By Richard Dinham, Head of Client Solutions and Retirement, Fidelity International

For many, the word ‘retirement’ is associated with the idea of extended holidays to far-flung locations or spending quality time with grandchildren. And while the new-found status of “retiree” sits well with some, for others it’s a different story. It all depends on how smoothly the transition into retirement progresses. There are, in fact, a range of financial, emotional and psychological fears that are often linked to retirement – for good reason.

Australians spend most of their working lives saving for their retirement so that when the time comes to retire, they can lead a comfortable life. However, many people are uncertain about what to expect in retirement, and the issues they may face are not always just financial. For many investors, financial planners play a pivotal role in providing technical advice, guidance and peace of mind before, during and after the retirement process. But there are also the emotional and psychological impacts of transitioning to retirement to be considered.

Despite the best laid plans and the most strongly held expectations, around half of Australians do not retire for the reasons they think they will, nor at a time of their choosing.

Research from CoreData found that around 50 per cent of Australians retire early due to unexpected circumstances and within timeframes they did not choose. The reasons range from health issues to unemployment to providing care to loved ones. This can result in retirees feeling out of control and impacted not only financially, but emotionally as well.

Retirement planning is not a ‘one size fits all’ approach. But no matter what an individual’s needs are, solid financial planning allows for a smoother transition and helps alleviate the uncertainty of retirement.

Common fears and expectations associated with retirement 

While it is not surprising that pre-retirees with no superannuation savings are worried about funding their retirement, they are not the only cohort concerned. Despite healthy superannuation balances, CoreData’s research shows that close to two-thirds of pre-retirees are worried about being able to fund their retirement, with only a small percentage feeling very optimistic that they will have adequate financial resources to do everything they want in retirement.

In fact, more than half of those with retirement balances of between $750,000-$1 million say they worry about funding their retirement. These concerns only recede once an individual has accumulated more than $1 million in savings.

Encouragingly though, 43.9 per cent of pre-retirees expect to live a reasonable retirement life, understanding that not all of their desires will be fulfilled. Only four in 10 retirees say that their actual retirement lifestyle is aligned with what they expected, and three in 10 say their retirement lifestyle exceeds their expectations.

Successful retirement factors

A successful retirement involves more than just money. Certainly, money allows for many of the things that make life worth living, but it is not enough on its own. Other important factors in a successful retirement include, mental and physical health, having realistic expectations and owning a home.

Retirement satisfaction occurs when a retirement lifestyle matches the retiree’s expectations. Not every retiree has expectations of a luxurious retirement lifestyle, but all of them expect basic needs to be addressed.

While pre-retirees are concerned about whether they will be able to fund their retirement, once a person is retired, the concern turns to whether they will run out of savings later in life.

Around one in eight say their greatest worry is they will outlive their savings, and close to 10 per cent are worried about affording the costs of high-quality aged care facilities. While the welfare system allows for a basic level of income, budgeting for discretionary expenditure can cause stress.

Having adequate savings in place allows for a degree of flexibility when it comes to discretionary spending and provides a stronger sense of control.

When planning for retirement there are two core factors that determine the amount of savings a retiree needs – life expectancy and projected expenses. Individuals need to consider these, along with other factors including marital status, health and home ownership, when determining how much saving a retiree needs in order to enjoy their desired lifestyle.

Staying healthy

Early retirement is often seen in a favourable light and is eagerly planned for, however 28 per cent of Australians retire early (and unexpectedly) due to health-related issues. Almost half of all retirees consider their health as their greatest worry in retirement.

 

 

Research from the Australian Centre from Financial Studies found those who retire early due to health issues are likely to have lower incomes and so are more likely to have lower superannuation balances. By default, they are also most likely to incur additional health-related expenses in retirement.

Maintaining a healthy lifestyle and addressing potential health issues early are therefore important factors to consider when planning for retirement.

Owning a home

Unsurprisingly, owning a mortgage-free home provides a greater sense of security and retirement satisfaction. Research from the Australian Housing and Urban Research Institute found older people with secure long-term accommodation tend to have better physical and mental health too.

Home ownership is also intrinsically linked to retirement readiness and satisfaction. Those who own more than one property with no mortgage typically experience retirement success. Single property owners also enjoy a high level of retirement satisfaction. In contrast, individuals who own no property score the lowest in terms of retirement satisfaction.

Retirement is one of the single largest changes in an individual’s life and it comes with a host of financial, emotional and psychological fears. A sound financial plan can help manage associated fears and expectations and most importantly, ensure the transition into retirement is as seamless as possible.

Need advice on planning your retirement?

Contact Dev Sarker at ds@bluerocke.com for an exploratory meeting today!

 

Source – https://www.fidelity.com.au/insights/investment-articles/fears-and-expectations/

A smart saving strategy is just one element of achieving financial security – you also need a deliberate plan to manage and make the most of what you have.

Here, 10 money-savvy women share one tip that’s helped them get their finances into a healthier state.

1. Don’t put all your eggs in one basket

Millionaires know that diversification is the key to building wealth – they typically have multiple income streams. If you’re serious about securing your financial future, it makes sense to follow their lead. There are plenty of options – think property, shares, bonds, superannuation, your own business or a ‘side hustle’. Treat your finances as a portfolio and start to spread the opportunities and the risk, even if it’s on a small scale, and you’ll be on your way.

Emma Isaacs, Founder and Global CEO, Business Chicks

2. Develop smarter spending habits

I was never bothered about budgeting until I fell pregnant and wanted to take a year off with my baby. Cutting back on expenses was a shock to the system but only because I wasn’t used to it. Develop smarter spending habits – comparing prices, finding cheaper alternatives, setting budgets for activities and outings and so on – and it soon becomes possible to live on a lower income without feeling like you’re missing out. Continuing to do those things, even after I returned to work, has made a big difference to our financial position.

Jade Cerfontyne, Project Manager

3. Seek advice – and follow it!

I spent my twenties and thirties with my head in the sand when it came to money. That finally changed when I was in my early forties and my accountant sent me to see a financial planner. If you’re not comfortable managing money and you don’t know where to get started, professional advice can be so valuable. Work with them to create a plan and start following it. Doing this has helped me to see where I’m heading financially for the first time in my life, and that’s very empowering.

Dale Pope, Founder, Dance by Dale Pope

4. Set aside regular money-management time

It’s easy to tell yourself you’ll get your affairs in order when you have a moment. In my experience, that moment can be a long time coming. Make a date with yourself to do it – and keep it! Mine is an annual ‘money in March’ session where I evaluate my position, review my spending and budget, and set goals for the year ahead and plan how I’ll achieve them. It can take as little as a couple of hours to get on top of things. If you want to ensure your money is working as hard as it can for you, then it’s time you can’t afford not to spend.

Helen Murdoch, MLC General Manager, Workplace Super

5. Don’t leave your financial future in someone else’s hands

During the course of a long marriage, I allowed my former husband to manage all the money matters. That meant I had an extremely steep learning curve when the relationship broke down and I had to take responsibility for myself and my four sons. Maintaining ownership of your finances through your life is the smartest thing you can do, regardless of whether you’re single or in a relationship. Your financial future is too important to leave in someone else’s hands.

Anthea Woodhill, Flight Attendant

6. Pause before you purchase

In today’s world, there’s a lot of pressure to buy everything new and it’s killing our finances. Most fashion purchases are only worn a handful of times and many women discard clothes after a single wear, or even unworn. The best solution to wasteful impulse purchasing is to write down the thing you think you want and wait – for 24 hours, or two days, or longer. Whatever works for you. I call it PauseB4UPurchase. If you practise it regularly, you’ll be left with a lot more in your wallet for the things you really want and need.

Rachel Smith, Author of Underspent: how I broke my shopping addiction and buying habit without dramatically changing my life

7. Set your sights on buying your own home

There are lots of ways to build wealth but, in the long-term, the security of your own home is hard to beat. Striving to get a foothold in the property market, however modest, while you’re young is something you’ll really thank yourself for a couple of decades down the track. My friends were shocked when I bought a house at 21, but I am where I am today because I took that first step.

Joanne Ke, Self-funded retiree

8. Educate yourself about the financial products you use

It’s difficult to manage your money effectively if you don’t understand the way things work. Getting to grips with the financial products you use – your mortgage, personal loans, credit cards and superannuation – will help you make better decisions. Get good information that explains it in a straightforward way and you’ll find it’s not as complex as you expect. If you don’t take control, you may end up losing some of your own money – I don’t think any of us want that!

Jenny Rolfe-Wallace, Financial Educator and Founder of Sprout Education Group

9. Stash as much as you can into super

Working for many years for a company that made additional contributions on my behalf helped me to accumulate a healthy super balance. It’s made a big difference to the lifestyle I can enjoy in retirement. That’s what super is really all about – freedom and choices – and that’s why keeping it front of mind from the start of your working life is so important. Sixty comes around very quickly and if you don’t make building your balance a priority, it may not happen.

Melanie Schwarzman, Self-funded retiree

10. Make money management a daily activity

Starting my own business was a calculated risk, and maintaining tight control of my finances has helped me to make it a success financially. I look at my bank account every day and allocate all the money I earn to different accounts, for different purposes. Know exactly where you stand with your finances at all times and there’ll be no nasty surprises. That’s a really good feeling!

Georgia Norton Lodge, Founder, Georgia Draws a House

If you are unsure and would like an evaluation of your situation, please email us on info@bluerocke.com or ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Source – https://www.mlc.com.au/personal/blog/2020/10/10_australian_women

While many of us dream about the day we finally get to give up work and reap the benefits of our blood, sweat and tears, we often struggle to plan for it.

After all, in the scuffle of immediate priorities, saving and planning for retirement don’t always make it to the top of the pile.

But there’s a good chance you could be spending almost as long in retirement as you will be working. So, if you really want to end up with the retirement you envision, there are some things you can start doing right now.

1.  Determine how much you’ll need

Determining how much annual income you’ll need to maintain your lifestyle in retirement is key and will depend on the type of lifestyle you want in retirement. For example, the types of holidays and frequency,
where you’d like to live and your recreational activities.

Once you’ve estimated what your annual retirement income might be, you can start thinking about where you’ll be able to access it from such as your super, part-time work, or social security entitlements. You’ll also be able to determine your total amount of savings needed to meet your desired lifestyle.

A comfortable retirement

If you’re after a comfortable retirement lifestyle which includes a good standard of living and recreational activities such as some overseas travel, The Association of Superannuation Funds of Australia (ASFA) recommends that couples would need an annual income of around $61,909, while for singles this would be approximately $43,687.

Based on you owning your own home, having investment earnings of 6% per year and receiving a partial Age Pension, they estimate that the additional lump sum savings you’d need at retirement to supplement your income and achieve this amount of annual retirement income would be around $640,000 for a couple, while singles would need around $545,000.¹

A modest retirement

If a simple retirement lifestyle­—that’s slightly better than being on the Age Pension—is more on the cards, ASFA estimate you would need a much smaller lump sum at retirement. However, the amount you’ll need depends on your investment returns and the amount of Age Pension that you’re entitled to.

Based on your circumstances, you’ll need to determine what Age Pension or other social security benefits you might be entitled to in the future and ensure that your other sources or retirement income will be adequate to fund your desired lifestyle.

Rising cost of living

Keep in mind that while you’re likely to have fewer expenses in retirement—you won’t be contributing to your super, you might pay less tax and may have paid off your mortgage—inflation can eat away at your retirement savings.

For instance, if you choose to invest conservatively by having your portfolio solely focused on defensive assets like cash and bonds, your returns may not be enough to offset the rising cost of living.

2.  Determine how long it will need to last

Once you have an idea of what your retirement lifestyle will cost, the challenge is to ensure your cash lasts the distance—however long that may be.

While no one can predict how long they’ll live, if we use the average life expectancy of 84.9 for males and 87.6 for females², you can estimate spending around 20 years in retirement assuming you retire around 65.

3.  Are you on track to reach the lifestyle you want?

The next step is to evaluate how much you’re likely to have by the time you retire, if you continue with your current savings strategy.

And this will come down to a variety of factors including:

• Whether you own your home
• Value of your super and other investments
• Return you earn on those investments and income from other sources
• Your spending habits.

To understand where you currently stand, you need to add up any savings/assets you hold inside and outside of super minus your debts. Then factor in your future earnings and what you can save from those earnings. There are retirement calculators available to help with this.

4.  Not on track?

If you find that you may fall short in achieving your desired lifestyle on your projected savings, don’t panic. There are things you can do to turn your situation around.

Make additional super contributions

You can add more into your super on a regular basis using your before or after-tax income. Contribution caps are limit to the amount you’re able to contribute each year without paying additional tax.

If you make a personal contribution, you may be eligible to claim a tax deduction too. This means you’ll reduce your taxable income for the financial year and potentially pay less tax, while adding to your super balance. It’s a win-win!

Delay retiring or work part-time

If you’re flexible with your retirement date, one alternative is to consider delaying your retirement by continuing to work, or working part-time instead of retiring completely. Holding off your retirement, even for a few years, could significantly increase your retirement nest egg. And transitioning to by working part-time can help you prepare – financially, socially and emotionally – for what is a major change in your life.  Even if you’re continuing to work part-time, you might still be eligible to receive a social security payment or benefit – such as a partial Age Pension to help supplement your reduced income.

Reduce your debt

Having no debt, or very manageable debt, will reduce your money worries in retirement. You may want to consider a plan to proactively clear your debt by reducing the amount you owe, thereby strengthening your financial position when you retire. However, it doesn’t always have to be all or nothing in terms of diverting your available funds to reducing debt or contributing to super for your retirement.

Speaking to a financial adviser can help determine the best way forward, to manage your debt leading into retirement, while also making sure your retirement goals are on track.

5.  Seek professional support

Obtaining independent advice from a financial adviser can help you design a financial plan to achieve your retirement lifestyle goals—whatever they are.

Advisers can also guide you in deciding which investment options may help maximise your retirement income. Most importantly, they can help you plan for a retirement that suits you – whatever that looks like.

At BlueRocke, our goal is to make you wealthier than you can be on your own. With appropriate advices, you may have a potentially improved financial position over time. Contact Dev Sarker today at 1300 717 136!

 

¹ ASFA Retirement Standard – June 2020 https://www.superannuation.asn.au/resources/retirement-standard
² SuperGuide: How long you can expect to live and what it means for your super – January 2020 https://www.superguide.com.au/retirement-planning/life-expectancy

Source: https://www.mlc.com.au/personal/blog/2020/09/retirement_where_to_start

Are you planning to retiring in the next 5 years?

Are you affected by the increase in the Age Pension’s qualifying age? Take steps now to avoid getting caught short on retirement income.

The minimum age to qualify for the Age Pension has started going up. For those born on or after 1 July 1952, the qualifying age increases by six months every two years until it reaches 67 in July 2023. It rises to 66 in July this year.

So if you’re turning 45 this year and plan to retire when you reach 60, you will need to wait until you’re 67 before you can apply for the Age Pension. You’ll have to rely on your own savings and super in the interim, making it crucial to ensure you have enough money put away for later years. But the good news is that there’s still time to grow your retirement savings.

Boost your super

Contributing more to your super can be a reliable route to bolstering your retirement fund. By making extra contributions through salary sacrifice, you can grow your super and at the same time reduce the amount of income tax you pay. The government will tax your salary sacrificed contributions at 15 per cent, which could be much lower than your marginal tax rate.

Making non-concessional or after-tax contributions is another option. You can contribute up to $100,000 each financial year if your total superannuation balance is less than $1.6 million. To understand how these contributions work, it’s wise to get professional advice.

Beef up your savings

Your personal savings can supplement your super payments in retirement. But are they growing enough now to provide you with some income when you retire?

To build up your savings, you may have to invest part of it and make sure it’s growing faster than the rate of inflation. Investing in a managed fund or buying an investment bond may help you increase your nest egg, but you should seek professional advice to see if these instruments are appropriate for you.

Know your entitlements

Besides the Age Pension, you may be eligible for other government benefits and concessions. The Seniors Card, for example, offers individuals over the age of 60 discounts on some commercial and public services. Concessions that allow you to buy prescription medicine at a discount are also available.

But keep in mind that these benefits have strict eligibility rules. There’s also no guarantee that these entitlements will still be available by the time you retire. So take charge of your retirement. By working with your financial adviser, you can develop a strategy that helps ensure you’ll be well provided for regardless of changes to pension policies.

You need to be savvy to build a sufficient nest egg for retirement. Planning is key, and so is getting professional advice.

Most Australians are not saving enough for retirement and risk running out of money sooner than they expect.

Data shows that in 2015–16, Australians had average superannuation balances of only $270,710 for men and $157,050 for women at the time of retirement.[1] These sums are significantly lower than the $545,000 that the Association of Superannuation Funds (ASFA) estimates singles need for a comfortable lifestyle in later years.[2]

The good news is that you can avoid pinching pennies in your retirement by planning ahead.

Setting a plan

Start planning by finding out how much income you will need. You can do this by answering the following questions:

• What are your retirement goals?
• What kind of lifestyle do you want?
• What’s your life expectancy?

While it’s relatively easy to set goals and lifestyle expectations for retirement, estimating how long you will live can be tricky – not to mention unsettling. But it’s crucial to make retirement planning decisions. For example, knowing your estimated life expectancy can help you decide on your asset allocation or when to stop working to ensure you can sufficiently fund your retirement. It can also help you determine when is the most appropriate time to start your super income stream.

Although there are tools for calculating life expectancy, a financial adviser can guide you through the process and help you come up with an accurate estimate.

The ASFA retirement standard may help you see how much you will need annually to maintain your lifestyle. The table below shows ASFA’s September 2017 quarter estimates for people aged around 65.[3]

Table 1: Retirement budgets for those aged around 65

	Modest lifestyle		Comfortable lifestyle
	Single	Couple	Single	Couple
Total budget per year	$24,506	$35,189	$44,011	$60,457

Keep in mind that these are national estimates and assume that retirees own their home. Seek your adviser’s guidance in estimating an amount based on your lifestyle expectations, profile and life expectancy.

Ensuring enough income

Once you know how much you’ll need, your adviser can design a plan and make recommendations to help you meet your required retirement income. These may include growing your retirement fund by investing some or all of it.

Investment strategies come with various levels of risk and target returns. It’s important that you choose investments that suit your risk appetite and need for returns.

There are also products that offer a regular and stable flow of income in retirement. Speak to your adviser to know your options.

Getting advice

It’s important to understand that retirement planning is a complex process that can make or break the kind of lifestyle you want later in life – which is why seeking professional advice can be both critical and beneficial. Talk to your financial adviser about how you can navigate this process.

Get in touch with Dev Sarker today on 1300 71 71 36 and start planning!

[1] ASFA Research and Resource Centre, 2017, Superannuation account balances by age and gender. Accessible at: https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y.

[2] ASFA, 2017, ‘How much do you need to get comfortable?’. Accessible at: https://www.superannuation.asn.au/media/media-releases/2017/media-release-4-december-2017

[3] ASFA, 2017, ‘ASFA Retirement Standard’. Accessible at: https://www.superannuation.asn.au/resources/retirement-standard