Planning for your retirement: reduce your worries

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Planning your finances early means you are better placed to enjoy what really matters in your retirement. Read this guide to find out how

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Entering retirement is a significant change – but that doesn’t mean it has to be stressful. By starting to plan early and following a few simple steps, you can help reduce your worries as you transition.

Consider what lifestyle you want. Do you want to travel, move, study? Go on a cruise then settle down in a retirement village? Or downsize your home and live comfortably?

On a psychological level there are other considerations. For example, how will you fill your time in retirement and will it keep you sufficiently engaged and or give your life a sense of purpose? Have you thought about giving back to the community in some way, or working and or consulting part time?

How much money you’ll need will depend on a clear picture of all of your goals – both financial and your overall wellbeing.

Once you’ve decided on your retirement goals, you need to consider whether you’ll have enough money to support them. It’s important to think long term. A man who is 65 years old today could live 19 more years; a woman 22 years more.[1] But you may live even longer. You’ll need to know how much super you will have by the time you’d like to retire, when you’ll be able to access your super and whether you’ll be eligible for the Age Pension.

You can use many online tools to calculate how much you’re likely to save during your working life. A financial adviser may also provide you with a thorough evaluation tailored to your current assets and super fund.

After coming to grips with your finances and how much you’ll need to save to fund your desired lifestyle, you can work out the appropriate retirement plan.

You may want to start a transition to retirement pension, which allows you to keep working while accessing your super. By continuing to work after you reach your preservation age (between 56 and 60, depending on when you were born), you can boost your retirement savings as your employer will continue to make contributions to your super and it’ll be taxed at a lower rate.

With a transition to retirement pension you can either continue to work full time or reduce your working hours and supplement your income with withdrawals from your super – but there are restrictions on how much you can withdraw. Which option you choose will depend on your desired retirement lifestyle. In the recent Federal Budget, the Government proposed to change the tax treatment of transition to retirement pensions. It is important to understand how these proposed changes may impact you.

If you are able to work past pension age, there are government incentives you can take advantage of, such as the Work Bonus. Under the Bonus, the first $250 of your employment income isn’t assessed in the pension income test, increasing the amount you can earn.

If you would like to retire and access your super once you reach preservation age, there are several ways you can manage your finances. You may set up a retirement income stream. This means you can withdraw certain amounts from your super fund at intervals so you don’t spend your savings too quickly.

Another option is to withdraw your super in cash or transfer it to a non-super account. This may be an appealing way to immediately clear debts, invest in assets outside super and make any significant immediate purchases. However, it may also lower your future income and attract higher tax rates.

Retirees can take advantage of numerous entitlements such as travel concessions, discounted medicine and other benefits that holding a Pensioner Concession Card or Commonwealth Seniors Health Card provide. If you are eligible, the Age Pension will provide you with payments as a supplement to your savings.

Retirement can be an exciting time of transition. By organising your finances now you are better equipped to enter your retirement with far less stress, more purpose, and free to enjoy what’s ahead.

[1] Australian Bureau of Statistics, Life Tables, States, Territories and Australia (November 2014). Accessed from https://www.moneysmart.gov.au/media/332959/financial-decisions-at-retirement.pdf

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