It’s never too early to start planning for what your retirement could look like. Many people regret not getting the ball rolling earlier. It’s not uncommon to discover you could reduce your hours or retire sooner than you thought! Knowing how much you need to save, in order to confidently secure the retirement lifestyle you expect, is an invaluable insight and provides enormous peace of mind.
Jubilacion are specialists in providing these insights. We don’t have a crystal ball but we have the next best thing – state of the art retirement modelling software that takes all your personal circumstances into account, as well as the key external factors, to accurately assess your financial future and provide the confidence of knowing you can sustain your chosen standard of living for the rest of your life.
What you need to consider when planning your retirement
One of the most important decisions is the age you would like to retire. Another is what lifestyle you want to enjoy when you do exit the workforce. We need to consider your health (life expectancy), what investments and savings you currently have, whether you want to work part-time for a while, and if you plan to ‘live it up’ a bit in the early years of retirement then spend less when you’re older.
Your relationship status also has a significant impact on your retirement finances. A lot of Australia’s retirement rules apply at household level, for example the government Age Pension looks at the age of both you and your partner, and considers your combined resources. With two of you, there is double the chance that one of you lives a long time, so we look at both partners’ ages when calculating your retirement projections.
Jubilacion staff are sometimes asked how to treat debts when you retire. Some people deliberately retire with ongoing loans, for example they might have investment properties with mortgages against them. But, they’ll need to be very careful to make sure they will have enough cashflow to service that debt,; and treat it like any other expense they need to budget for.
When you can retire
Retiring later costs less. Usually, the age you are aiming to retire at becomes a trade-off between the lifestyle you’d like to have, and the amount you need to have saved up to fund that lifestyle. The earlier you retire, the more savings you’ll need to have accumulated by that point, as you’ll be drawing on those assets for more years than if you had retired later.
Your current age also plays a crucial role, as it determines how long you have left to save more and contribute to your retirement pot. For example, if you are contributing to superannuation, retiring in five years’ time would give you five fewer years to build up funds than if you were retiring in 10 years’ time.
How your retirement income will be funded
Once we start modelling all this, you’ll quickly see that planning for retirement in Australia is like a jigsaw puzzle. You are likely to have multiple sources of income coming from different areas, that you need to piece together in a coherent way to form your overall retirement budget. And, if you spend too much, you could run out of money.
Most Australians will get an Age Pension at some point in their lives. It’s means tested, so the amount you get, and when you first reach eligibility age, will differ depending on your income and your wealth. Most people reach the qualifying age at around 67 years of age.
As you get older, you’ll find that as you draw down your super and other savings your wealth can reduce through the various means-testing thresholds, meaning your income from the Age Pension can increase.
Superannuation is likely to form a big part of retirement. We cover super in more detail in the next section of this article.
You could also be factoring in retirement cashflow from earning interest on savings, receiving dividends on shares, or rent on investment properties. An increasing number of people are choosing to work part time for a while in retirement, which also tops up their income (and changes their means-testing position).
So, it’s a case of pulling it all together, creating a ‘map’ and seeing what you’ve got in total to confirm that it’s going to be enough to cover your full retirement no matter what happens.
How superannuation works
At high level, the superannuation system is fairly straightforward. It’s compulsory to put a minimum percentage of your salary into a fund to support your financial needs in retirement. This money gets invested, hopefully grows with investment returns, and then becomes a pot of money that you can draw down on to help fund your cost of living in retirement. Often, a couple will have at least one super fund each.
Think of your super balance like your main fuel tank for your retirement. The higher your balance, the more options you’ll have regarding retiring earlier, or having a higher living standard when you do retire. If your fuel tank level isn’t high enough, you may want to look at topping it up. To keep our fuel tank analogy going, if it’s sloshing over the top you might consider retiring earlier or giving yourself the freedom to enjoy a higher standard of living or using it to help loved ones.
You can increase your superannuation fund balance in various ways. The two most common are 1) through your employer, in what’s called salary sacrifice, where you ask your employer to divert some of your salary into your super and 2) you can simply top it up directly, following the rules and tax stipulations that apply.
You can start withdrawing from your super when you reach what’s called your ‘preservation age’, even if you’re still working. For most people this is 60 years of age, which would count as accessing your super early. Once you fully retire from the workforce, or reach age 65, you can have unlimited access to your super. The balance grows tax free and you can withdraw whatever you wish without tax, subject to taking a minimum percentage of the balance out each year.
You can keep track of your super savings and get an up to date balance at any time, by logging in to the superannuation funds website.
Most superannuation funds give each member their own individual account balance. This means that you can nominate someone to receive your fund balance when you die.
The best method to plan for your retirement
It’s all about doing year-by-year projections. Look at all your sources of income, map them out year by year to work out what’s coming in, including investment returns, and what will go out over the years. Then, stress test all those figures again and again to consider the full range of what might happen – the way insurance companies do. What do things look like if markets perform poorly or if living costs go up? How is your projection affected if you retire earlier or later, put more money into your super, or work part time for a number of years? How do the amounts match up to the income you need to fund your retirement lifestyle?
The matrix of potential outcomes and financial implications of various tweaks in your plans can be daunting. This is where our expert team at Jubilacion comes into their own – we help you through the whole process and make it easy to understand and digest.
How Jubilacion can help you to plan for your retirement
We are specialists in projecting people’s finances, offering a radically new style of support for your big retirement decisions. By guiding you through our ‘actuarial’ model that takes your current wealth and all future cash flows into account, we take the guesswork out of your planning. We give you priceless peace of mind, with the confidence of knowing that you can spend safely and live the lifestyle you have saved for, whether living costs go up, markets fall or you live longer than average.
Our modelling system covers literally millions of simulated calculations, making it quick and easy for us to explore all the ‘what if’ situations and circumstances that are personal to you.
We meet with you over a series of video calls, to learn all about your current situation and your future plans. Then, we go away and do the number crunching before presenting you with the results in your personalised report. We talk through the report with you and give you a chance to ask any questions you may have, either on the spot or you can feel free to come back to us at a later date.
Based on the report’s findings, we can work with you to test any ‘what-if’ questions you may have, such as the impact of you retiring earlier or later, saving more before retirement, spending more after retirement, selling an investment property; whatever is relevant to you.
Going through the Jubilacion process enables you to visualise the big picture and empowers you to make accurate and informed decisions about your future, setting an actionable plan for your lifestyle goals.
How you can contact Jubilacion
We would love to hear from you and help you plan for your retirement. We genuinely love hearing about people’s retirement stories and discussing how modelling helps to make confident, fully informed decision making about what matters to you. You can call us on (03) 6240 1575, fill out our contact form on our website www.jubilacion.com.au or email us at enquiries@jubilacion.com.au.
