To avoid the stresses associated with planning your retirement, research shows it’s essential to plan and address any issues in advance.
Saving for retirement
One of the most prevalent issues faced by pre-retirees is saving enough for their desired retirement. While many people earn a reasonable income during their working life, many fail to save enough for the lifestyle they want when they stop work. An important contributing factor to this, is that people often leave it too late to start saving.
In order to reach your desired retirement goals, it is necessary to set aside some funds during your working years. However, how much to save, where to place those savings, and which investments to use depends very much on individual circumstances. Using incorrect structures could result in substantial funds being lost in taxes. Choosing the wrong investments could result in missed opportunities or unnecessary investment risk. These issues may be solved by implementing a budgeting technique, setting in place a clear strategy and receiving quality advice that is tailored to your circumstances.
Income and structure in retirement
When beginning retirement, or semi-retirement, it is important to consider investing existing retirement savings to produce a regular income for the rest of your life.
In the absence of a clear retirement strategy, it is difficult to determine whether your accumulated capital will last for as long as required. This situation creates uncertainty over the retirement years and the resulting stress can lead to many sleepless nights.
To ensure that retirement capital lasts for the amount of time required, setting up a suitable retirement structure is essential. A clear retirement plan can help to reduce uncertainty surrounding capital adequacy and provide peace of mind.
It is possible to choose an optimal retirement structure which may result in low or no tax being paid on investment earnings, while at the same time helping to maximise social security benefits.
Meeting retirement expectations
Most retirees would like to continue with the lifestyle they have enjoyed over their working years. Unfortunately, research indicates that there is an increasing gap between lifestyle expectations and what can be afforded by retirees. As a result, many are forced to significantly reduce their living standards once their employment income stops.
Many retirees also rely on the Age Pension to fund their retirement. The reality is that the Age Pension is designed to provide a payment at the rate of 27.7% of the average wage, which provides a safety net only barely above the poverty line. Additionally, given the ageing population some experts predict that the Age Pension, as it is currently known, may fundamentally change to an emergency welfare payment only.
As you can imagine, evidence shows that starting to save early can make a significant difference to achieving retirement goals. Unfortunately, if you only look at what you have to retire on only after retirement, it may be too late to make a significant change to your position. Failing to save enough for retirement could lead to a sharp decrease in living standards or the need to work longer than anticipated. It is also a concern that retirees who rely solely on the Age Pension for their income in retirement, risk tumbling below the poverty line.
Asking for help is okay
Given the differences in individual circumstances and objectives, as well as complexities of tax, investment and other legislative matters, many pre-retirees may not be adequately equipped to make crucial decisions on how to plan and invest for retirement. Those who do not have strong financial background should seek professional advice in this area as wrong decisions can cost thousands of dollars in lost retirement savings.
If you would like any further information or would like to speak to one of our advisers please contact us:
Phone: 07 3029 5400