income: whether they it be real estate rental income, investment income, income from royalties, etc. Are there non-productive assets you can liquidate into cash? You may want to look at your current expenses and whether there is any area you can cut down. Even cutting down on small, regular expenses can save a lot of money in the long run. Forgoing that cup of coffee at the local café every morning before work and opting to drink at home may save only $3-4 a day, but over the course of a year it accumulates to over $1000 saved! You could deposit that money in the bank or direct it towards more productive investment.
While many may be tempted to see retirement as one big long vacation, the need for fiscal discipline doesn’t disappear the day you retire. Living within your means ensures that you can sustain a comfortable level of retirement for the rest of your golden years. You should budget for how much you plan to spend each month so you don’t plow through retirement savings in much less time than you need it to last.
To achieve the best possible outcome, you should meet with a financial adviser, experienced in working with people planning for their retirements. Is meeting a financial adviser worth the expense, you ask, when you can go it alone? Certainly, you could endeavour to do it all by yourself, given the wealth of financial advice available in books and on the Internet. But the same could also be said of, for example, preparing a will yourself or having a lawyer do it for you. We engage professionals because they have specialised knowledge and we accept that they will be able to do a better job than if we do it ourselves. Engaging a financial adviser is one of the best investments you could possibly make.