Guide to Retirement Planning in Australia

Australians have it a little harder than others when it comes to retirement planning. However, with a shorter retirement savings period and a higher cost of living, you need to start planning for retirement early on. This guide will give you an overview of the basics of retirement planning in Australia so that you can get started on your plan today.

When you think about retirement planning, what comes to mind? For many people, retirement seems like a lifetime away. But the truth is, it's never too early to start planning for retirement.

In this guide, we'll outline some of the key steps you need to take to ensure a comfortable retirement. So whether you're just starting in your career or nearing retirement age, read on for helpful tips on how to plan for the future.

Are you nearing retirement and feeling a little lost about what to do? You're not alone. Australia's pension system can be confusing, and it's not always clear how to make the most of your savings. This guide will walk you through everything you need to know about retirement planning in Australia.

We'll cover the basics of the pension system, investment options, and ways to reduce your tax bill in retirement. By the end of this guide, you'll be ready to make confident decisions about your retirement planning!

Like most Western countries, retirement planning is a hot topic in Australia. The country's aging population and lengthening life expectancy have made it more important than ever for people to save for their golden years.

But what does Australian retirement planning look like, and how can you get started? This guide will answer those questions and provide some tips on making the most of your retirement savings.

It's important to know the ins and outs of retirement planning in this country. This guide will outline some of the key things you need to consider when planning for retirement in Australia. We'll also provide some useful tips on making the most of your retirement savings.

So whether you're just starting to plan for retirement or you're already well on your way, read on for helpful advice from our team of experts.

There are many things to think about when it comes to retirement planning. How much money do you need to have saved for a comfortable retirement? At what age should you retire? How do you go about creating a retirement plan?

These are all important questions that require careful consideration. In this blog post, we will provide an overview of retirement planning in Australia and offer some tips on getting started.

So whether you're just starting to think about retirement or you're already well on your way to securing your future, this post is for you!

Let's get started!

Live Your Dreams

How do you envision spending your time once you've retired? First things first, you need to decide where you want to reside and what kind of house you desire.

It's possible that you want to take a trip overseas while you're still in good physical shape, or that you want to buy a van and travel around Australia. Do you wish to have a busy social life where you frequently go out to eat, play golf, and meet new people, or are you more of a homebody who enjoys gardening, craftwork, and pottering in the shed?

Consider the expense of creature comforts as well, such as the capacity to upgrade vehicles, computers, and mobile devices, purchase excellent clothing and wine, and pay for private health insurance. Lastly, think about the cost of private health insurance. You may also wish to provide financial assistance to the children or assist with the payment of educational expenses for the grandchildren.

Talk about what you're thinking with your spouse or significant other if you have one. Find out now, while there is still time for you to change your plans, if you have different aspirations and expectations about how you want to live in retirement. It is better to find out now than to find out later.

Recognising Your Retirement Requirements

If you are aware of your current financial situation and the things you want to accomplish in your life, it will be much simpler for you to prepare for your life once you retire. Because of this, we strongly suggest that you include the creation of a plan for your retirement as an integral component of your overall financial strategy.

But before you do one of those things, you need to ask yourself the following difficult questions:

1. How much does it cost you to live the way you want to?

This question is one of the cornerstones of your plan, and the answer to it will offer you a clear picture of just how much money you'll need to live the life of your dreams once you've retired from work. To find the answer to this question, you should maintain a record of all of your present expenditures so that you can estimate how much it would cost you to live a pleasant lifestyle.

2. How can you manage your spending?

When you have a comprehensive understanding of your current financial situation, the next step is to determine how you might enhance your financial future by reducing the costs you incur in the present.

For instance, rather than shelling out $1,500 a month in rent, you could make plans to buy and pay off property so that you won't have to worry about rent payments once you've reached retirement age.

3. How much risk can you take?

This question serves as the foundation for all aspects of investment and constitutes an additional important part of your retirement strategy. Investing in something that yields a lower return is generally safer, but investing in something that yields a larger return will typically involve a greater amount of risk.

Despite the fact that there is always going to be some level of volatility associated with investing, people with a longer time until retirement will be better able to withstand these changes than those who are very close to retiring. Including investments in your planning is highly recommended for this same reason.

4. What kind of monetary liquidity do you prefer?

Do you require the ability to have quick access to cash once you stop working, or are you okay with your money being tied down to an investment?

When compared to the purchase of real estate, which would require you to either find a buyer or take out a loan using your property as collateral, certain stocks, for instance, are among the most liquid types of investments because they can be sold on the market at any time. On the other hand, in order to get access to your money when you buy real estate, you would need to sell it first.

Check out our tutorial if you're interested in learning more about the distinctions between investing in stocks and investing in real estate.

5. What time frame do you have for retiring?

Your timeline to retirement, or the amount of time that remains between your current age and the age at which you would ideally like to retire, can have a significant impact on the structure of your plan, despite the fact that it may not appear to be crucial at first glance.

For instance, if you are in your mid- to early-20s and you plan to retire when you are 60, you have approximately 40 years to adopt a number of different financial methods in order to save more for life after work over the course of a prolonged period of time.

A more extended period of time gives you the opportunity to potentially utilise tactics with a higher level of risk, such as investing your retirement savings in a high-growth fund. In addition, the additional time you have at your disposal will make it easier for you to weather any swings that may occur in the financial markets.

In contrast, if you are in your 40’s or 50’s and are expecting to retire at 60, you may have to be more conservative with strategies you implement to achieve your ideal retirement.

Depending on your specific financial circumstances and the distance between where you are now and where you would like to be, it is possible that you will need to adjust the lifestyle that you would like to have after you stop working in order to be able to afford it after you stop working.

Let's say you're having trouble figuring out how long it will take you to go to retirement and you're not sure where to begin. If this is the case, your financial advisor will be able to assist you by assisting you in elucidating your post-work goals and determining the course of action that will allow you to realise those goals.

6. Which kind of retirement lifestyle are you interested in?

Your response to this question should involve some thought on the kind of life you would like to lead when you have finished working. For instance, some people picture themselves going on annual vacations all around the world, while others are quite pleased with the idea of simply appreciating the natural beauty of Australia.

Planning for retirement is not just about ensuring one's own survival; it's also about gaining independence. The preparation that you do now will determine a number of things about your future, including whether or not you will be able to go on vacations and eat out.

Let's begin to consider the expenditures involved with our post-work goals now that we've started to think about what we want to do after work.

Let's say that the rent on your home is $2,000 per month, and the cost of your food is $1,200 per month. You spend roughly $1,000 per month on other miscellaneous expenses, and you go on a trip every year that costs you $10,000. Your pleasant lifestyle will cost you a total of $60,400 per year with this amount.

When seen on a weekly basis, this translates to the following:

• $500 for Rent
• $300 for Food
• $250 for Miscellaneous Expenses
• $208.33 for Holiday Savings
• This brings your weekly expenses to a total of $1258.33

Now factor in that people will only be able to receive the government Age Pension at 65 and 6 months (as of July 2017), and the Age Pension age will continue to go up by six months every two years until July 2023.

When all of this is considered, it is simple to see why it is so crucial to plan in order to make your aspirations for life after work a reality in the future.

For the remainder of this tutorial, we will continue to base our calculations on the situation described above; however, you are free to determine your hypothetical budget depending on the way you actually live your life.

Creating a Superannuation Plan

You have definitely been familiar with the term superannuation, which is more commonly referred to simply as "super," and you presumably have a general knowledge of how it operates and what role it plays in retirement planning.

However, beyond that, the typical Australian probably does not know very much about the specifics of their superannuation. It's astonishing how often a retirement plan's superannuation component is an afterthought, given how important it is to a secure financial future in old age.

However, the nature of super does not have to be kept a secret. You can attain the post-work future you've always dreamed of by utilising a variety of financial techniques to guarantee that you are making the most of your superannuation to reach your goals.

One of these options is making voluntary contributions to your super, which can provide you with a number of tax advantages, especially if your salary is significantly greater than the average income in your country.

It is arguable that making voluntary contributions to your superannuation fund is one of the most effective strategies to ensure that you are on track to reach the lifestyle you see enjoying after you have finished working.

Think of it like this: by voluntarily investing in your super through concessional and non-concessional contributions, you are effectively lowering your tax obligations in the present while investing in your future by bolstering your income once you retire.

After all, the idea behind getting the most out of your retirement savings is rather straightforward: to reduce the amount of taxes you owe in the here and now while also assisting you in realising your goals for the foreseeable future.

What is the price?

The majority of financial experts agree that in order to maintain the same standard of life that you had prior to retirement, you will require somewhere between two thirds (66%) and eighty percent (80%) of the income that you earned before you retired.

This is due to the fact that once you reach retirement age, you will no longer be responsible for making payments towards your superannuation or mortgage. This is provided, of course, that you do not have any outstanding debt on your property.

Visiting the ASFA Retirement Standard, where you'll find detailed budgets for various households and living standards, is a fantastic approach to get started thinking about your needs in retirement and figuring out a budget. The ASFA Retirement Standard is available online. The budgets are revised on a regular basis and are based on the assumption that you own your own house.

According to estimates provided by ASFA, a person aged 65 living alone would require around $27,913 per year, while a pair would require $40,194. A pleasant lifestyle would set an individual back approximately $43,787 and a couple back approximately $61,786.

Some people will enter retirement with the expectation of leading a lifestyle that is far more luxurious than comfortable, particularly if they were accustomed to earning an income before to retirement that was somewhat higher than $60,000 per year.

To put these numbers into perspective, the full Age Pension for a single person is currently $24,268 per year, while the full Age Pension for a pair is $36,582 per year. As can be seen, this does not go very far towards ASFA's meagre budget, much less a comfortable living. This is especially problematic for retirees who, in addition to their other costs, are still making payments on a mortgage or renting an apartment.

In retirement, different people will have various financial requirements to meet. Nevertheless, the sample budgets that were utilised in the computation of the Retirement Standard may prompt you to contemplate the possible charges that you would incur on a weekly and annual basis.

Because the budget is so comfortable, there is room for increased spending on things like health care, insurance, home upgrades, clothing, eating out, entertainment, and vacations.

How much is required to fulfil a dream?

Once you have a general sense of how much money your ideal retirement lifestyle would cost, the next step is to determine how much money you will need to put away in order to finance it.

In order to accomplish this, you will also need to consider how long the money you have needs to last. Considering that none of us knows how long their life will last, this is not a simple assignment to complete.

Let's say you want to retire at the age of 65 but you want your money to survive until you're 85 years old, which is the national average life expectancy.

Using the ASFA benchmark, the amount of a lump payment needed by couples to support a pleasant lifestyle of $61,786 per year is approximately $640,000, while the amount of a lump sum needed by singles to fund a comfortable lifestyle of $43,787 per year is around $545,000. This is based on the assumption that your investments generate a return of 6% and that you receive a portion of an age pension.

A couple of qualifiers are in order here. To begin, the minimum age requirement for receiving an Age Pension is 66 years old; however, that minimum age will progressively grow to 67 years old from July 1, 2023.

It is possible that you will need to change your retirement age in order to account for the fact that you intend to supplement your super with a full or partial Age Pension. And if you are a more cautious investor who chooses to earn returns on your investments that are lower than 6%, you will need a larger emergency fund.

How much do I currently have?

The next step is to work out how close you are to making your retirement dream a reality by calculating how much you have saved already in and out of superannuation.

You may determine how much money you have in your retirement account by finding your most recent statement or going online to the website of your fund. Include in this total any savings or other assets that you have that are separate from your superannuation. Finally, to determine your current nett savings, you must first deduct all of your debts, which should include any outstanding loans and credit card bills.

Are You On Course To Meet Your Goal?

If you keep up your current savings approach until the time you plan to retire, you can now determine how much money you are likely to have saved up by that point in time. Due to the impossibility of accurately predicting future market performance, future interest rates, and future government policies, this will be the best approximation feasible.

The ASIC MoneySmart website has online calculators that can help you with this. You will need to include Superannuation Guarantee payments made by your employer, salary sacrifice amounts or regular voluntary contributions. Don't forget to add cash, shares, property, and any other investments you hold outside super.

Getting Close

You still have options available to you even if your ideal retirement lifestyle and your anticipated savings fall far apart.

If you haven't procrastinated your planning until the very last minute, you should try to make additional contributions to your retirement account up to the annual limit of $25,000 that is tax deductible. You might be eligible to make catch-up contributions if you have unused cap amounts from past years and a total super balance that is lower than $500,000 at the end of the year.

Do not forget that you are able to make an after-tax contribution of up to $300,000 in any three-year period regardless of whether you have additional money to invest or obtain an unexpected windfall. This site provides information regarding various superannuation contribution schemes, which you can read up on.

You could, as an alternative or in addition to the other measures, postpone your retirement. This has the dual benefit of allowing you to build up a larger savings cushion while simultaneously cutting down on the number of years over which you will need to tap into it. You also have the option of lowering your expectations; however, this should be your very last choice.

Bear in mind that our retirement system is comprised of three distinct parts or pillars. To begin, in addition to their retirement assets in superannuation and personal accounts, the majority of pensioners also get a full or partial Age Pension.

Receiving even a small amount gives you access to valuable pensioner benefits and discounts via the Commonwealth Seniors Health Card and the Pensioner Concession Card.

Because people in Australia live longer and healthier lives, a significant number of us can anticipate having virtually as many years of enjoyment in retirement as we enjoyed when we were actively employed.

This involves meticulous preparation of one's finances. It is recommended that you obtain counsel from an independent financial professional well in advance of your retirement. However, if you follow through these seven steps first, you will be in a better position to acquire the guidance that you require.

Figuring out how much money you will need to fund the lifestyle you desire during retirement and how much money you can come down to a number of different things.

These include whether you own your home, the value of your superannuation and other investments, the return you make on those investments, income from other sources, and how you spend your money on a regular basis.

If you start planning and making up for any money shortfall as soon as possible, your chances of really realising your ambition will increase significantly.

FAQs

1. Isn't the super contribution from my job sufficient?

Simply expressed, the answer is no. Even though your company is mandated to contribute 9% of your annual pay to your superannuation fund, that amount is not even close to being sufficient for you to be entirely self-funded and comfortable once you have retired from your job.

Imagine that you are reading this and that you are older than 18 years of age. If this is the case, you would most likely need to contribute a substantially larger percentage in order to achieve the same level of financial security as an individual who is 18 years old who saves the suggested 12% of their annual wage in a superannuation account.

2. How can I strengthen my great balance today?

The planning of your superannuation centres around a formula that consists of three factors: the money you contribute, the returns on your investments, and any fees and taxes that need to be paid.

Although there are many alternative approaches to take when preparing the best superannuation strategy for your requirements, the primary goals should be to minimise your tax liability and make the most of your retirement savings.

Now, let's look at a scenario using the 2018-19 tax rates. If you'd like, you can follow along using the simple tax calculator the Australian Taxation Office provides.

If you have an annual income of $85,000, you will be required to make a payment of $3,572 in addition to 32.50 cents on every dollar earned that is more than $37,000.

Your overall income is increased by the amount of any capital gains, which are defined as assets that are sold for a profit during the first year of acquisition. Because of this, each dollar of your income is subject to taxation. According to this illustration, your tax rate would be 32.50 cents per dollar up to a total income of $85,000, and then 37 cents per dollar above that threshold.

However, if you opted to contribute some of your income into your superannuation account, the amount of tax that you would owe would be reduced to 15 cents on each dollar, and the amount of tax that you would owe on any capital gains would be reduced to 10 cents on each dollar.

The government does this to encourage its citizens to fund their retirement. So, you either have the option to pay around 32.50 cents on every dollar or 15 cents on every dollar. It sounds like a no brainer, right?

The government agrees and has capped out superannuation contributions to $25,000 per year, including the 9% your employer contributes and the portion of your salary you choose to contribute.

If you earned $85,000 a year, your employer would contribute $7,650 to your superannuation account, and you would have the option to contribute an additional $17,350 at a reduced tax rate before you reached the contribution limit. If you earned less than $85,000 a year, your employer would not contribute anything.

3. Does it make sense to pay into my super?

We believe that it is worthwhile for the typical Australian to make contributions to their superannuation account; nevertheless, the answer to this question will depend on the specifics of the individual's own set of financial circumstances.

If you did not donate the $17,350 that you had the opportunity to contribute in the previous example and instead kept it in your bank account, you would be required to pay taxes totalling $5,638.

If you made a contribution of that amount to your retirement fund, your total obligation would be reduced to $2,602.50. Additionally, the $3,036.25 in taxes that you would have been required to pay to the government if you had continued working will be waiting for you once you have completed your labour and will continue to accumulate interest on a yearly basis.

As you get older, making contributions to your retirement fund also becomes more and more beneficial:

• If you are above the age of 50, the maximum amount you can contribute to your superannuation is now $50,000.
• When you reach the age of 60, you will no longer be required to pay income tax on the money in your superannuation account.

But waiting until you're older to contribute to super would be a huge waste of an opportunity, as contributing as much as you can. At the same time, being younger allows you to reap the benefits of compounded interest.

In order to demonstrate this point, we will use the scenario from question two in conjunction with the ASIC calculator for super returns. If you started contributing the maximum amount to your retirement account when you were 26 years old and continued doing so until you reached age 67, you would have saved a total of $822,218.

You will have achieved a reasonably durable cushion of financial support for your life once you retire if you save enough money before you stop working and combine it with any additional income from the government you receive at that time. In addition, by making contributions to your superannuation account over the course of these 42 years, you would have effectively saved a total of $127,522.50 ($3036.25 x 42).

You would then receive these savings as a post-work income, which would enable you to fully appreciate all of the fruits of your labour and allow you to live life to the fullest.

4. Should I consult a financial counsellor about my super?

Without a doubt, sure. Although these calculators are able to present you with a rough picture of where your account could currently be headed, there is no alternative for the professional and individualised advice that can be obtained from a reputable financial advisor.

The purpose of this guide is to give you with the essentials of retirement planning; however, there are many other ways in which planning can be modified to make the most of the opportunities presented by your specific financial circumstances.