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Retirement Planning


How much cash do you need in retirement?

We all have to give up work at some stage whether we want to or not.

For most people, stopping work is a major event. You probably won’t know what to expect. What will you do with your time? What kind of lifestyle will you have? What sort of income will you need?

These are all questions you probably won’t give much thought to until you retire.

If you need direction with your retirement plans contact Financial Planning Expert or phone (03) 5974 4350 today for an obligation free discussion

You can work it out then, right? ….continued below table

Income and Superannuation Balance Guide in Retirement

Retirement Lifestyle Basic Retirement LifestyleFull Age Pension (i.e. no super) Comfortable Retirement LifestyleAnnual Income Required  Generous Retirement LifestyleAnnual Income Required 
Single$20,000 Couple$30,000 Single$40,000 Couple$55,000 Single$60,000  Couple$80,000
Super balance required
If all capital drawn down (e.g. $0 balance upon death) n/a n/a $800,000 $1,100,000 $1,200,000 $1,600,000
For life expectancy plus 3 years income n/a n/a $895,000 $1,225,000 $1,335,000 $1,780,000
For life expectancy plus 5 years income n/a n/a $955,000 $1,310,000 $1,425,000 $1,900,000
To preserve capital n/a n/a $1,380,000 $1,900,000 $2,070,000 $2,780,000
Assumptions – Retirement age of 65, Life expectancy of 22 years at retirement, Retirement income indexed by 3% pa, Super fund earnings 4% pa (net), No tax payable on retirement income.

One of the biggest issues we encounter with clients is the decision to retire without having planned for it in advance. This can be problematic. Some of the issues our clients have experienced include:

• The realisation they can’t retire when they want to for financial reasons
• An expectation they would be able to live off a government pension
• Lack of mental preparation (e.g. feeling unfulfilled because they are no longer contributing to society through the work force)
• Health issues brought about by irregular routines (e.g. eating, exercise, mental and social stimulation)
• Difficulties with occupying themselves and filling up their spare time (this usually starts occurring after three months)

Planning for retirement in advance can prevent these sorts of issues. This means you can look forward to enjoying your retirement.

But where should you start?

The first thing you need to do is work out at what age you would like to stop work. If you plan to reduce your hours and work part time before retiring completely, you also need to work out at what age part time arrangements will commence.

If you don’t intend on ever retiring, the reality is that your physical and/or mental health will force retirement upon you at some stage. You should assess this with respect to your occupation and work out a realistic age at which you would probably need to give up work.

It is unrealistic to think you will be working until the day you pass away.

Once you have established when you will stop work, you need to start thinking about what you want to do in retirement. Do you have hobbies to occupy your time? Would you like to travel? Are you planning on spending more time with family (e.g. grandchildren)? Ask yourself this question today; If I didn’t have to work, what would I do?

Your answers will probably relate to the things that you enjoy most. This is how you should look at retirement. Remember, it is possible you will have 20 -30 years of life expectancy remaining after you stop work. This is a long time so it’s in your best interest to make sure you enjoy it.

Your retirement lifestyle will determine how much income you need. A good place to start with this is to consider your current lifestyle and what it costs you to maintain it. This will give you a benchmark to work with. You then need to look at how your current lifestyle compares with your desired retirement lifestyle. For example, some of our clients are happy with retirement lifestyles less modest than when they were working. They might have travelled extensively when they were younger and are now happy to spend time with their grandchildren and focus on home-based hobbies (e.g. pottery, gardening). They may also have a preference to preserve some of their wealth for their grandchildren.

Clients that choose a modest retirement lifestyle often do so because it enables them to retire earlier.

Conversely, we have other clients that enjoy retirement lifestyles more comfortable than before. Some have worked very hard through their careers and taken very little time off for holidays and adhered to strict budgets to save as much as possible. This has enabled them to build up a larger nest egg than others. During their retirement they seek to experience the things they sacrificed in the past (e.g. travel, a new home, lifestyle assets such as boats and caravans).

Once you have an idea of your retirement lifestyle, you can work out how much income you need to support it. However, you need to be mindful of inflation (the rising price of goods and services over time).

To illustrate the long term effect of inflation, let’s assume you want to retire in 20 years with an income of $50,000. Assuming an inflation rate of 3% pa, an income of $50,000 today will be equivalent to an income of $90,000 in 20 years’ time. This means $90,000 in 20 years’ time will have the same ‘buying power’ as $50,000 today. This is a very important point, so be sure you work out your inflation-adjusted income at the time you want to stop work.

Now that you know when you will stop work and the income you need to support your lifestyle, you need to work out how much capital you need.

A range of factors need to be considered here, including:

1) Your (and your partner’s) life expectancies

2) How you would like your capital to be invested (i.e. what level of risk you are comfortable with and what investment return you need)

3) Your eligibility for a Government Age Pension

4) Whether you want access to your capital

5) Your tax position

6) Your estate planning requirements

We can help you consider all the these factors and formulate a retirement strategy to meet your needs. If you’re planning for retirement contact Financial Planning Expert or phone (03) 5974 4350 today for an obligation free discussion.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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Phone: (03) 5974 4350

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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.