Retirement Planning: Everything You Need to Know

Retirement Planning Can be daunting. After decades of hard work, smart saving, and difficult decisions, you’re starting to plan your retirement! Being retirement-ready is a sizeable achievement and should feel like a weight off your shoulders. If you’re worried about being properly set up, here’s how to prepare for your golden years.

1. How much money do you need to retire?

   $1 million in retirement savings is considered a good baseline for retirement. However, it does come down to how you want to spend your retirement. consider…

   whether you’re single

   in a relationship

   keen to travel or

   if you have successful investments will determine the level of savings you may need before diving into retirement.

   For a ‘comfortable’ retirement that allows for regular leisure activities, trips interstate and the occasional jaunt overseas, the Association of Superannuation Funds of Australia (ASFA) estimates that single retirees aged 65-84 will need approximately $51,000 a year, and couples will require $72,000. For a retirement spanning 20 years, this equates to just over $1 million in savings for a single person, or a savings pool of almost $1.5 million for couples.

   When planning for retirement, it’s key to lay your “nest egg”: savings you don’t touch until retirement. Once you’ve retired and you’re no longer earning an income, it’s important to have enough savings to support a comfortable and enjoyable lifestyle. A nest egg can be flat savings, or you may like to consider investing some of your savings into an investment property or a low-risk asset in the hope that it appreciates over time. Chat to a financial adviser before making any investment decisions.

   It’s worth noting that the amount of money you’ll likely require will change in line with inflation over time. However, the nest egg you need is of course dependent on your circumstances, preferred lifestyle, interests and goals. Consult a financial adviser, as well as a finance specialist to determine how much you may need to tuck away.

2. When should I retire?

   As of 2023, the average retirement age is 56 years old, with superannuation, pensions and other benefits typically becoming accessible when people enter their sixties. If you’re looking to retire in the next 10-15 years, now is a great time to start laying the foundation of your retirement plan. It could be worth considering…

   • salary sacrificing to bolster your super, reducing your taxable income

   • consolidating and paying off existing debts

   • putting together a “rainy day” emergency fund

   • finding out how you can save on your mortgage, and pay it off faster.

   This is a great opportunity to get in touch with your local MoneyQuest broker. The biggest mistake you can make regarding retirement is failing to do the hard work and research early. Why not plan for a future you can get excited about?

3. Superannuation, Annuity & Account Based Pensions

   There are several ways you can access an  income stream during your retirement.  An account-based pension takes the super you’ve saved and feeds it to you through regular payments. Your funds are invested in a range of investments and shares, meaning it’s respondent to the market. So long as you still have accumulated superannuation, you’ll receive these payments throughout retirement. There is also the Age Pension, which is a government-supplied payment that supports those who have reached ‘Age Pension age’ and meet the eligibility criteria.

   You can also purchase an annuity. An annuity is a financial product sold by insurance companies, banks and investment brokers that exchanges present contributions for future income payments. It can provide you with a predictable stream of income in retirement. Once an annuity is set up, you can make either a lump sum deposit or regular payments over time, using either part of your super or your personal savings. This is called the accumulation phase. You can then choose when you want to start collecting payments from your annuity, and how long these payments will last. You can pick a fixed period, or the remainder of your life. There are different types of annuities available – fixed, variable and indexed – and as with all investment tools, there are pros and cons. Be sure to do your research and speak to a financial adviser before making any decisions.

   Ultimately, the choice between an account-based pension and an annuity comes down to flexibility versus security. Annuity options can guarantee you funds throughout your retirement, but an account-based pension can in some instances afford you a more comfortable lifestyle.

4. SUPER benefits to downsizing

   You may not be retiring just yet, but maybe your kids have flown the nest, or you don’t have use for a massive backyard or extra bedroom anymore. It could be time to downsize! Downsizing is a smart way to save funds in the later part of your life and take advantage of a home that has appreciated.

   Additionally, some superannuation funds accept “Downsizer Super Contributions” where you can contribute up to $300,000 from your home’s sale into your superannuation fund. This is only available to people aged 55 and over who have owned their property for 10 years or more. There are other conditions and requirements, so be sure to check your eligibility.

5. Releasing equity to fund retirement

   Equity is the value of your home minus what’s left on your mortgage. You can use this equity to finance aspects of your retirement.

   Those over 60 may access some of their home equity for retirement funds, including for medical expenses, living costs, and home modifications to accommodate health or lifestyle changes. The amount you can draw from your home equity is dependent on your age, how much equity is available, and the type of equity release you choose.

   An equity agreement is a solution for seniors who are rich in assets but have limited cash flow. It’s worth noting that accessing home equity reduces the value that can be provided to beneficiaries in your will.

6. Reverse Mortgages

   A type of home loan typically reserved for pensioners and retirees, reverse mortgages are one of the most popular home equity release options available in Australia. Reverse mortgages allow homeowners aged 60 and over to borrow money using the equity in their home as security.  Homeowners can receive this money via regular payments, a lump sum or a combination of the two. You don’t need to make reverse mortgage repayments while you still live in your home. However, once you or your estate sells your property, the reverse mortgage must be repaid in full, along with any compound interest and outstanding fees accrued.

   The amount you can borrow is determined by age. The older you are, the more you can borrow. However, it’s important to consider how a reverse mortgage may impact your current and future financial position, and your beneficiaries once you pass away. We recommend speaking with a qualified financial or tax adviser to understand how a reverse mortgage may impact your specific situation.

7. Earn passive income for your retirement

   There are several ways you can generate passive income for retirement. A couple of options are:

   • Investment properties: There are plenty of pros and cons to investment properties so it’s important to do your research and make sure it’s right for your lifestyle. An investment property, when positively geared and tenanted, can generate income and provide tax benefits. If your property appreciates and you wish to sell down the line, this will likely give your finances a boost. An investment property does take time and effort to purchase, manage, and maintain, so make sure you’re willing and prepared to take on this considerable responsibility, which may endure until the latter years of your life.
   • Buying property in your SMSF: If you have a self-managed super fund, you can potentially put your super towards an investment property. A self-managed super fund is a super fund that members run personally to control benefits. This is a highly complex strategy with several moving parts, regulations, and restrictions and can be quite risky, so it’s best to consult a financial adviser and SMSF lending specialist. You cannot live in a property that has been purchased using your SMSF.

    

8. Financially plan for retirement

   Finance service expert Gary Sirak argues that while many believe retirement to be a vacation, it’s more akin to a marathon. On top of responsible financial planning, Sirak also recommends identifying what you want to pursue with your time.

   Not only is this a good approach for ensuring you don’t become bored or aimless in your retirement, but it also helps identify what you’ll prioritise in your financial planning, As no one retirement plan fits all.

   For example, if you’re passionate about traveling during your retirement, you may want to put more funds towards financing that and could consider downsizing your home. This is your retirement, make sure you enjoy it!

9. Semi-retirement

   Semi-retirement can be a great way to transition into full retirement, or it can be a great option for those who find passion and purpose in their work, but can’t or don’t want to work a full-time 9 to 5 job. Whatever the reason, more and more pensioners are choosing this middle ground, with 2/3 of workers over 60 attesting to enjoying their work and finding fulfillment in it.  Some examples of semi-retirement work include consultancy, part-time roles, and running a small business. However, becoming self-employed and running a business has the potential to put your retirement savings at risk, so proceed with caution and seek professional advice before making any decisions.

   The last decade has seen a rise in semi-retirement, with those in their late 50s and 60s choosing less stressful jobs or scaling back their hours. Continuing to work in moderation can have plenty of benefits, beyond the obvious financial rewards, including physical and social perks that sometimes aren’t available to fully-fledged retirees.

   If you’re starting to plan your retirement, we recommend getting in touch with your local mortgage broker to brush up on your finance options!

If you’re new here and not sure how to get in touch, simply call 1300 886 100, or visit moneyquest.com.au and fill out the enquiry form.

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