When you need to start planning for retirement
If retirement is getting closer it's time to do some planning to make sure you're in the best possible financial position before giving up work. Don't wait until the last minute - start planning at least a year before.
The most obvious issue to address is how much money you'll need for your retirement. Unfortunately there is no magic formula - everyone's needs are different. You'll need to ask yourself what your expenses are likely to be, whether your car needs updating, how many trips you want to take etc.
According to the Westpac ASFA Retirement Standard, in general a couple looking to achieve a comfortable retirement needs $53,565 a year, while those seeking a modest retirement lifestyle need $30,399 a year. As well as deciding what income you'll need, consider how much money you'll need to pay out debts.
Online calculators can help you work out how much you may need, depending on the desired lifestyle. There have been some concerns raised about some of the calculators as the assumptions are sometimes flawed. The calculators at www.fido.gov.au and www.vanguard.com.au are said to be two of the better ones.
Once you work out how much income you need you'll need to figure out where that money will come from. Possible sources include the age pension, your super and/or other investments like an investment property or shares.
If your money will come from your superannuation balance you must decide whether to take it as a lump sum or roll it over to a pension or combine the two.
If you don't have much in the way of assets other than the family home, you may consider downsizing to free up some money. This may mean moving to a regional area or buying a smaller home close to where you live already.
Downsizing is good in theory, but don't forget to take into account the costs associated with buying, selling and moving.
If you prefer not to give up the family home a reverse mortgage (also referred to as an equity release) may be an option to consider. This is basically a loan against your home which lets you stay in it and continue to own it. See page 106 for winning reverse mortgage loans.
You don't have to make any repayments on the loan until you sell your house or die. If you go for this option just make sure you find a loan with a no negative equity guarantee. For more information on reverse mortgages visit sequal.com.au and fido.gov.au.
Estate planning is also an important aspect of retirement planning. Ensure your will is in place and that it accurately reflects what you want to happen to your estate. You might also want to arrange an "enduring power of attorney" which gives the authority to someone to look after your affairs if you become incapacitated.
It's a good idea to consult a financial planner as retirement nears. A good planner should help you work out the best way to create regular income, maximise your super, minimise tax and how to top up your income with Centrelink benefits.
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