Planning for Retirement
As we approach retirement, one of the biggest lifestyle changes we encounter, it is important to prepare properly. Once we retire and are no longer earning an income we need to determine how much money we are going to need to maintain our lifestyle.
As a financial planner, the years immediately preceding retirement are some of the most important and there is an array of considerations. One of the keys to successful retirement planning is accurately calculating the income you will require to maintain your lifestyle. In my experience, most people don’t really know how much they need and/or currently spend, most also underestimate their income requirements. A financial planner has a number of tools and methods to help you determine your retirement income needs.
Once the income needs are calculated, it is possible to determine the lump sum required to provide this ongoing income in retirement. The earlier we are aware of our target, the more time we have to plan to achieve the required wealth.
In the lead up to retirement there are various opportunities. There may be the potential to reduce taxation either in the lead up to retirement or during retirement. It may be possible to structure assets to be more Centrelink efficient. These efficiencies can make a significant difference to your retirement.
One strategy that should be investigated for pre-retirees is the Transition to Retirement income swap strategy (TTR). This strategy involves accessing a portion of your superannuation whilst you continue to work, creating a cash flow surplus. This surplus is re-contributed to superannuation via salary sacrifice. Providing you are over 60, the income received from super is tax free. The money salary sacrificed is taxed at superannuation contribution rates (15%) rather than marginal income tax rates. Therefore anyone over 60 with a marginal tax rate higher than 15% is likely to benefit from this strategy.
As you approach retirement, it is beneficial to plan the income sources in retirement. This may involve altering your investments to be more suitable for retirement. A number of assets are outstanding for building wealth, but not overly efficient in delivering a reliable income.
As you enter your mid-fifties it is worthwhile to seek advice in relation to preparing for your retirement if you haven’t already. Decisions made in the 5-10 years leading up to retirement can make a significant difference to the lifestyle you will be able to afford once you finish work.