Transition to retirement planning: are your finances in order?

Transition to retirement planning: are your finances in order?

Do you know where your money will be coming from and what steps you need to take to ensure you can fund a comfortable lifestyle in your retirement years?

As with any life goals, the earlier you start planning your transition to retirement the better. At the same time, it is never too late to review your retirement plans. A key consideration for most of us is how to fund our senior years, particularly when we’re likely to live a longer and healthier life than ever before.

You’ve built your savings and super over the decades so that you can enjoy your senior years and reduce financial pressures. Some good planning based on expert advice from an experienced and trusted financial adviser or accountant could be all you need to keep the heating on in winter, or enjoy the occasional trip away.

You’ll need to plan your retirement funding to cover your day to day budget, as well as unexpected medical expenses. And, then there’s your bucket list of retirement goals such as holidays or taking up hobbies or sports. 

Please note, your author is not qualified, nor an expert in, financial planning or advice.  Always, always engage an expert team including a trusted accountant or financial planner, and legal counsel for sound advice to help you through your retirement years.

But here are some considerations based on helpful independent government sources that will help you plan the type of advice you’ll need to explore with a professional.

How much debt do you have?

When you have debt repayment commitments, you’re also paying out your hard earned money in interest.

Prioritise paying down your debts while you’re still employed.  You don’t want have to use your superannuation or life savings to fund debt.

Take action: prioritise paying down any debts before you retire.

How do you want to spend your senior years beyond full time work?

If your aspirational retirement lifestyle is to lead a simple and basic existence, you won’t need the same level of funding as your friends that want to spend their senior lives on cruise ships interspersed with playing golf on championship courses that charge exorbitant fees.

You really need to invest some time in imagining how you want to live your senior years. Like any goals, it is important that they are aspirational enough to keep you motivated but also realistic and achievable.

If you’ve always enjoyed a $10 wine and have never had the inclination for boating, there is probably little real value in looking forward to drinking Bollinger Champagne on a yacht!

Apart from relieving yourself of the daily commitments that running a business, or being an employee bring, here are some other areas that you may be planning to enjoy:

  • travel
  • volunteer work
  • study
  • hobbies
  • sport and exercise
  • more social outings
  • more time with your family.
Take action: commit your retirement lifestyle plan to paper and make sure to prioritise the list from most important (or non-negotiable) to least important. Be aspirational, but also keep it realistic and achievable.

What will your weekly budget need to cover in your retirement years?

The Association of Superannuation Funds of Australia’s Retirement Standard (ASFA) Retirement Standard benchmarks the annual budget needed by Australians to fund either a comfortable or modest standard of living in their post-work years. It is updated quarterly to reflect inflation, and provides detailed budgets of what singles and couples would need to spend to support their chosen lifestyle. Take a look at their website article, How much super will I need?

Projecting your weekly budget for years ahead can be tricky. But if you base it on current costs; and factor in a year on year Consumer Price Index (CPI) increase using the Australian Bureau of Statistics (ABS) key CPI figures as a guide – you may be able to get a sense of projected expenses. Here are the March 2018 key CPI figures.

If it has been a while since you’ve committed to a weekly or fortnightly budget, here are the minimal expenses you’ll need to factor in:

  • Cost of housing: this could include mortgage repayments, rent, maintenance and repairs, levies or body corporate fees, and council rates.
  • Energy: include gas, water, electricity or the costs of alternative power sources.
  • Food and drink: if you enjoy the occasional meal out, or entertaining friends or family at home make sure you factor this into your average weekly expenses, over and above your grocery shop.
  • Internet and telecommunications: quick speed internet has become a need rather than a want, and you’ll need to ensure you can afford it if you plan to do any transactions online.
  • Household goods: ouch. Some of this includes when whitegoods or appliances give up, and need replacing. It also includes expenses such as replacing broken glassware or updating your linen.
  • Clothing and footwear: consider special occasion wear as well, for example if you have a few children, you may also have a few weddings and other special celebrations to dress for that will need to be factored in.
  • Cleaning and bathroom products: these are expenses often overlooked in personal budgets but can add up.
  • Health services, treatments, procedures and medications: difficult to project these expenses but make sure you factor them in.  The key is to be proactive in preventative health and wellbeing, now!
  • Insurances, registrations and subscriptions:  include health insurances, life insurances, car registrations, licence and passport renewals; and subscriptions such as newspapers, pay television, and magazines.
  • Leisure and sporting activities: based on your lifestyle planning earlier, make sure to factor in the expenses associated with leisure past times such as sports, hobbies and study. Entertainment expenses should be included here too, such as heading to a concert, the theatre, a festival or the cinema.
  • Gifts and celebrations:  those birthday, Easter and Christmas gifts for all the family and some friends can really add up!  And don’t forget to include expenses such as the non-food and drink expenses of hosting Christmas.
  • Debt repayments: ideally, plan to eliminate debt before you formally retire.
  • Travel: as part of your lifestyle planning, consider how much money you’ll need to fund your holidays.
  • Transport: expenses here will include all your vehicle expenses as well as taxis, Ubers, buses, trams, trains, parking and tolls.
  • Family and charities: if one of your retirement aspirations is to help support family or charities, consider how much of your budget you want to allocate.
  • Health and wellbeing:  a lot of health and wellbeing expenses may already be accounted for in your health, sporting and leisure activities budget.
  • Emergencies: tricky to project, but you should always have an emergency buffer set aside.
Take action: set aside a good half day to project the weekly expenses you’ll need to budget for in your retirement.

Once you’ve given this budget planning activity a good amount of your attention, you’re ready to move on to the next step.

What expenses will you be able to cut back on?

Has projecting your weekly budget given you heart palpitations? Consider the following expenses that you can potentially reduce as you move into your retirement years:

  • Maintaining a family sized house and garden: downsizing to a single or couple sized residence or retirement accommodation such as a retirement village villa, could put some capital gains from the sale of your family sized property into your retirement fund; as well as reduce ongoing maintenance and repair costs associated with a family sized home and garden.
  • Energy costs:  when you’re not heating or cooling a family sized home, you’re already reducing your energy expenses. You may also be eligible for senior or pension concessions.
  • Extra vehicles: can you manage cutting back from two cars to one? The cost savings are considerable.
  • Daily commuting costs: if you’re commuting less because of reduced or no work commitments, you’ll reduce expenses such as petrol or diesel, parking and toll charges.
  • Work clothes and shoes: if you’ve had a career where your work attire has cost you more than your usual leisure attire, your expenses will be less.
  • Business  or work related networking events: in many jobs, ‘keeping up appearances’ can cost you money. If you’re no longer having to pay for work lunches or after work drinks, your budget will be a little lighter.
  • Takeaways: with more time to cook, you may find that the costly takeaway dinners that were once a necessity, aren’t eating up your budget quite like they were before.
  • Government concessions and benefits: make Seniors Victoria and MyGov regular online destinations and stay on top of any entitlements that are due to you.
Take action: work through your projected weekly budget, and see where you may be able to comfortably cut back on expenses. Make sure it is realistic and achievable.

How can you grow your superannuation?

According to the Association of Superannuation Funds of Australia’s Retirement Standard (ASFA) (2017) to enjoy a comfortable lifestyle in your retirement, single people will need access to $545,000 (to fund a budget of around $825 per week) in retirement savings; and couples, $640,000 (to fund a budget of $1,160 per week).

A ‘comfortable or modest lifestyle’ is defined by the ASFA as including things like being able to run air-conditioning in the summer, having a fast internet connection and going on the occasional overseas holiday.

Visit ASFA’s website initiative ‘Superguru’ (an independent not-for-profit) and the page ‘How much super will I need’ for more detail on their definitions and breakdown of expenses.

How is your superannuation fund and projected weekly budget looking in comparison to this? If you’re falling short, and living comfortably is a goal consider extending your working life, if health is on your side.

The longer you receive a salary, or business income, the more you can grow your retirement funds.   Talk to your employer about options for transitioning to retirement. You may want to explore gradually cutting back from five (or six!) days a week; to four; to three and so on over a number of years.

You can reduce your tax bill at the same time by making voluntary superannuation payments (pre-tax, after-tax, spouse or government co-contributions) to boost your fund.

Check with your financial adviser on the ‘downsizer contribution’ coming in post 1 July 2018, as well as the Work Bonus available from the government for working beyond preservation age. There is also Transition to Retirement (TTR) benefits on offer from the government too, which are regular payments on top of the Age Pension as you transition from work.

Explore these potential benefits with your financial adviser. Don’t put any plans in to action at this stage of your life without seeking independent, professional advice.

Take action: now that you have a good view of your lifestyle goals, and your projected expenses book in a consultation with a trusted financial adviser.

Where will your money come from?

Preservation age is the age that the Australian government determines you can start using your super. Once you reach preservation age you can start accessing some of your superannuation – even when you’re still working.  In many people’s circumstances the full age pension is simply not enough to live comfortably.

Most retirees will have more than one stream of income such as:

  • part or full age pension plus superannuation top ups
  • superannuation plus savings
  • an annuity plus savings
  • superannuation plus investments plus part-pension; or
  • other combinations of the above.

Make sure to take steps to combine all your superannuation funds into one, as you may considerably benefit from reducing individual  fees and charges per fund.

Take action: Consult with your financial adviser to agree the most effective strategy for your retirement income stream sources.

How will you protect your finances?

When you’ve worked all your life to fund your retirement years, you don’t want to lose what you’ve built. Here are the minimal protections you should have in place to protect your retirement funds:

  • your Will and clearly nominated beneficiaries
  • insurances including medical and life insurance
  • if you’re still earning a salary or income - income protection; and total and permanent disability insurance
  • be aware of scams. As a retiree sitting on a nest egg, you can be a prime target for criminals. Keep a close eye on the ACCC ScamWatch pages to keep informed and alert.
  • regular review of your superannuation statements and annual report so you can track how your fund is performing and make changes if required.

It is true that these insurances can be expensive, particularly as you age but at the same time, the need for cover increases with age too.

For more information on protecting your nest egg, visit Superguru page ‘Keeping your super safe’.

Other helpful budgeting tools and resources

Australian Taxation Office (ATO): Preservation Age table for 2018

ATO: Downsizing contributions into superannuation

MoneySmart:  Super and pension age calculator

MoneySmart budget tracker: TrackMySPEND

MoneySmart: Income sources in retirement

Article by Julie Pearce | Content Services Melbourne

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If you are interested in exploring the possibility of a move to a modern retirement village around Melbourne. Booking a tour at one of the RCA Villages around Melbourne can be a great place to start. Visit the website of the village in the region you would like to visit for contact details.

South East Melbourne

Mornington Peninsula

Western Melbourne 

Ask about RCA Villages no deposit reservation process on new villas.

FAQs: What are the costs involved in moving into a retirement village?

FAQs: What are the costs involved in moving into a retirement village?

FAQs: What do I get when I buy into a Retirement Village?

FAQs: What do I get when I buy into a Retirement Village?