What Is Pre-retirement Planning in Australia?

Pre-retirement planning is an essential aspect of retirement in Australia. Learn about the importance of pre-retirement planning and how it can help you prepare for your golden years.

Retirement is a significant milestone in one's life, and pre-retirement planning is essential for a smooth transition to this new phase. 

Pre-retirement planning in Australia is the process of preparing for retirement before you actually retire. It involves evaluating your financial situation, setting retirement goals, and creating a plan to achieve them.

Steps to Take When Planning for Pre-Retirement

But you're getting there, you're still not quite there. You may significantly improve your quality of life after retirement while you're still in your most fruitful earning years. The phrase "pre-retirement" refers to this stage of life. This moment is crucial. How can you start making pre-retirement plans right now?

Do a Dry Run

Once you've retired, it's truly too late to make significant decisions. Such choices ought to have been made when you still had the ability to act. Do a dry run while you are still in that posture.

Analyse your projected retirement income to see if it will be sufficient to sustain the lifestyle you choose.

You must total the expenditures of your planned retirement lifestyle and the expected income from your super and perks to complete this assignment.

Does your revenue outweigh your outgoings? If not, now is the time to act.

Create a Timeline

In contrast to many other countries throughout the world, Australia does not have a set age at which one must retire.

Depending on your birth year, you can access your superannuation assets between the ages of 55 and 60 under existing legislation. 

Also, you may be eligible to begin receiving an age pension at 65.

Based on your preferences, your family status, and other variables, determine a timeframe. You can make better selections if you know when you want to retire and whether you want to do it all at once or gradually.

Update Your Estate

Even if you have been salary sacrificing for years, if you haven't given attention to the specifics of your estate, your retirement preparation may be lacking. Going into retirement with your estate planning in order is a wise decision. Check to see if the following elements are current and work in harmony with the rest of your financial strategy:

• Your will
• Your designations of Beneficiaries
• Combine your retirement funds
• Debts (personal loans, mortgages, credit card loans, etc) (personal loans, mortgages, credit card loans, etc.)
• Assets (property deeds, share certificates, superannuation funds, bank accounts, personal assets like jewels, bonds, automobiles, etc) (property deeds, share certificates, superannuation funds, bank accounts, personal assets like jewellery, bonds, vehicles, etc.)
• experts who advise
• Insurance

Find out from your financial advisor if you need to make any adjustments to your estate as you approach retirement. Are there steps you may take once you quit working, for instance, to lessen your tax burden?

Learn All You Can

You may set yourself up for a financially successful retirement by reading financial blogs, attending seminars, reading books, and speaking with professionals.

Even if you already work with a financial advisor you know and trust, it's a good idea to further your knowledge. 

You'll be well prepared for retirement if you have a thorough grasp of how retirement funds operate and how your particular plan fits into the overall picture.

Set Goals

With a solid understanding of your current financial situation and a clear vision of where you want to end up in retirement, you can accelerate your plan in order to reach your goals.

In order to profit from tax advantages or make up lost funds, you might need to give up more of your current wage. 

To be eligible for pensions, you might need to make changes to your assets or income. Reaffirm your commitment to retirement planning at this time. The years that actually matter are these ones.

Points to Consider to Help You Start Planning

You've probably considered socialising with friends, taking leisurely outings, and treating yourself to the occasional trip while considering how you'll spend retirement.

Have you thought anything about the logistics and expenses beyond that, though? If not, you are not the only one.

About half (46%) of working Australians don't know how much money they'll need to have saved for retirement, according to AMP's 2022 Financial Wellbeing survey.

Perhaps this is the case because so few of us have established clear objectives.

Just 24% of people have a financial objective; the remaining 76% have not yet written down their aspirations for their post-employment lives.

Considering all of this, it is not surprising that we are losing trust in our ability to retire.

More than one in five (21%) Australians who are now working lack complete confidence in their ability to maintain the style of life they wish after retirement. 

Four percentage points had been lost since the last survey two years ago. Less than one in ten (9%) people are also highly confident, a five-point decline.

Thus, if you're considering about starting your retirement planning early, here's a helpful checklist with the key factors to take into account.

Do I Have to Retire by a Certain Age?

The retirement age in Australia isn’t set in stone. You can retire whenever you want to, but factors that could play a part might include the following:

• your health
• financial situation
• employment opportunities
• your (and your partner’s) individual preferences
• the age you can access your super.

What’s on My To-Do List?

Think about what you may like to do in retirement and the bigger and smaller priorities. Consider things such as:

• your social life and recreation
• staying active and healthy
• different retirement living options, which might include relocating to a new city
• helping the kids, if you have any.

How Much Money Will I Need?

The Association of Superannuation Funds of Australia (ASFA) estimates that individuals and couples wanting to retire today at the age of 65 would need a yearly budget of around $47,383 or $66,725 to support a decent lifestyle.

Individuals and couples would require an annual budget of around $30,063 or $43,250, respectively, to live modestly, which is seen as better than surviving only on an age pension.

All of these ASFA values are contrasted with the Government's existing maximum age pension rates below and are based on the supposition that persons own their homes outright and are in generally good health.

The maximum pension supplement and the energy supplement are assumed in these rates.

Where Will My Money Come From?

The money you use to fund your life in retirement will likely come from a range of different sources, such as:

Your super fund

You may typically begin accessing your super after you retire and reach your preservation age, which will range from 55 to 60, depending on when you were born.

Understanding your super balance is essential for retirement planning because it probably makes up a sizable portion of your funds.

There may be benefits to combining your super accounts if you have more than one, such as only having to pay one set of fees.

Before you consolidate, ensure you're on top of everything because some benefits, like insurance, can be lost.

Investments, savings or an inheritance

You could have plans to sell investments like shares or rental property, utilise the income they generate, or use the money you've saved in a savings account or term deposit to make retirement contributions.

In your senior years, an inheritance or money from your family's estate may also be helpful.

Government benefits

You may be eligible for a full or partial-age pension starting at age 65 to 67 (depending on when you were born) based on your circumstances, income, and assets, or you may not be eligible at all.

Government benefits like the Age Pension, Carer's Allowance, and Disability Support Pension may also play a significant role in your retirement income and your savings.

You could also be able to get savings on health care and other goods by using concession cards, which are given out if you get certain government income assistance payments or the Commonwealth Seniors Health Card.

How Can I Withdraw My Super?

Depending on how you withdraw your super and at what age, there will be different tax implications worth investigating, which will depend on your individual circumstances.

In the meanwhile, the following are some of your possibilities for withdrawing your super:

Transition to retirement pension

Whether you continue to work full-time, part-time, or informally, a transition to retirement pension enables you to access some of your super via regular payments (after you've achieved your preservation age).

In the years leading up to retirement, this could provide you with some financial freedom, but there are a few factors to take into account, such as the fact that you'll typically only be allowed to withdraw a little amount each fiscal year.

Account-based pension

If you’d like to receive a regular income when you do retire from the workforce, an account-based pension (also known as an allocated pension) could be a tax-effective option, noting the value of it will be based on the super you’ve saved, so won’t guarantee an income for life.

Also, you won't have any restrictions on how much you may withdraw, but you will need to do it on a yearly basis. Be aware that you can typically transfer just $1.7 million worth of super into this kind of pension.

Annuity

Annuity products are another choice. Depending on whether you choose a fixed-term or lifetime annuity, they typically offer guaranteed income over a predetermined period of time or the remainder of your life.

They usually offer a guaranteed income independent of what could occur in the financial markets, making them a more safe alternative. But, you will lose some flexibility because you often cannot withdraw money in one lump payment, and your life expectancy may also be taken into account.

Lump sum

It might be tempting to withdraw some or all of your super savings in one go, especially if you need the money for debt repayment, child care, or a vacation. That might not be the ideal choice for everyone, though, since you'll need to think about how to support your way of life once the money runs out.

Although you could be qualified for government benefits like the Age Pension, they might not support the lifestyle you'd prefer to lead once you stop working.

Estimate Your Retirement Expenses

Knowing the ‘magic number of dollars you need to achieve the lifestyle you want is the million or $640,000 dollar question, according to The Australian Super Fund Association (ASFA).

To start working out how much you need, try using the Australian Government’s Moneysmart retirement planning calculator. The calculator helps you find out how contributions, investment options, fees and retirement age affect your retirement income from superannuation; in addition to the income you’re likely to have from superannuation and the Age Pension when you retire.

Take the income calculation and simply add the extra amount you think you’ll need to fund your ideal retirement; this is your ‘Magic number’. So if you get $60,000 a year from super and the Age pension, but your plan of enjoying a trip to Noosa each winter is estimated to cost an additional $4,000, your magic number is $64,000.

Start Boosting Your Super and Your Savings

Increasing your super contributions as you get closer to retirement is the first step in trading some short-term discomfort for some long-term benefit. The more potential you have to create investment gains, which benefit from compounding, the larger your super balance.

Payments made in lieu of wages are supplementary super contributions made before taxes. A percentage of your salary is immediately paid by your company to your super. This may cut your tax rate and lessen your taxable income, which are two further advantages.

Similarly, after receiving payment, you might increase your super. A contribution of any size is permitted, up to a total of $100,000 every year. Since you're not obligated to make recurring payments, you can make them whenever it's convenient for you or perhaps when you have some extra money.

If you are 65 years of age or older and have held your property for 10 years or more, you may be able to transfer up to $300,000 from the sale of your primary residence into your retirement account.

Downsize Your Home, Upsize Your Retirement

The financial advantages of reducing your house are obviously advantageous. Reduce your insurance and utility costs, release equity, and cease investing in property maintenance. It results in less time being spent on property upkeep.

Forget about trimming the yard, fixing the leaking faucet, and the rest of the maintenance "to-do" list. Finding a property that fits your retirement lifestyle counts as downsizing, not relocating to a retirement community. 

A residence is suitable for the period of life you are presently experiencing. A place where residents may actually live independently while being surrounded by other residents who share their views and are at a similar stage of life. No tenants live next door, too!

When you downsize to a lifestyle community, you won't need to spend money on things like a weekly gym membership, movie tickets, bowling dues, and much more since you'll have world-class, award-winning amenities at your fingertips.

Plus! When you downsize to a Lifestyle Community, you can lock up, leave and travel whenever you please. When you're gone, there are community managers on site to keep an eye on things.

Add to Your Spouse’s Superannuation

Increasing your spouse's superannuation is another option. This can be done in a couple of different ways, including making a spouse contribution using any savings you may have, or it could also involve using a strategy known as super contribution splitting. 

This is where you can have some of the money that’s been contributed to your superannuation throughout the year ‘split’ to your spouse’s superannuation account. Depending on your financial situation, any of these tactics could enable you to save some taxes.

Seek Financial Advice

To make a little, you sometimes have to spend a little. The last thing you want to do is blow your nest egg since you have worked so hard. seeking guidance on how to control your spending, handle assets and debts, understand your entitlements, and manage your super. 

You may be assured that your retirement plans are feasible by working with a financial advisor to develop realistic financial objectives.

Living the dream is enjoying the lifestyle of one's choice for many Australians. 

Whatever shape or form your retirement dream takes - with the right planning, attitude and advice, you can move forward each day knowing you’re taking steps towards greater financial independence and towards your version of the great Australian retirement dream.

Conclusion

Pre-retirement planning is essential for a smooth transition to retirement in Australia. It involves evaluating the financial situation, setting goals, and creating a plan to achieve them. 

The most important details are to update your estate, combine your retirement funds, set goals, and learn all you can to prepare for retirement. 

The Association of Superannuation Funds of Australia (ASFA) estimates that individuals and couples wanting to retire today at the age of 65 would need a yearly budget of around $47,383 or $66,725 to support a decent lifestyle. 

The money you use to fund your life in retirement will come from a range of sources, such as your super fund, investments, savings, government benefits, and concession cards.

Account-based pensions, annuities, and lump sums are tax-effective options for retirees, but they may not provide a regular income for life. Estimate your retirement expenses using the Australian Government's Moneysmart retirement planning calculator. 

Increase your super and savings to fund your ideal retirement, reduce your house, and downsize to a lifestyle community. Add to your spouse's superannuation, seek financial advice, and live the Australian retirement dream.

Content Summary

• Pre-retirement planning is an essential aspect of retirement in Australia.
• Learn about the importance of pre-retirement planning and how it can help you prepare for your golden years.
• Pre-retirement planning in Australia is the process of preparing for retirement before you actually retire.
• It involves evaluating your financial situation, setting retirement goals, and creating a plan to achieve them.
• The phrase "pre-retirement" refers to this stage of life.
• How can you start making pre-retirement plans right now?
• Going into retirement with your estate planning in order is a wise decision.
• With a solid understanding of your current financial situation and a clear vision of where you want to end up in retirement, you can accelerate your plan in order to reach your goals.
• Reaffirm your commitment to retirement planning at this time.
• About half (46%) of working Australians don't know how much money they'll need to have saved for retirement, according to AMP's 2022 Financial Wellbeing survey.
• More than one in five (21%) Australians who are now working lack complete confidence in their ability to maintain the style of life they wish after retirement.
• The money you use to fund your life in retirement will likely come from a range of different sources, such as Your super fund. You may typically begin accessing your super after you retire and reach your preservation age, which will range from 55 to 60, depending on when you were born.
• In the meanwhile, the following are some of your possibilities for withdrawing your super: Transition to retirement pension Whether you continue to work full-time, part-time, or informally, a transition to retirement pension enables you to access some of your super via regular payments (after you've achieved your preservation age).In the years leading up to retirement, this could provide you with some financial freedom, but there are a few factors to take into account, such as the fact that you'll typically only be allowed to withdraw a little amount each fiscal year.
• Account-based pension If you'd like to receive a regular income when you do retire from the workforce, an account-based pension (also known as an allocated pension) could be a tax-effective option, noting the value of it will be based on the super you've saved, so won't guarantee an income for life.
• Lump sum It might be tempting to withdraw some or all of your super savings in one go, especially if you need the money for debt repayment, child care, or a vacation.
• Estimate Your Retirement Expenses Knowing the 'magic number of dollars you need to achieve the lifestyle you want is the million or $640,000 dollar question, according to The Australian Super Fund Association (ASFA).To start working out how much you need, try using the Australian Government's Moneysmart retirement planning calculator.
• Increasing your super contributions as you get closer to retirement is the first step in trading some short-term discomfort for some long-term benefit.
• The financial advantages of reducing your house are obviously advantageous.
• Finding a property that fits your retirement lifestyle counts as downsizing, not relocating to a retirement community.
• When you downsize to a Lifestyle Community, you can lock up, leave and travel whenever you please.
• Increasing your spouse's superannuation is another option.
• This is where you can have some of the money that's been contributed to your superannuation throughout the year 'split' to your spouse's superannuation account.
• To make a little, you sometimes have to spend a little.
• You may be assured that your retirement plans are feasible by working with a financial advisor to develop realistic financial objectives.
• Living the dream is enjoying the lifestyle of one's choice for many Australians.
• Whatever shape or form your retirement dream takes - with the right planning, attitude and advice, you can move forward each day knowing you're taking steps towards greater financial independence and towards your version of the great Australian retirement dream.