Since we were young, we were told to do our best in our studies and, eventually, our careers. Then, at the end of our career, we should have saved enough money because once we reach retirement age, we won’t have wages or a salary as a source of income. This is inconvenient for those who want to live their best retirement life!
In Australia, retirement planning is essential to ensure a comfortable lifestyle later in life. There are several things to consider when planning for retirement, such as how much money you will need to cover your expenses, how you intend to generate income during retirement, and what options are available to you to boost your retirement nest egg effectively.
Unfortunately, many Australians struggle with this, so we’ll explore how to start Retirement Planning in this article.
How Retirement Planning Works
When you plan for retirement, you need to calculate how much money you need to have saved by the time you retire. This is important because you need to know how much you should save each year to reach your retirement savings goal.
Once you know how much you need to save each year, you must then turn to drafting your retirement savings plan. This plan should include how much you will save each year, where you will invest your money, your risk appetite and your timeframe for investment.
Sources of Retirement Income
There are three primary options Australians can choose when funding their retirement. These include:
Superannuation is a retirement savings account managed by a trustee on behalf of the account holder. The account holder and their employer then contribute to the account, which is in turn invested to grow the balance. You can choose how the money in your super fund is invested and you can also hold some life insurance cover within your super. Once you reach your preservation age and/or meet a condition of release, you can withdraw money from the account. You can choose to withdraw funds as a lump sum or convert the account into a superannuation income stream and keep the capital invested.
Superannuation is a popular option for many Australians as the Australian Government offers tax breaks on contributions to and earnings from superannuation accounts. Both your employer’s contributions and the earnings from your investments are taxed at a rate of 15%.
Additionally, if you salary sacrifice a portion of your pre-tax income into superannuation, these contributions are taxed in the super fund at a maximum rate of 15%. Generally, this tax rate is less than your marginal tax rate.
Personal Savings and Assets
Personal savings and assets are anything that you own that has value. This can include your home, savings accounts, investment portfolio and investment property. You can use your savings and personal assets to fund your retirement in two ways:
- Choose assets that generate an income stream, for example, dividends, interest and rent.
- Liquidate assets and use the sale proceeds.
There are two primary forms of pension offered by the Australian government:
- Age Pension: The Centrelink Age Pension is provided to those eligible individuals who meet Asset and Income Tests set by Centrelink. Currently, the maximum basic Age Pension per fortnight is $900.80 for singles and $1,358 for couples.*
- DVA Service Pension: The Department of Veterans’ Affairs Service Pension is provided to veterans and their partners. Like the Age Pension, your income and assets affect your eligibility and how much you can receive. Currently, the maximum basic Service Pension per fortnight is $936.80 for singles and $1,412.40 for couples.* Recipients can receive the service pension earlier than the social security age pension – 60 years old rather than 67.
Eligible recipients can use their Age Pension or Service Pension to supplement their retirement funds, increase their retirement income, and improve their overall quality of life in retirement.
* Not including supplements.
Factors to Consider When Retirement Planning
When planning for retirement, there are a few critical factors to consider. These include:
- Your Age: The age at which you plan to retire will affect how much money you will need to have saved. If you plan to retire early, you will need to accumulate more savings than if you plan to retire later.
- Your Lifestyle: Your lifestyle in retirement will also affect how much money you will need to save. If you plan to travel or have a more active lifestyle in retirement, you will need more savings than if you plan to have a more frugal lifestyle.
- Your Location: One of the most important factors to consider when planning for retirement is where you will live. Some people make this an easy decision because they already own the property where they intend to spend their retirement. Others may not have given this much thought and may need to research to figure out the best place to retire.
What Does Your Ideal Retirement Look Like?
What does your ideal retirement look like? Do you want to travel? Spend time with your family? Do you want to downsize your home? These are all crucial factors to consider when planning for retirement. For this reason, you must know what you want to do to prepare your retirement savings accordingly.
Retirement planning is a critical process everyone should go through. It’s never too early to start planning for retirement, so the sooner you start, the more time you will have to save! What matters is accumulating enough money to support you when you retire.
Central Coast Financial Planning Group provides quality retirement planning on the Central Coast. Our experienced financial advisers ensure they understand what is important to you before developing solutions to ensure all your financial goals are met for a better retirement. Call us or book online to secure your complimentary first meeting with our advice team today!
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.