Rosalind Evans
Record numbers of Australians are entering retirement in a world that is becoming increasingly uncertain and where work-life values are changing. Retirement requires increased planning, and financial security options need early consideration.
Developing a Retirement Roadmap
“You should try to develop a retirement roadmap at least 10 years before retirement,” says Michael Abrahamsson, director with Flinders Wealth. This involves evaluating your current financial and lifestyle situation and envisioning where you want to be in retirement.
Setting a Savings Target
The Association of Superannuation Funds of Australia suggests that a home-owning couple needs $690,000 in super for a comfortable retirement, while a single needs $595,000. For a modest retirement relying heavily on the age pension, the target is around $100,000 for couples and singles. Setting these targets gives a clear aim for your savings efforts.
The Power of Compound Interest
Abrahamsson emphasizes starting early to benefit from compound interest. “Making extra contributions earlier gives you the benefit of compounding, especially with superannuation because of the concessional tax treatment it enjoys,” he said. The earlier you start, the more your savings can grow over time.
Reducing Mortgage Debt
With mortgage rates increasing from 2% to 6.5%, Abrahamsson highlights the importance of paying off mortgage debt before retirement. “There is a strong focus on the need to retire mortgage debt,” he noted. Reducing this debt can significantly ease financial pressures in retirement.
Boosting Super with Downsizing
If you own a large family home, downsizing can help boost your super and reduce mortgage debt. This strategy allows for a super contribution of up to $600,000 per couple, which does not count towards your non-concessional super contribution cap. This can help you reach your desired super balance without compromising your lifestyle.
Planning Your Retirement Lifestyle
Retirement planning is not just about finances; it’s also about how you want to spend your time. “People aren’t wanting to work in their job from age 40 to 67 any more,” Abrahamsson observed. Consider part-time consulting, community engagement, travel, grandparent duties, and volunteering as ways to stay active and fulfilled.
Helping the Next Generation
Baby boomers often find themselves in a position to help their children financially. Abrahamsson advises careful planning: “If you give at age 60 then it’s not caught in the gifting provisions when you draw the pension from 67.” Timing your financial gifts can help maximize your pension benefits while still providing support to your family.
Planning for retirement at least 10 years out can significantly impact your lifestyle. From setting savings targets and leveraging compound interest to reducing mortgage debt and planning for a fulfilling retirement lifestyle, early and thoughtful planning is key. As Abrahamsson aptly puts it, “The first five years of retirement tend to be the most expensive as people do the things that have been delayed during their working lives.” Ensuring you are financially secure and ready to enjoy retirement will lead to a more satisfying and stress-free experience.
