It can be hard to envision retirement age living when you’re in your 20s and 30s. At that point in life, scrimping and saving for a future that seems impossibly far down the track is hardly an attractive use for your hard earned money. There are places to go, people to see and things to do, all of which require funds. Because of this, many of us find ourselves approaching middle age without a secure financial plan for the retirement years. Now that middle age has rolled around and with it the wisdom of experience, you’re starting to wish you’d cared about the future you a bit more when you were young, wild and free.
However, the thing about investing for the future is that it’s never too late to start. While you may have missed out on opportunities of compounding interest in the past, there’s no reason to continue that trend now that you’re older, wiser and need to make preparation for old age. Now that you’ve reached your 60s, the time is ripe to take retirement investing seriously.
The first thing any prospective investor has to take into account is their own financial situation. It’s impossible to develop a guide that will work for everyone in every position, so you’re going to have to do some of your own legwork to work out the right strategy for you.
For starters, how much have you saved over the years? Have you made any investments, or are your assets all in cash? Do you own your own home, or are you still renting? All this and more will have a big impact on how you go about preparing for your retirement.
Is the pension enough?
The Australian old age pension is enough to live on, certainly, but there is no doubt an existence reliant solely upon the pension will be a frugal one. The maximum basic rate for a single person is $788.40 a fortnight for an annual income of just over $20,000. That’s not a lot of money, but for those who own their own home it should be enough to get by on. For those renting, the situation becomes tougher, but still possible. On such an income there won’t be a lot of funds left over for travel or leisure activities. After working for 40 years, most people want to be able to enjoy their retirement at least a little, and the fact is the old age pension won’t fund even an average lifestyle.
The truth is though, practically everyone will have a bit more to dip into than just the old age pension thanks to the advent of super. The average man will retire with $200 000 in super, with the average woman retiring with half that. While that may sound like a lot of money, if you’re using it to live on then you may be surprised how quickly you chew through it. After all, with a retirement age of 65 you have at least twenty more years to get through, and even withdrawing a frugal $25 000 a year will mean $200 000 will only last 8 years.
Maxing out your super contributions as you get closer to retirement is one of the best things you can do for your future wealth. Every dollar extra you invest will be compounded, making it worth far more in 20, 10 or even 5 years than it would otherwise have been. When you’re young it can be hard to find the extra funds to trust to superannuation when you have a mortgage, a young family or just a host of hobbies and interests to indulge. Once the kids have moved out and life has settled down somewhat however, donating extra to the super account is the best thing to do with any spare cash.
Once you can access your super, the time comes to decide what to with it. While you can simply draw upon it to fund your lifestyle until it dwindles away to nothing, depending on your situation this might not be the best use to make of it. Investing in stocks, bonds or property to provide a steady income without whittling away the initial capital is a good option for those who want to maintain their asset; whether it be as backup for the future, as inheritance for their heirs or for some other reason. If reinvested a super account worth $400 000 could return an income of $20 000 a year assuming a modest interest rate of 5%.
Superannuation is a boon for retirees that shouldn’t be ignored. There are so many way to maximise it to your advantage and even more options of how to use it once you have it in your hot little hands.
Keep in mind, when we say downsize we don’t mean your lifestyle. There are many ways to downsize your possessions in such a way to reduce your costs while actually maximising your quality of life.
While raising a family, a large house with four bedrooms or so was probably essential, as was a second car, second bathroom and big backyard. But once the kids are gone all this space can start to feel a little echoey. While it may be a tough decision to uproot and sell the family home where you have so many memories, it can be a very good idea when it comes to your bottom line. Lower council rates, smaller bills and reduced maintenance costs can be had by moving to a smaller place more suited to you and your partner’s needs. Not to mention the fact that the price your large family home fetches will buy you a smaller home in a nicer location should you have the desire to live on the beach, closer to the city or somewhere else you fancy but couldn’t afford if you kept the same sized home.
Outstanding loans and debts will make funding your retirement just that bit harder as you’ll have to take repayments into account as yet another cost of living. It’s important to start planning as early as possible to be completely, or nearly so, debt free by the time retirement rolls around.
That’s easier said than done of course, but it’s important to keep in mind. When making large financial decision later in life such as the purchase of a new car, be aware of how long the life of any loan you have to take out will be. If it will extend past retirement, see if you can’t make adjustments so that you’ll have it paid off and out of your mind beforehand. Remember, every repayment you have to make will eat into the amount you have left to enjoy.
In the end
The lifestyle you’re able to enjoy in retirement will depend largely on how well you prepare for it. While the earlier you start the better, it’s never too late to begin considering how retirement will unfurl for you.
General Advice Warning
The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your GPS Wealth Ltd (GPS) Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither GPS nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.