Proper financial planning for retirement is crucial to ensuring you are adequately prepared to maintain your desired standard of living, long after your years of working have drawn to a close.
A well prepared financial plan for retirement takes into account your current financial status, your future needs, and your long-term goals. By creating a comprehensive plan, you can make informed decisions about how to allocate your assets, manage your debts, while also staying ahead of any unexpected expenses.
The process of creating a financial plan for retirement can sometimes be complex and overwhelming, especially if you are new to the process. However, with the right guidance and support, you can develop a plan that meets your unique needs and helps you achieve your financial goals.
Whether you are just starting to save for retirement or are close to retirement age, it’s never too late to start planning. By taking a proactive approach to your financial future, you can ensure that you have the resources you need to live comfortably in retirement and get the most out of your golden years.
Although retirement is something many look forward to its important to remember that part of this life stage includes transitioning from the security that comes with a steady income to often relying solely on savings or a fixed income.
While financial mishaps like an unexpected bill in the mail or spending a bit too much on your last holiday can be remedied with ease when you have a regular pay cheque, when you are forced to dip into your savings, the consequences can be detrimental.
This is where a good financial planning comes into place. A financial plan is essential for a successful retirement as it helps individuals make informed decisions about their financial future and ensures that they have enough resources to support themselves throughout their retirement years.
Sydney-based Wealth Coach Andrew Woodward from The Investor’s Way, suggests that “to create a plan for your money you first need to understand how much is coming in, and from where, and then how much is going out.”
“Knowing how much is coming in should be relatively straightforward, it will either be in the form of a pension, investment income, superannuation or a combination of all,” he says.
It’s recommended that retirees review their expenses regularly and keep on top of what they have spent in the previous 12 months.
“Once you review what you were spending, you can then anticipate what you need to spend in the coming 12 months,” Woodward advises.
“Anticipating what you need to spend in the coming 12 months, and beyond, requires making some judgements on price increases and your needs, like potentially additional medical expense, and of course the impact of inflation on almost everything.
“Once you have an understanding of the incoming and outgoing of your money, put it into a plan and stick to it.”
There are several ways to put a financial plan into place to manage your retirement and ensure your have adequate funds put away to finance the retirement of your dreams. Founder and CEO of Stockspot, Chris Brycki cited some of the “common approaches” for managing finances in retirement which include:
When putting together your financial plan for retirement some of the expenses that should be considered include healthcare costs, which can be significant, especially if you are impacted by a chronic health condition that requires long-term care.
Housing expenses, including property taxes, maintenance, and utilities, should also be taken into account. Additionally, retirees may want to travel or pursue hobbies, which can add to their expenses.
In order to ensure a comfortable and financially secure retirement, retirees should consider such expenses and plan accordingly, while taking into account their individual circumstances and goals.
Fortunately for many retirees the expenses in retirement will not differ vastly from the expenses they have managed throughout their lives.
Woodward points out that “the main difference will be that you likely own your home now so there is no housing costs, however you should consider allocating more of your budget to increased medical expenses.”
“An unfortunate part of retirement is that we are likely to need more medical assistance,” he explains.
“Since you have more time, you may also want to consider how much you should set aside for lifestyle expenses, such as playing more golf, riding a bike (trust me it’s an expensive sport) or even lawn bowls.”
Although Brycki agrees that living expenses and costs associated with healthcare are “the two main categories”, other areas “retirees might want to consider is helping their kids/grandchildren out with things like covering the cost of a wedding, a home deposit or school fees.”
In addition, Brycki highlights that there are several areas in which retirees are spending more “on now compared to 20 years ago”, which could be examined if those entering retirement wish to cut back. These include:
Although there is nothing wrong with spending money in these areas, understanding where your money is going is vital in ensuring you are on top of your spending and have enough to finance your retirement free of stress from money woes.
Woodward stresses that “it is vital as you approach and move into retirement that you know your numbers and plan ahead” while speaking to the importance of a solid financial plan.
“By having a plan and knowing what you have to work with, you are far more likely to live within your means,” he says.
“Trying to manage your money with your head in the sand is a fast track to money stress, which is not what retirement should be about, it’s your time to enjoy yourself and benefit from all the hard work you have done during your career.”