The fact that Australians are living longer is undoubtedly a good thing, but living longer can create retirement funding headaches. Australians retiring at 60 may have to potentially fund 30 years of retirement, possibly more. This challenge becomes even more acute in a low interest rate environment.

We are constantly surprised at how many retirees have no idea of the amount they spend each year, or how long their savings will last. But for retirees these numbers are very important.

Paul Keating introduced compulsory superannuation in 1992, so most Australians will have at least 25 years of superannuation savings available to them to fund their retirement. Most people would be surprised at how little that amounts to, though, and how little income it generates when interest rates are low.

The average superannuation balance for Australian males when they retire is $271,000, and for women $157,000. Invested at 3 per cent, these two figures yield only $8,100 and $4,710 a year – clearly inadequate for even the most frugal of people. The reality is that most Australians are underfunded when it comes to retirement.

You may be aware you’re among that number,  or concerned that you will be in the near future. All hope is not lost, however. If you are nearing 70, there are 10 things you should have done – or, if you haven’t, you should do shortly – to make your retirement years as financially secure as possible.

1. Know how long your savings will last. Most people find themselves underfunded in times of prolonged low interest rates. If you require $100,000 a year to live and interest rates are 5 per cent, 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.
2. 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.
3. Lower your costs of living. 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 per cent of retirees in Australia are self-funded, while 70 per cent draw a pension. Twenty years ago, 80 per cent were drawing a pension. Lowering your costs of living will make funding your own retirement easier.
4. Draw up a will and have good estate planning in place. Dying intestate creates huge problems for the next of kin. Draw up a will and keep it up-to-date. Make sure your lawyer, accountant and executors have copies and make sure your family members know what your wishes are.
5. Keep your advisors close. Make sure your lawyer and accountant know each other and understand their roles with regard to your financial affairs. Ideally, both should be younger than you. If your financial advisers are older than you, ask them to suggest colleagues to replace them.
6. Maximise the value of the family home. Most people’s biggest asset is their home. Explore options for 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.
7. Think about the cost of retirement living. Have a good understanding of what options are available to you with regard to 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.
8. Think about the cost of aged care. Whether you end up receiving care in your home or in a residential facility, the costs of aged care can be large. An Aged Care Assessment Team (ACAT, or ACAS in Victoria) assessment must be done and a Centrelink form completed before a spot at an aged care facility can be sought. These assessments and forms 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 tell you that you cannot return home. Aged care may be funded via the rental income from a family home but normally only if you have accumulated other investments to assist with the costs.
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, and seek accounting and legal advice on the benefit of retaining such structures.
10. Beware of the next generations. Being asked to help fund your grandchildren’s education can be a difficult request to turn down. Do your best to ensure your children have jobs and their own income streams that enable them to fund their own children’s education.