How to plan your countdown to retirement

Increased longevity and income insecurity have changed the way we need to approach retirement. Here's how to navigate the countdown to retirement.

People don't engage with super early enough according to adviser Marisa Broome, principal of Wealthadvice.

"If you're engaged [in super] from the start and put in as little as $50 a month extra - the cost of two cups of coffee a week - the impact of doing that throughout your working life will give you a very good retirement."

You also need to check that your super fund is a strong performer and that you are in the right investment option.

Broome says the two biggest factors in retirement are owning your home and having as much as possible in super.

Remember, super is complex and has many rules, so check with your fund before you act. Where big transactions are involved, you might want to get professional financial advice.

Your timeline to prepare for retirement

10 years out 

Aim to clear your debts before retirement, says Broome.

"You should be close to being mortgage free. Start thinking ahead, is the house you're in going to be the house you want to retire in? If so, will it be suitable for you as you age?"

If you are thinking of selling your home, you could be eligible to make a downsizer contribution.

"It's a powerful way of boosting your super. If you've owned a home and it's been your principal place of residence for more than 10 years and you're older than 55, you can put $300,000 into super each as a couple after the sale of your home. There's no age cap, you can be older than 75, and the new property can be worth more," she says.

At this stage of life, people are typically at the peak of their careers and earning good money and more able to boost their super.

"Have you got other investments outside of super that you could put into super that might be more tax effective for you in retirement?

"Inheritance is another obvious one. If you come into a windfall from an inheritance, you should consider getting financial advice."

Broome says it's important to ensure your will and other documents are up to date.

"I recommend my clients keep their will with their tax information and check it every year to make sure it's relevant.

"When you have young children, you need a guardian for them in case something happens to you, but when they are 25 that's irrelevant. By then you may have grandchildren and want to leave them money. You need to ensure your will is current.

"You should also have an enduring power of attorney, not just a standard power of attorney but one that will operate when you lose capacity. Also, a healthcare directive so you can make some choices about what sort of medical care to have at the end of your life."

Broome recommends you use an estate planning specialist. "If you get it wrong, it can lead to family breakdown. Even a simple estate can blow up if it isn't drawn up properly.

"The other document some people think about now they are living longer and the incidence of dementia is rising 
is a guardianship in case you lose capacity," she says.

The guardian is usually an adult child who can act on the parent's behalf.

Five years out

"The most important issue five years out is being in the right investments. You don't want to be in a position where half your balance is wiped out by a GFC-type [global financial crisis] event because you were in a high-growth investment just as you are about to retire," says Broome.

"Even if your risk profile is quite conservative, you can handle being in a high growth fund all the way through your working life because you can't access the money until 60, so it's got plenty of time to deal with any volatility and fully recover.

"But at 55 you need to start looking at a balanced fund rather than a growth fund. Sequencing risk becomes a big issue and you should consider diversifying out."

Two years out

Work out whether you want to semi-retire or exit the workforce completely.

"Some people don't want to retire straight out. They may decide they want to go down to two or three days a week. Two years out is a good time to start addressing it within your organisation. They may be open to it to hold onto your expertise and knowledge."

If you own a small business, two years is the minimum time you're likely to need to sell it.

One year out

"If you haven't sought financial advice before, you definitely should do it before you retire, even if it's just for one or two meetings rather than an ongoing arrangement," says Broome.

You need an adviser to set you up on the right path: to work out what fund you should be in, how much income you need and how much income you can draw down.

"Do you have assets you need to sell to retire? If so, should you retire at the beginning of a financial year and sell your assets after you've retired? If you're 67, are you eligible for the age pension? There's quite a lot of planning to do before you retire."

Also be prepared for the day after. Retirement can be hard to adjust to, she says.

At work people are busy and fully engaged and have their work friends around them, and suddenly they find themselves isolated and depressed.

"What worries me when clients get close to retiring is what's going to get them out of bed in the morning. They don't have hobbies, don't have a large network of friends outside work. What are they going to do to occupy their day? What is their purpose going to be?"

Also, be realistic. While you may have worked hard to achieve your goals, illness, divorce and redundancy can put a spanner in the works.

Broome says about a third of people don't retire when they want to as a result of redundancy.

"Early redundancy has become a big issue. You might think you're going to work to 65 but get to 55 and you're made redundant.

"It can have a huge impact because your retirement is going to be compromised if you can't get another job at a similar pay level. You may have to work until 70 to have the retirement you want."

If you're struggling financially, you could consider taking out a home equity loan to see you through.

The loan accrues compound interest and doesn't require repayment until the home is sold. The service is provided by the Federal government's home equity access scheme and private operators.

"If you and your partner are sick and own a home, and that's all you've got left and your kids have more than you do, you should be using the equity in your home to give yourself some sort of quality of life and to get the help you need to stay in your home," says Broome.

The government's equity loan pays a regular income in addition to your pension and the interest rate is capped at a much lower rate than those offered by private providers.

"It's at a much better interest rate. But if you've been living in your house for 50 years and you need to do a big repair, it's not going to give you the lump sum you need. So people are forced to use commercial loans with interest rates of around 9%."

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