Retirement Planning Australia

Welcome to Retirement Planning Australia and Congratulations for reaching this huge milestone and new chapter in your life!

We specialise in helping people grow and preserve their superannuation and pension savings as they approach or transition into retirement.

The three most important financial things to consider for retirement in Australia are:

1. Your level of debt, if any
2. Your income needs in retirement; and
3. Preserving your savings for as long as possible

We will talk about these three points in more detail later on but for now, let’s discuss the things you need to check off before you retire and the different stages of before and after retirement.

If you have already retired then the page about money in retirement contains a wealth of information for managing money in retirement.

Retirement Planning before you retire (pre retirement)

In a perfect world, your retirement plans should actually start about 10 years before you retire, so for most people that’s around 55-57 years old.  The reason we suggest this as a good starting time is because it gives you plenty of time to tackle any large debt, such as paying off the home loan, building up your superannuation savings, buying that last investment property or setting up a structured plan to create and accumulate your wealth as much as possible in the most tax effective manner.

If you’re already past that point then we can still work with the time you have left but you need to act now and not put things off any further.

The following points should be part of your retirement planning strategy:

• Know how much superannuation savings you will have when you reach your desired retirement age
• Know how much income you will need in retirement
• Ensure you have setup your assets and income to maximise your Centrelink entitlements
• Have enough savings for emergency funds, such as replacing a car, house repairs, a medical procedure or accessibility improvements to your home
• Make sure you have little to no tax-deductible debt or as a minimum, a manageable amount of debt (such as a small home loan)
• Make sure you have covered off your Estate Planning needs such as a Will, Trusts and Nominations
• Make sure your superannuation savings are setup to be as tax-effective as possible and they are invested according to your own personal risk profile; and
• Ensure you have a plan for your aged care needs in the final stage of your retirement

If you can tick all those boxes then you’re off to the best start possible for your retirement planning and are well ahead of most people approaching retirement but a high percentage of people reach retirement age and have no boxes ticked or they still have a sizeable mortgage with no plan to reduce it, don’t let that be you!

Asset allocation

During your accumulation phase of working the asset allocation you make earlier are what will determine success.  To achieve this active management decisions will need to be taken.

What we see quite often is that most people have not taken enough risk to achieve the growth needed for this target due to regulation and other factors.  And to reach this target, people are forced to take risks when they are in retirement.

If you are faced with this situation then you want to ensure you are invested in a product that has a “close to zero probability” of going to zero”.

As with all investors, a retirees’ goals and expectations for retirement will depend on the individual and a good financial planner will practically apply this concept to your situation.

Your goal is not to try and out-perform the market but to identify what is the right way to determine the amount of risk that should be in your portfolio and the best places for that risk to be taken relative to your goals, income requirements and expected expenditure.

A good retirement planning adviser will focus on asset allocation rather than stock picking and that’s why goal-based advice is more important than outperforming that market every year.

Know how much superannuation savings you will have when you reach your desired retirement age

The average long-term growth rate of an equities-based investment (shares, property, ETF’s) is 7% pa.  You can use a superannuation retirement calculator to provide you with an estimate on the final balance you would expect to have and this serves as a general guide on what you will end up with in retirement.

Once you know this figure, you now have a starting point on what we can work with and how much income you can expect to receive in retirement.

The amount you can withdraw as an income will range between 4 and 10 per cent pa.  So on $500,000 you would expect to draw between down $20,000 to $50,000 pa.

Remember that the 7% rule only applies to the growth component of your savings, not the cash component.  So if you have $200,000 of the $500,000 invested in Term Deposits or cash, then the 7% only applies to $300,000 leaving you with much less growth opportunity.

Know how much income you will need in retirement                                                       

When it comes to retirement planning in Australia the first thing you should do is calculate what your fixed non-negotiable costs will be in retirement and add 20% as a buffer.  Other things to consider will be:

• Will you be paying down any large debt at retirement?
• Are you planning on upgrading the car at retirement?
• Will you be doing house renovations?
• Do you plan on traveling around Australia, going on a cruise or traveling the world?
• Are you paying for your children’s or grand children’s education or gifting them any money?
• Are you planning on relocating interstate?
• Will you have any health and well being costs?
• Have you considered longer term planning matters such as aged care costs for yourself or your partner?

Life is unpredictable and you can’t always account for every unexpected event but having a plan is much better than no plan at all.

Click here to download a free cheat sheet on capturing your current finances and this will provide you with a very good summary on what expenses you can expect to incur as part of your retirement planning in Australia.

Once an individual has reached retirement, the purpose of their portfolio changes from growth to meeting their cash flow requirements for living expenses (such as a fixed income stream).

(Quote Box) “Did you know that 86% of Australians don’t know how much money they’re spending every month!”

Ensure you have setup your assets and income to maximise your Centrelink entitlements

This is one of the most common mistakes we see a lot of retirees make – their super and other assets are not Centrelink friendly!

I remember meeting with a 74-year old retiree in Bendigo and her super fund was not setup to be tax effective, as a result she was over-paying at least $500 per year in unnecessary tax!  The worst part is this should have been changed almost 10 years sooner which means she had paid thousands of dollars over the years in unnecessary tax which resulted in money down the drain!

You need to ensure that your funds are setup in the right products which are tax free and partially exempt from Centrelink’s assets test.  By doing this you will save thousands in tax and potentially be entitled to thousands more in welfare payments from Centrelink.

The table below provides an example of the before versus after tax and Centrelink income differences just by structuring your funds in the correct format:

Before receiving Retirement Planning Advice*

After receiving Retirement Planning Advice*

*The first table assumes the person has $200,000 invested in a 100% growth super accumulation fund

*The second table assumes $100,000 remains invested in a 100% growth account-based pension fund

The $4,653 of additional income and savings may not sound like a lot, but over 5 years that’s an extra $23,265 that you earned (and saved) which could have been used towards your holiday or any other purpose and that’s the value of getting the right retirement planning advice in Australia!

Have enough savings for emergency funds

You can’t plan for every risk or event in life, but generally speaking if you can save 6 months’ worth of NET (after tax) income into a rainy day fund, that should be enough money to weather a few storms.  Things you can’t really account for but sometimes creep up on you can be:

• A major medical procedure
• Accessibility improvements to your home
• House or car repairs
• A planned vacation (car + caravan)
• Hobbies or projects you have been putting off for years or decades (restoring that old HQ)
• Later on, aged care needs

Retirement Planning Australia has specialised advisers that can answer your questions about any of these strategies and assist with your retirement income needs, goals and objectives.

• AMP has also created a 7-point checklist which you can read here
• Have you read the government issued Moneysmart website on working with a retirement planner in Australia?

Read more about investing your funds for retirement planning

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Defending Your Retirement Savings

I have always said to Retirees “Don’t turn your nest egg into a scrambled egg”

You have spent the best part of 40+ years to get your savings to this point and that 40 years’ worth of savings can be wiped out in a matter of weeks or months due to bad investment moves or emotional investing (aka Fear & Greed).

I will never forget in 2008 when I was working at the NAB, the markets just went through a spade of volatility due to the Global Financial Crisis and most people’s equity funds had tanked by more than 30%.

A retired farmer who had just retired months earlier walked into the branch and he wanted to move his entire life savings of $500,000 (which was now worth just under $300,000) into cash to avoid any further volatility.

Against our advice, he sold down his equity funds and shares and locked in his new position into a NAB Term Deposit fund.

12 months later the market had fully recovered and even went higher than their pre-GFC values, by around 8%.  If the farmer just held on and listened to our advice, his portfolio would have been worth at least $520,000 but instead he lost over $200,000.

The need for financial security becomes a higher priority as people age.  Additionally people who are planning for retirement want to maintain a regular and predictable income stream to provide for their lifetime needs and they definitely don’t want to be fussed with monitoring their portfolio, re-weighting the funds and selling down cash to buy more equity or vice-versa because that’s the job of your retirement advisor and that’s what you’re paying them for.

You’re also possibly going to live longer than you expect which means you will need an income for much longer than you think.  So you need to strike the right balance between Growth & Defensive assets in your income stream so you don’t lose sleep at night when another Pandemic, or variation of it, lands ashore.

Want to Know More about your retirement options?

If you want help, more information or advice on setting up your financial affairs or transitioning into retirement then fill out the Contact Form below and a retirement planning Australia specialist advisor will contact you to discuss your unique situation, answer your questions and provide you with no obligation information on what works best for people in your situation.