Retirement Planning

Why is retirement planning important?

One of the biggest challenges facing today's government is the ageing of Australia's population, and the likely impact on the cost of income and health care support in coming decades.

By 2051, it is estimated that the number of Australians aged 65 or over will have almost doubled, to just under one quarter of the population. Put in other terms, whilst there are currently approximately seven taxpayers funding the pension for Australia's retired, in the future this number will reduce to three.

As a result, the onus is likely to be on Australians to fund their own retirement. With proper advice and planning, you can secure your future through investment and wealth creation strategies.

Your retirement goals

Remember that how you plan your retirement, and what you set as goals, may have a significant impact on your retirement income and how much you need.

A dream holiday or travelling to visit your family are realistic goals, however, they may come at a significant expense.

If you haven't prepared for these types of expenses in your retirement planning, you could be forced to draw on investments or retirement income too soon, which could jeopardise your long-term financial security.

How much do you need in retirement?

There is certainly no clear answer to this question. The one certainty, however, is that Australians will increasingly be called on to fund their own retirement.

Superannuation is an effective strategy for creating wealth in retirement, however it requires planning to ensure your investment will meet your retirement needs. To help you find out how long your superannuation will last you in retirement, you should start planning your goals and thinking about what sort of lifestyle you wish to lead.

You could start with determining a general figure of expenditure, for example $450 per week, to live on in retirement. Alternatively you can pick a percentage of your current income that will sustain your retirement. This figure is likely to be between only 60% to 70% of your current income because of the decreased daily expenditure in retirement.

Vivien is 45, and is currently earning $50,000 a year. In planning for her retirement, Vivien assumes she will need about 60% of her current income to support her each year. In addition to general living costs, she has budgeted for a yearly holiday in this figure. This works out to $30,000 each year.

With this figure in mind, you can use our Superannuation Calculator to check whether your current plan will meet your retirement needs.

This is of course only an estimate. You will obviously not know how long you need your superannuation to last, but with planning you can be aware of how long it will last, and what you can do to make it last longer.

Making the most of your retirement

There are a range of things that need to be organised prior to your retirement, and arranging how you will access your superannuation is just one of these.

Superannuation options

When you retire it is important to know the different options for receiving your superannuation benefit.

Your superannuation benefit can be taken as a lump sum, however there are other options that may provide a long term and more viable alternative.

Recent years have seen the government introducing incentives like tax concessions and social security benefits. The aim has been to encourage Australian retirees to look to investments that produce a regular and ongoing income stream rather than simply taking superannuation as a lump sum at retirement.

An option is to take a portion of your superannuation benefit as a lump sum and invest an amount in an income stream, such as an allocated pension, that will provide sufficient return for you to live off in retirement. You may wish to also invest another portion in a managed fund to ensure a more diversified strategy.

Many retirees today diversify their portfolio into a similar strategy, to grow the value of their superannuation, combat the effects of inflation and generate a long term income source with tax advantages.

Retirement income streams

Most retirement income streams allow you to invest all or part of your superannuation benefit in a choice of assets or accounts, and then receive an ongoing income from your investment to support you in retirement.

• An allocated pension offers a flexible income, with a number of different investment options to help you grow your money, even in retirement. Your money can be invested in a mixture of asset classes, for example, cash, shares or property. You can adjust the size and frequency of your income payments each year, between a minimum and maximum depending on your age, and you can also make lump sum withdrawals at any time. You will continue to receive a regular income as long as you have funds in your account.
• Immediate annuities are ideal if you would prefer a low risk, guaranteed income for the remainder of your life, or simply a fixed period. With an immediate annuity you are guaranteed a pre-determined income for an agreed period of time. You can nominate any period from 2 - 20 years, or life. The amount of regular income payment you receive will depend upon the total amount you have to invest, and also the level of interest rates. However, once determined, the frequency and amount of payments are fixed for the period of the annuity and cannot be adjusted.

Most retirees opt for an income stream like those mentioned above to support them in retirement. The income streams mentioned are a proven way to effectively invest and live off your retirement funds, but they are not the only options.

Other considerations

When planning your retirement it is easy to overlook important issues such as estate planning and health considerations.

Estate Planning

Estate planning lets you detail the distribution and succession of your wealth to future generations. It is therefore an important part of a financial plan since it outlines who your assets will be passed on to, and who shall retain control of those assets. It lets you look after your loved ones when you die, and brings peace of mind to both you and your family in the meantime. You also have the option of granting an Enduring Power of Attorney to a trusted person.

Health Insurance

Health insurance is a further consideration. Nurses First has a range of comprehensive, value for money, tailored health care options. More information can be found in the Insurance section of our website.