If you’ve made it to 70 years of age, the chances are, according to the Australian Bureau of Statistics, you have, on average, another 15 years or so to live. How long you live will depend on several variables and sheer good or bad luck.
But how well you live and can relax financially will heavily rely on just five critical areas, so it pays to get them right. Of course, not everyone can achieve all the benchmarks for various reasons, but if you have to make a late start, it’s better than nothing.
Plan your legacy.
Apart from being the repository of so many memories, it’s a necessity for happiness and control. A secure and debt-free family home is naturally top of the list. Those who live in rented accommodation can face higher costs and less security than those with their own homes. Moving house can be challenging at any time of your life, but after 70, it’s even worse. Rent can soak up an awful lot of retirement income better spent elsewhere. The grim figures show an increasing number of Australians retiring with a mortgage. In the decade before retirement, only 42 per cent owned their home outright. A 72-year-old single woman I know asked me if she should sell her modest home to afford to buy a better car. Naturally, I reminded her having a home unencumbered by debt was worth much more to her in so many ways than a mere motor vehicle. Homeownership is one of the strongest indicators of a comfortable retirement. Your home is exempt from the aged pension asset test.
You may not be able to sell part of your home, but you can access some of the value through reverse mortgages and similar financial products – a good way to supplement your super or the aged pension. The recently revamped Government Home Equity Access Scheme can be a good option. Try and avoid credit cards and other debt facilities. Hopefully, by 70, you have a financial plan of some sort with a budget showing how much cash is coming in from income sources such as rent, annuities etc. and how much you can comfortably spend and on what. Too many people close their eyes and spend hoping they will never have to face the music with painful repayments, but of course, they do. The other side is that you should enjoy your retirement income to the max. Far too many people die having lived out their days in poverty with their superannuation almost untouched. Their kids and beneficiaries may be delighted, but this is not what super was designed to achieve.
Aim to retire to something rather than from something. What will it look like, and what will it cost? Remember enough is not a number – aim to have enough money to sleep at night, even purpose to get up in the morning, and enough joy to sustain you through the day.
Sort your super and how it can provide an ongoing income. Look to adjust your investments (asset allocation) over time, starting five years out from retirement. Build up three years of expenses in cash, so you’re not forced to cash in investments in a market decline. Consider income streams, e.g., annuities, deferred annuities etc. Longevity risk is bigger than market risk. The three years on either side of retirement are the most critical for lifetime investment earnings and how long your stash will last. Your balance is the biggest, and your ability to recover is the lowest. If you’ve invested in real estate (outside your home), consider whether this is the right asset to deliver a retirement income and liquidity.
Understand your entitlements to both the aged pension and related payments as well as your super. Consider the distribution of assets between a couple if there is a significant age difference – move super to a younger spouse if you are likely to access the aged pension. Move to older spouse for early access.
Your super is there to be spent wisely and under control, so it lasts the distance (always a bit tricky as apart from those averages, we don’t know how long we shall be around.) However, you’ve worked hard to save your super, so make sure as you move into the retirement phase when you get to spend it in style. Consumers pay much attention to the first of these steps but not enough to the all-important latter part. The decisions made about how to use your super are essential, and by the age of 70, you should have set the path which is right for you.
You might argue you are dead, if not buried, by the time these issues come into force, but all of them impact directly on your legacy and how you may be remembered. So, they count now. You should have a watertight will prepared long ago, and kept up to date for changing circumstances, reflecting your wishes to pass on your estate and following legal principles closely enough to avoid any court challenges. There are many decisions you might spare your surviving family by making them now. We are at the beginning of what’s been called the greatest ever intergenerational wealth transfer, i.e., the boomers passing on the benefits of their assets’ appreciation to their lucky offspring. It’s an excellent opportunity to benefit the whole family, but you need a will first. The all-too-common alternative of siblings arguing over bequests because of a poorly drafted will or the state stepping in when there’s no will are too awful to bear. Likewise, make some provision for your send-off and share the plans widely to dispose of your mortal remains: cremation or burial? Songs at the wake?
Also, have a health care directive and power of attorney documents if one of you is incapacitated. Consider keeping cash (emergency stash) in separate accounts in case of the partner is not in a position to withdraw.
While only a tiny percentage of us end up in aged care, it does happen and again needs some planning as to the how and where. There are financial planners who specialise in this area as it’s complex and can impact your estate. Most people choose to remain at their home but it’s not always possible. However, the home option can be extended by either moving into a more suitable dwelling, i.e., fewer stairs or buying somewhere purpose-built for elders. Some of them even start at 50 or 55.