5 Fail-Proof Ways to Plan for Retirement

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Retirement

According to Australian Unity, 50 percent of Australians aged 45-65 do not have any financial plans or strategies as they approach their retirement age, even though 85 percent of this population do not feel financially secure.

The lack of retirement plans among Australians is worrying since 58 percent of the tested population will need to rely fully on the Age Pension due to their lack of retirement funds. If you’re part of this group, we’ve got five fail-proof ways for you to plan for a comfortable retirement.

Do the Math

Australians tend to underestimate how much retirement income they need and the costs associated with it, so it will be a good idea to start budgeting and determine a rough estimate of how many years you will be retired.

While you can’t predict your dying age, you can add a few years to your average familial longevity and do some calculations based on that. Generally speaking, it’s safer to set about 85 percent of your current income as your retirement budget.

Plan for the Unexpected

You never know when you will need to replace a major appliance in your home or pay for medical treatments, so it’s always good to set aside an emergency fund of about six months’ salary for these unexpected expenditures.

While gifting some of your retirement funds or providing an early inheritance could be beneficial to both the giver and the receiving end, it’s wiser to ensure that you can get those funds back if so required.

Understand superannuation

Did you know that, as a result of different life choices, women earn around 18 percent less than men in Australia? The difference that this 18 percent makes in their superannuation by retirement age could be a staggering amount, resulting in women retiring with only about 50 percent of superannuation funds that men receive.

Currently, the compulsory superannuation contribution is set at 9.5 percent, but this percentage is expected to increase to 12 percent by 2025. Even with this compulsory contribution, Australians are encouraged to contribute more if they can so that they can retire comfortably.

Explore the GPS Framework

Typically, retired Australians have three spending directions with their retirement funds: growth, preserve and spend.

How much retirees have to spend annually and whether they have saved enough depends on their retirement spending goals, which is why the GPS framework should be explored by pre-retirees as a guideline.

For example, spenders will need to put their focus on outliving their retirement funds while preservers can utilise a detailed cash-flow strategy.

Try Staggered Annuitisation

Fixed annuitisation can be greatly impacted by inflation rates – the purchasing power of your retirement funds now could be vastly different by the time you retire. This problem can be resolved through staggered annuitisation.

Rather than having a single annuity, you can save your annuities according to four different categories: immediate income, deferred income, emergency funds and early inheritance. This categorisation will allow you to better budget your retirement funds since your spending cap is set for each annuity type.

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General Advice (Tax) Warning (Australia)

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 and consider a Product Disclosure Statement.

Views and opinion disclaimer

The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice’s position and are not to be attributed to RI Advice.