10 things you should do before retirement

Two unmistakable trends in Australia - people retiring earlier but living longer - are creating funding headaches for hundreds of thousands of Australians.

Many Australians who are retiring at 60 may have to potentially fund 30 years of life, possibly more.

Paul Keating introduced compulsory superannuation in 1992, so most Australians will have at least 30 years of superannuation savings available to them to fund their retirement. Most people would be surprised how little that amounts to, and how little income it generates.

The average superannuation balance for Australian males when they retire is $436,000, and for women $382,000. Invested at 5%, these two figures yield only $21,800 and $19,100 a year - clearly inadequate for even the most frugal of people.

Most Australians are severely underfunded when it comes to retirement.

Here are 10 things you should do before you retire.

1. Clear all debt and pay off the mortgage

This seems an obvious thing to do, yet it is not unusual for older people to carry debt.

Debt should be minimised, and a clear plan should be in place to pay it off as soon as possible.

2. Know how long your savings will last

Most people find themselves underfunded, particularly in times of low interest rates. If you require $100,000 a year to live and interest rates are 5%, you need $2 million in capital.

If interest rates halve, you need double the capital for the same income. If you have to dip into your capital to meet living expenses, have a clear idea of how long your capital will last.

As your capital diminishes, your interest earnings will fall accordingly. Make sure your super funds are topped up to the maximum.

3. Lower your cost of living   

Costs of living and inflation are both growing.

Successive Australian governments have altered the asset and income tests for aged pensions in an attempt to make Australians more responsible for funding their own retirements.

This trend is likely to continue. Currently, 30% of retirees in Australia are self-funded, while 70% draw a pension.

Twenty years ago, 80% were drawing a pension.

Lowering your costs of living will make funding your own retirement easier, so reduce expenses and preserve capital, particularly in times of low interest rates. Actuarial calculations are important.

4. Get on top of your estate planning

Dying intestate (without a will) creates huge problems for the next-of-kin.

Draw up a will and keep it current. Make sure your lawyer, accountant and executors have copies and make sure your family members know what your wishes are.

Simplify your family corporate structures, including family trusts.

Update lists of key personnel and login details for key bank accounts etc and let your spouse know all the key information.

Do family members know where your will is kept? Do your powers of attorney know your key issues?

5. Keep your advisors close

Make sure your lawyer and accountant know each other and understand their roles with regard to your financial affairs.

If your financial advisers are older than you, ask them to suggest colleagues to replace them. Ideally your principal advisors and doctors should be at least 20 years younger than you.

6. Maximise the value of the family home

Most people's biggest asset is their home. Explore options of selling your home, downsizing, and funding your retirement through the proceeds.

Retirees who work part-time can still make superannuation contributions, which attract lower tax rates.

However, be aware that selling your family home and buying a retirement villa will likely lead to more money in the bank, which may affect your aged pension.

There are superannuation advantages to downsizing.

7. Get legal advice before committing to retirement 

Have a good understanding the options available regarding retirement homes.

Many people find retirement homes give them peace of mind, but there can be large financial commitments involved.

Retirement living is a lifestyle choice but it can come at a substantial price. Take legal advice.

8. Know your aged care choices    

Whether you end up receiving care in your home or in a residential facility, the costs of aged care can be large.

An ACAS assessment must be done and a Centrelink form may have to be completed before a spot at an aged-care facility can be sought.

These are complicated and time-consuming. Research and financial planning done in advance is well worthwhile.

The worst time to start looking at aged-care options is when you are in hospital and doctors are adamant a return home is impossible. The aged-care process is complex; planning is essential.

9. Simplify your family/corporate structures    

Family companies and trusts may be useful during one's working life but diminish in usefulness after retirement.

Consider the ongoing importance of a trust once you have retired. Seek accounting and legal advice on the benefit of retaining such structures.

If you have a self-managed super fund consult your accountant to confirm that you have a corporate trustee, not an individual trustee.

Funds are frozen if an individual trustee dies; it can take months until a new trustee is appointed and funds unfrozen.

10. Beware of the next generations     

Being asked to help fund your grandchildren's education, or your children's lifestyles, can be difficult requests to turn down.

Do your best to ensure your children are responsible and have jobs that produce income streams to cover their own expenses.

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