Planning Your Ideal Aussie Retirement

Retirement planning is something a lot of people put off, particularly when they are young and retirement seems to be a long way off. However, the fact is that planning for retirement is one of the most important financial decisions you will ever make.

In Australia, there are a number of different factors that come into play with retirement planning. To help you set yourself up for a comfortable retirement and secure financial future, here are the five key things you need to know about planning your ideal Aussie retirement:

1. Know how the retirement system works in Australia.

To be able to properly plan for your retirement, it’s important that you understand how the retirement system works in Australia. There are three main elements that you will need to think about when it comes to planning for your retirement:

• Pension: In Australia, a government-provided payment known as a “pension” is paid to people who are 67 or over. This payment is meant for people who have little or no retirement savings. It is income and asset tested, meaning the amount of money you receive may vary depending on your income and assets. While this payment should provide you with a “safety net”, it will most likely not be enough to cover all of your expenses or give you the lifestyle you want to have during your retirement.

• Superannuation: In Australia, employers are required to contribute a percentage of your salary (currently 11.5%) into a super fund. This money is invested by your super fund and continues to grow while you work. It can be accessed when you retire, typically from the time you turn 60. The amount of money that you have in your super fund by the time you retire will significantly impact on what your retirement lifestyle looks like.

• Personal savings and investments: Your personal savings and investments will also play a role in theon the type of lifestyle you live when you retire. If you want to retire comfortably, you will want to have enough money in savings and investments to support your lifestyle, so that you can use this to supplement your pension and super.

2. Set goals for your retirement.

You will also want to think about what your ideal retirement looks like and the kind of lifestyle you want to be living when you stop working. Based on this, you will be able to set clear goals for your retirement that will shape how much you need to save to ensure you can enjoy the kind of lifestyle you want in retirement.

Some of the questions you will want to ask yourself include things like:

• How old will you be when you retire? While some people work into their 70s and beyond, others want to retire early. Deciding when you want to retire will influence how much you need to save, and also how long you have to work towards reaching your savings goal.

• What lifestyle do you want in retirement? For example, do you want to downsize or stay in your current residence? Do you plan to travel or stay at home? Are there hobbies you want to pursue or other things you want to do? Will you live frugally or do you want to have enough money to be able to splurge and treat yourself? What healthcare and cost of living expenses do you think you will incur during your retirement? All of these things need to be considered in determining how much you need to save.

• How long do you expect to live? Nobody can ever know for certain how long they’ll live for. However, based on the average Australian life expectancy as well as your family history and current health situation, you will often be able to estimate how long you expect to live for. You may end up living for 20 – 30 years or more post-retirement, so you will need to ensure that you have enough money saved up to last you this long.

• How much do you need for retirement? It can be tricky to estimate how much money you’ll need to retire comfortably as the amount you need will depend on the kind of lifestyle you want to live. As a general guide though, according to the Association of Superannuation Funds of Australia (ASFA), individuals need about $45,000 per year and couples around $65,000 per year for a comfortable retirement. For a more specific estimate based on your personal situation and goals, calculate your expected retirement expenses (including things like medical expenses, private health insurance, and aged care costs) to ensure you’ll have enough income to cover this. Don’t forget to factor in inflation (around 2-3% per year) to ensure you are accurately calculating your future costs!

3. Make sure you have enough super.

As part of your retirement planning, you will want to make sure you have enough money in your super fund to retire comfortably. If your employer’s mandatory contributions won’t be enough, consider making additional voluntary contributions to your super fund. This will ensure that you have as much money saved as possible by the time you retire. Also, review your fund’s performance and investment strategy (for example, conservative, balanced, or growth) to ensure it aligns with your retirement goals.

4. Reduce your debts.

For an ideal Aussie retirement, it is usually important that you have paid off most or all of your debts by the time you retire. This will ensure that you go into retirement with little to no debt.

Focus on paying off your highest interest debts first, such as credit cards and personal loans, to minimise the amount you will pay in interest over time. You may also want to pay off your smallest debts first, while continuing to make minimum payments on your larger ones. Once one debt is paid off, move to the next one.

You may also want to make extra repayments on your mortgage to lower your expenses in retirement. If you’re nearing retirement age and still have a large mortgage, you may need to think about whether you will need to downsize, as you may not be able to realistically keep up with large repayments during retirement.

5. Consider how you will generate income during your retirement.

As we touched on earlier in this article, there are three main sources of income you will have access to during your retirement in Australia: the government-issued pension, your superannuation, and your personal savings or investments. A lot of the time, your pension and super may not be sufficient to provide you with the type of lifestyle you want to be living during your retirement, so it is important that you consider how you will maintain a steady income to support your lifestyle once you retire.

There are several things you can do to continue to generate income during your retirement. For example, you may invest in income-generating assets like shares, property, or bonds to supplement your super and pension. You may also consider opting for an account-based pension which, once you are aged 60 or older, allows you to draw regular income payments from your super while it continues to grow. You may also consider purchasing an annuity from a super fund or life insurance company, which offers a guaranteed income for a set period or for the rest of your life. Some retirees might also like to run a small business on the side to generate extra income.

As you can see, although there are a few important things to consider when it comes to planning your ideal Aussie retirement, by planning ahead, it is certainly possible to ensure a comfortable and financially secure retirement. Be sure to carefully consider your goals, superannuation, lifestyle, and income strategies to set yourself up for a comfortable future in your golden years.

_{This article contains general information about wealth protection. It does not consider an individual’s personal circumstances and therefore before relying on any content, you should ensure that you have obtained individual personal advice from a licenced Financial Adviser.}

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