Can you afford to retire?
Retirement is a life-changing event. As you adjust to the new lifestyle your priorities will change from building your savings to carefully spending your hard-earned dollars. Finding a way to replace your salary with cash from other sources will be your biggest focus.
While there’s no one-size-fits-all solution, there are ways to stretch your retirement income and things you can do to make your money last as long as possible. The earlier you start preparing, the more options you’ll have. It doesn’t matter if you’re in your 20s or your 50s, it’s never too early to start planning.
Work out how much money you have now, how much you might have in the future and where it’s coming from.
- Think about your assets (house, savings, investments) and how much they’re worth.
- Look at how much superannuation you have and when you can access it.
- Find out when you can apply for the age pension and whether you’re likely to be eligible.
Once you’ve done this, look at how your needs might change over time and how you can use your different income sources to finance the different stages of your life.
As a guide, it’s safe to assume you’ll need two thirds of your income before you retire if you want to maintain the same standard of living. This can come from several sources and layering those options will give you the best chance of maintaining regular income.
Superannuation and Self Managed Super
Your superannuation is the first place to start when looking at your savings. Your employer is required to contribute a minimum of 9.5% to your nominated fund but there a number of ways to boost this:
- Sacrifice some of your salary
- Make after-tax contributions
- Low or middle-income earners may be eligible for government co-contributions, up to $500 a year.
Once you’ve built your superannuation, you could start a Self Managed Superannuation Fund (SMSF). You’ll need about $200,000 to start but an SMSF could give you more flexibility in how to invest your money and provide access to different investment opportunities that you can’t get through standard funds.
Investing some of your money in assets that grow over time, like shares and property will ensure your capital grows in value to keep pace with your income needs.
Refinance and consolidate
Refinancing your home loan can save you hundreds in monthly repayments, money that can be invested or added to your superannuation fund. Similarly, consolidating personal loans onto your mortgage can also mean further savings, as home loans typically have a lower interest rate than personal loans.
One of the easiest ways to make your money last longer is to watch your spending. Plan a realistic budget to help you save for special occasions and keep your expenses in check.
Check if you qualify for the age pension and your eligibility for other benefits such as travel concessions, cheaper medicines and reduced council and water rates.
By continuing to work, even if it’s part time, you can leave your savings untouched for longer and keep adding more money to your superannuation.
Above all plan for the long term, not just the next five years. Seek financial advice, manage your spending, take advantage of your entitlements and diversify your investments for a happy, healthy retirement.