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Essential Guide to Retirement Planning

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    Essential Guide to Retirement Planning

    Retirement is the concept of an individual ceasing from the workforce.

    The individual generally stops exerting their personal labour to earn an income and uses their accumulated wealth to derive a passive income to fund their lifestyle.

    Retirement is not a black and white event. Some people choose to leave the

    workforce and return temporarily whilst others choose to reduce their working hours but remain employed on a part-time or casual basis.

    The reality is that everyone’s personal financial circumstance is different and there is no set method of retiring. Planning your retirement based on your personal financial circumstance is critical to ensure that you get the most out of your resources to retire with the lifestyle you desire.


    1. Preservation Age

    This is the age in which the government allows you to access your super, should you choose. Find out your preservation age using the table below.

    Table 1.1 Preservation Age based on Date of Birth

    age template

    * Source: Australian Taxation Office

    If you are approaching your preservation age, there are many financially savvy strategies that you can put in place to maximise your resources for retirement.

    It is advisable to meet with a Financial Adviser and Tax Specialist to discuss these strategies to see if any are suitable for your personal financial circumstance.


    With continual changes to legislation and financial instruments, it is important that you have the most up to date and relevant information for your retirement planning.


    1. Age Pension Age

    This is the age in which the government pays you a pension to assist with your living expenses. The amount of the pension, the financial requirements and the age requirements to be eligible for the age pension are ever changing.


    The Normal Rates of the Age Pension at the time this is written (Nov 2019)

    * Source: Department of Human Services

    How much income do you need?

    It is important to point out that based on Klear Picture’s client data, an estimate for living expenses for an average single person is $30,000 per annum and $50,000 per annum at a minimum, for an average couple. Based on these estimates, the age pension is significantly below an ‘average’ lifestyle and as such, it is advisable that the Age Pension is not relied upon as a person’s primary Retirement Planning Strategy.

    The need for Self-Funded Retirees has never been higher than at the present point in time. This is based on both the individuals being able to retire with a comfortable lifestyle (rather than a compromised one on the age pension) and the government being able to afford age pension payments particularly whilst we have an aging population and the ‘baby boomer’ generation moving into retirement.

    Challenge the assumptions associated with history

    Over the past 30 years in Australia, share markets and property markets have generally increased in value as a long-term trend. This has led to many colloquialisms such as; ‘it is the time in the market rather than timing the market’ and ‘property always goes up’.

    Over the past few years, we have seen a significant change in market sentiment. The general trend is for people to ‘de-leverage’ (pay down debt), to keep excess funds in cash rather than invest it in the share market or property market and to wait for the property prices to come down to a level that is affordable before buying a home.

    Previously, home ownership was paramount to a couple’s statement of progress and/or success. However, more and more people are renting properties and in some cases at prices cheaper than the interest on a potential mortgage. Or are forced to rent as home ownership is a lot harder to achieve.


    What these trends indicate is a potential for our history to not repeat itself.

    • What if share markets and property markets do not have a long-term upwards trend?
    • What if they moved sideways?
    • Or worse yet, what if they moved downwards at the time you wish to retire?

    A long term downwards trending market environment can absolutely cripple a person’s retirement strategy as they are utilising their capital to derive an income. In 2017, the falling cash rate set by the Reserve Bank caused term deposit rates to fall so far that it became hard to keep up with inflation when deposit rates were around 2.3% and inflation at 1.9%. That’s a 0.4% real return! This resulted in retiring getting tougher for many retirees, who were forced to remain in the workforce longer.

    If that capital base is decreasing over time, the amount of income able to be derived from that capital base becomes compromised. It is essential to meet with a Financial Advisers to discuss your options should markets move unfavourably and to also evaluate potential financial strategy responses to unfavorable market conditions.

    A good Retirement Plan will be dynamic and be able to react to adverse movements. It will also have strategies to protect your resources and minimise chances of the worst-case scenario happening to you.

    1. Resource utilisation

    A simplified example of underutilised resources is below. This is loosely

    based on a real client’s circumstance.


    CASE STUDY: Underutilised Retirement Structures


    John Smith worked with Australia Rail for 30 years. Over this time, John managed to build his superannuation up to $500,000. John retired this year and wants to use his $500,000 to fund his retirement. He also doesn’t want to take any risks and he wants to protect his retirement nest egg.


    Australia Rail sent John a letter saying that they can continue ‘Administering’ his

    superannuation for a nominal fee of $50 per annum. They thank him for his dedication to the industry and John feels like he is being looked after by Australia Rail.


    John then decides to meet with an adviser to review his current Retirement strategy. After analysing John’s situation, the adviser shows John ways to improve his finances.


    The first solution discussed was a Self-Managed Super Fund (SMSF).


    Australia Rail SMSF
    Balance: $500,000 $500,000
    Invested in: Cash Cash
    Rate of Return: 4% 5.5%
    Admin Fee: $50 $3,300
    Yearly Income: $20,000 $27,500
    Yearly Fees: $50 $3,300
    Net Position: $19,950 $24,200


    The annual improvement is: $4,250 per annum. John paid $2,500 for this advice. In the first year, John was better off by $1,750. In subsequent years, John was better off by the full $4,250 per annum.

    The major efficiency was the ability for the SMSF to directly invest in the financial product without any investment manager fees or platform fees. Whilst the Australia Rail admin fee was significantly cheaper, there was also a significant investment manager fee that compromised the overall return.

    This is a classic example of inefficiently structured financial instruments as well as good financial advice. It also depicts how a Financial Adviser can improve your financial circumstance.

    John was presented several options and ended up selecting a SMSF investment strategy earning him $36,000 per annum and will review his investment strategy each year with us. $16,050 better off!


    1. Know Your Numbers

    Having a thorough understanding of your budget can allow you to make more effective investment and retirement planning decisions.

    By understanding the amount of income that is required, we can work out the most efficient way to structure your assets.

    Generally, assets produce returns in two different ways:

    1. Income
    2. Growth

    The most important item is to ensure that your retirement funds are able to produce enough income to fund your budget. Otherwise, there will be a cash shortfall and either your lifestyle will need to decrease, or assets will need to be sold.

    On the flipside, producing too much income may be inefficient because there may have been alternative growth assets that were able to increase your wealth larger than the amount of income produced.

    By Knowing your numbers such as; required retirement income AND current income producing assets, the income and growth prospects of those assets and your timeframe, you will be in a much more effective position to evaluate various financial strategies and choose the one most suitable for your personal financial circumstance.


    Retirement Planning is a highly specialised field.

    • Good financial planners won’t sell you large volumes of generic product so that they can meet their personal key performance measures.
    • Good financial planners will gather information to thoroughly understand your personal financial position.
    • They will also educate you as to the various Financial Options, Financial Risks and Financial Outcomes that you can expect based on a set of assumptions.
    • They will ensure that your resources are able to meet your income requirements as well as have counter measures in the event of adverse market movements. Retirement Planning is such an important and complex item to consider, particularly in today’s complex regulatory world.

    Meet the Klear Picture team to discuss your Retirement Plans today.

    Try this Retirement Worksheet to see how you’re placed for retirement today.

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