Retirement is a major life transition that requires careful planning and preparation to ensure you have enough to live comfortably when you stop work and enjoy the things you have been looking forward to doing.
We are living longer than ever before, so retirement could last 20 years or more. However, without adequate retirement planning, it is easy to make mistakes that could jeopardise your finances and lifestyle expectations in your later years. At FuturePoint Wealth, we’re passionate about ensuring our clients are well-informed before making any financial decisions about their future. We also want people to be aware of common mistakes that can be avoided, and key factors to consider when determining how much you’ll need to retire.
So why do we think retirement planning matters?
Retirement is unpredictable
You don’t know exactly when you’ll retire or how long you’ll live in retirement. Planning helps you prepare for uncertainty.
You may go from earning a monthly salary to relying on retirement savings, pensions, and other income sources. Planning properly ensures you have enough income to live out your years.
Many expenses like healthcare and insurances tend to increase in retirement so planning accounts for increasing costs.
Mistakes can be irreversible
There’s less time and ability to recover from financial missteps in retirement. Proper planning avoids costly errors.
Retirement is a chance to pursue dreams like travel, volunteering or turning your hobby into a full-time activity. Planning helps fund the retirement lifestyle you were hoping for.
Peace of mind
Retiring without a plan causes stress and uncertainty. Planning gives confidence that your finances are on track.
Common Retirement Planning Mistakes
For many people, retirement hasn’t ended up being what it was supposed to be, due to some unforeseen events that could have been avoided had they been better planned.
Some examples where mistakes could have been avoided:
Underestimating expenses – Tracking your spending and planning a retirement budget help determine the income you’ll need.
Not reviewing investments regularly – Portfolios should evolve over time to meet retirement needs. Ongoing reviews prevent problems.
Failing to account for inflation – Even low inflation compounds over decades in retirement. Planning factors in rising costs.
Misunderstanding pension eligibility – Rules for pensions/social security are complex. Mistakes can lead to lost income.
Letting emotions drive investment decisions – Volatility is normal, but emotions can lead to poor timing. Stick to a plan.
Trying to time the market – Years of gains can be lost by missing just a few good days in the market. Stay invested.
Having assets but inadequate income – Assets must be converted to income sources to fund retirement spending.
Not seeking professional advice – Experts help avoid mistakes and create plans tailored to your unique situation.
How much do you need to comfortably retire?
The Association of Super Funds of Australia (ASFA) publishes new ‘Retirement Standard’ figures every quarter to help retirees get an idea about the income they’ll need to match their lifestyle expectations. The Retirement Standard is calculated and published every quarter by ASFA to help people prepare themselves financially for retirement, and to budget for their future once retired. It estimates the total annual cost of living either a comfortable or modest lifestyle for retired singles and couples aged 65-84, and singles and couples around age 85.
Understanding these figures can give you a better chance of understanding just what level of income you might expect to live on in retirement. You can use these estimates as a basis for your own calculations for the sort of retirement you have in mind.
The annual income you’ll need in retirement depends on factors such as:
- Current living expenses – Use your actual spending to estimate costs in retirement.
- Lifestyle expectations – Will you travel extensively or stay close to home? Different lifestyles have different costs.
- Healthcare – Project increased healthcare expenses, including long-term care if needed.
- Debt obligations – Determine if you’ll enter retirement debt-free or still owing on a mortgage or other loans.
- Inflation – Costs will rise over a retirement that could last 20 years. Factor in inflation.
- Taxes – Understand how taxes will impact your income sources in retirement.
So, what’s your retirement plan?
The key is to create a comprehensive retirement plan that addresses your specific situation and retirement goals. The plan should cover your income sources, taxes, healthcare, lifestyle expenses, and strategies to help ensure your savings last. Working with reputable and trusted financial advisers can help you avoid mistakes and retire with confidence.
The time to plan for your retirement is now, regardless of your age. Proper planning can help make your retirement years the fulfilling and enjoyable experience they should be. If you would like to speak to one of our experienced and trusted financial planners contact us here
This information is general advice. We have not considered your objectives, personal or financial circumstances. You should consider the appropriateness of the advice for your circumstances before making any decision. You should obtain and consider the relevant Product Disclosure Statement and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.