It is never too early to start thinking about retirement. By planning early and having a well-defined retirement plan, you’ll have adequate income to maintain your lifestyle and fully enjoy your retirement years. Retirement planning can be a complicated process that involves financial management and a clear savings and investment plan, so here are some steps to help guide you through.
Step 1: Find out how much you need for retirement
A starting point is to determine how much you’ll need for your retirement years. How much you need will vary depending on your preferred retirement lifestyle, but the ASFA Retirement Standard serves as a useful benchmark or guide.
For the September 2013 quarter, the Standard is as follows:
- Singles. $23,032 (modest lifestyle) or $41,830 (comfortable lifestyle)
- Couples.$33,120 (modest lifestyle) or $57,195 (comfortable lifestyle)
The Standard is updated quarterly by the Australian Association of Superannuation Funds Australia and takes expenses such as housing, health, transport, leisure, energy, and food into account. If you expect to maintain a luxurious lifestyle, you may need much more than suggested by the Standard.
Step 2: Review your current situation
It’s also important to clarify your current financial situation. Identify how much you have now, how much you expect to earn in the years before your retirement, and your sources of income until you retire. Take time to compile a comprehensive list that includes every asset and investment you have, including superannuation, savings, and property.
Step 3: Formulate a plan
Once you have calculated how much you need in retirement and reviewed your current situation, you can start formulating a plan. It might be a good idea to consult a financial advisor and tax specialist for assistance with the technical and compliance aspects of your plan. Some of the things to consider when formulating your plan include:
- Sources of income. Identify your sources of income in retirement and when they will start paying out. These might include superannuation, age pension, liquidating investments or selling property, dividends from investments, and more.
- Investments. Consider viable investment vehicles for building your wealth and income in retirement. For example, you might invest in shares, property, or a business. Clarify the risks and returns associated with each type of investment.
- Income, expenses, and savings. Your expected income before retirement and ongoing expenses and costs will have an impact on how much you can invest and save for retirement.
- Extras. Any financial plan should include provisions for emergency situations or unexpected events. Build sufficient flexibility in your financial plan for these unexpected events.
Step 4: Take action and start saving
The final step is to put your retirement plan into action. This usually means saving more and/or putting aside more money for investments. As with any financial plan, revisit your retirement strategy on a regular basis and update them if necessary.