Retirement Planning: 5 Things to Review and Remember This Year

Imagine booking a family holiday a year in advance, and many things have changed between when you booked and when you arrive. Routes are different, the restaurants are now more upscale, service fees have increased, and new charges exist. You’ll have to tighten your belt or skip some itinerary items to make your holiday budget work. You always want to avoid being unprepared in an unexpected situation… and retirement planning is no exception.

Your retirement plan is an ongoing process. A lot can happen if there are many years between now and your anticipated retirement age. This article presents five key items to review this year to help you prepare for the unexpected.

How Much Do You Need to Save for Retirement?

According to the latest estimate by the Association of Superannuation Funds of Australia (ASFA), a single Australian who retires at age 67 needs to have a super balance of $545,000 to retire comfortably and $70,000 for a modest retirement.

A couple needs $70,000 in their super account to retire modestly at age 67 and $640,000 comfortably.

ASFA’s lump sum estimates consider the Age Pension you will get immediately and in the future. Because of how the Government Age Pension works, couples and single people need the same savings to supplement their income for a modest retirement.

Do you know your Total Superannuation Balance (TSB)?

Using your TSB and the retirement planner here, you can calculate how much money you’ll receive upon retirement, reaching the preservation age (55-60) or retirement age (65).

5 Factors to Consider When Reviewing Your Retirement Plan

When setting financial goals for your retirement, you should consider retirement’s financial and non-financial aspects.

Now that you’re reviewing your retirement plan, it’s important to remember that life’s financial and non-financial aspects are equal priorities.

1. Lifestyle

While it’s clear for most people what they’re retiring from, what’s important is knowing what you’re retiring to.

• What potential life events will affect your lifestyle when you retire?
• What changes, if any, are there on your to-do list once you retire?
• If any, how do these affect your long-term and short-term financial goals?

2. Savings

Ensuring a retirement nest egg lasts for life is a top concern. It’s difficult to be dependent on Age Pension alone.

Check your savings account, super balance, and investments to see if your finances are on track to meeting your future financial goals.

Take advantage of compound interest when you save money – the earlier you start, the longer you can reap the potential benefits.

3. Income

Life expectancy in Australia is around 85 years. If you retire in your mid-60s, you’ll require retirement income for at least 20 years. Explore retirement income alternatives after checking your super fund. Your basic alternatives are a lump sum payment, annuity, or account-based pension. Check for Age Pension, government benefits, or seniors concessions.

4. Expenses

Knowing your monthly expenses helps you calculate how much you will need in savings and income.

If you’re nearing retirement, you can estimate more accurately to determine if your funds will provide enough income.

For comparison, ASFA’s September 2022 figures show 65-year-olds who want to retire today would need $48,266 (individual) or $68,014 (couple) per year respectively to live comfortably. Individuals and couples need $30,582 or $44,034 per year respectively to live a modest lifestyle, which is better than the age pension alone.

You’re financially ready to retire when Age Pension, super, and investment income (at a safe withdrawal rate) cover your anticipated living expenditures.

5. Retirement Age

Australian retirement age is flexible. You can retire anytime. However, considerations may include your health, financial situation, and employment opportunities. The age you may access your super may also factor into your decision of when to stop working.

Why You Should Review Your Retirement Annually

Periodic reviews of your retirement plan help you evaluate if you’re on track or need to make necessary adjustments.

Consider the following events that may significantly impact your financial situation or retirement goals.

Life Events

When creating a retirement plan, we do so based on individual circumstances. Anything that affects the situation changes our financial goals. This may include:

• Marriage
• Illness or Disability
• Needing a Caregiver
• Divorce or Death
• Changing Jobs or Unemployment
• Getting a Raise
• Selling or Buying a Business

Lifestyle Choices and Needs

Moving to a new city with a higher cost of living or getting sick without warning can mess up well-thought-out long-term financial goals.

Some ways that lifestyle changes affect retirement plans:

• Differences in your health
• Moving to a different place
• Taking up new hobbies or interests
• Costs of housing

Market Changes and an Uncertain Economy

Retirement funds are usually subject to fluctuations in the economy. Various market and economic factors out of our control can have an impact on retirement plans, such as:

• Inflation
• Recession
• Interest rates rising or falling
• Family financial emergencies
• Future Medicare, Age Pension, and Superannuation regulations

End-of-Life Considerations

End-of-life considerations also need to be considered in your retirement plan. These choices affect your beneficiaries. Reassess these decisions as part of your retirement strategy.

Consider how you’ll distribute assets among your family, donate to charity, and pay for your funeral and other end-of-life expenses like medical or long-term care.

End-of-Life Considerations include:

• Estate planning
• Will
• Family trust
• Real estate
• Insurance
• Funeral and burial costs
• Reevaluating life insurance beneficiaries

Liquidity

Know the value of liquid assets you can convert into cash in your retirement plan.

This can be your emergency fund. If the market is down, you won’t have to sell a key asset (like your home) at a loss if you have that buffer.

8 Key Items to Review for Retirement

There are numerous moving pieces in retirement planning. When reviewing your retirement plan, a checklist can help ensure you cover all of its areas.

1. Retirement Accounts

Australia has a “three-pillar” retirement income system to help older people with their finances through government benefits and private funds. It consists of the following:

1. Age Pension, which is means-tested
2. Compulsory superannuation contributions, and
3. Voluntary private savings, from inside and outside the superannuation system

2. Retirement Income

Monitor estimates from sources of income to get an idea of the monthly income you’re on track to have in retirement.

• Current Salary or Future Part-time Earnings
• Superannuation
• Investments and Other Sources

3. Basic Monthly Expenses

Be sure to include inflation adjustments in your calculations.

4. Cash Flow

Will your estimated monthly retirement income cover your projected monthly expenses?

5. Health Care

Have any new health conditions cropped up since your last review? What is the cost of maintaining your private health coverage and/or paying for necessary medication or treatments?

Factor these in along with their associated costs.

6. Retirement Assets 

What is the value of your total assets, and how easily can you liquidate them if necessary?

• Residential Home
• Other Properties
• Your Business
• Superannuation
• Savings
• Investments (Shares, Bonds, etc.)

7. Debts 

One of the most common financial goals is to settle debts. Check if you are on track to being debt free before retiring.

• Mortgage
• Car Loan
• Personal Debts
• Credit Card Debt
• HELP Student Debt

Once you pay off debt, can you divert the amount toward retirement savings and investments?

Alternatively, will you have new financial obligations in retirement?

8. Estate Planning 

Is it time to revise your estate planning strategy?

Review if you need to make changes to your:

• Your Will and Last Testament
• Testamentary Trust
• Superannuation Binding Nominations
• Insurance Coverage and Beneficiaries
• Power of Attorney and Enduring Guardianship
• Advanced Healthcare Directive

 

If you need help reviewing your retirement plan in Newcastle, Newcastle Financial Planning Group can help you! Our financial experts are here to help you ensure you have a steady cash flow so that you can have a stress-free and enjoyable retirement. Call us or book online to secure your first appointment today and learn how we can work together to achieve your financial freedom!

 

REFERENCES:

• https://www.superannuation.asn.au/resources/retirement-standard
• https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526
• https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook46p/RetirementIncomes

 

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.