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Five ways to plan now for a more comfortable retirement

Fine sand beneath your feet, gently swaying palm trees overhead and a
cool drink in your hand: retirement reality or mirage? It's up to you.

Whether it's five, ten or 20 years away, retirement may seem far off on the horizon, but it's never too early to take steps to help ensure you arrive at the lifestyle you want.

1. Determine how much is enough


If you're losing sleep over your golden years you're not alone – almost half of all Australians worry they don't have enough to retire on.

So, let's start with a ballpark figure: $43,372 per year will provide you with a comfortable lifestyle, or $59,619 if you're embarking on retirement with your partner1.

Then, after some initial high-cost years spent circumnavigating Australia or fulfilling your dream of trekking the Inca trail, your annual expenses should fall by about $4,500 to $5,000 by the time you reach 851.

But just how much you need is relative to the lifestyle you've become accustomed to.

For a more tailored budget estimate, use the Colonial First State retirement calculator and speak to a financial adviser like Patricia Garcia from WB Financial Bowen Hills. “We start by working out exactly what you're spending now then we identify the expenses that will continue in retirement and subtract the ones that won't,” she says.

Sounds simple, right? But you'd be surprised how often people have no idea what they're spending now. “Ninety per cent of the time, the first budget a client proposes isn't right so we have an ongoing review process,” Garcia says.

2. Pay down debt

Going into retirement without owning the roof over your head is certainly not ideal. The ongoing mortgage repayments alone will significantly eat into your annual budget, something that painting contractor Wayne and bookkeeper Carolyn were only too aware of.

“We were doing what most people seem to do – spending what we earned,” Carolyn says.

“We both had reasonable incomes but at that stage (the 1990s) we were still raising our children which tends to erode any extra cash.”

The couple was also creative about where they retired, choosing Bali for its low cost of living.

With the help of their financial adviser, Carolyn and Wayne adopted a cashflow and asset management system, and built up a share portfolio. The proceeds allowed them to pay off their home and boost their retirement savings considerably.

Other strategies include downsizing, selling or re-allocating assets to your spouse in a way that boosts pension income, giving you more money to pay down debt.

“With the property boom, often people are living in a property worth two or three times their retirement nest-egg. One option is moving to a less expensive location and using the excess funds to help provide for retirement,” says Garcia.

“Another option, if there's a big gap between your ages, is to have the majority of the assets in the younger person's name (as long as they’re under age pension age) as this can potentially increase your entitlement to the Centrelink Age Pension.”

3. Look at your super

Your super balance may be a little lacklustre if you've been self-employed, earning a lower wage or had money sitting in a poorly-performing fund.

For hairdresser Joanne and sales rep Robert, compulsory employer super contributions were unlikely to set them up for an early retirement.

But that's exactly what they've achieved, having salary sacrificed for decades, and ramped up their contributions in the last five years.

“I've been able to retire at 56 and Robert retired at 62,” says Joanne.

The couple was also creative about where they retired, choosing Bali for its low cost of living.

“We go out to dinner nearly every second night, get massages on the beach twice a week and we don't have expensive bills.”

Salary sacrificing strategies will continue to be available once superannuation changes come into effect, as will transition to retirement strategies, albeit with some changes.

With most transition to retirement strategies, you can salary sacrifice to reduce your taxable income and start a transition to retirement pension to top up your income or pay your mortgage.

But, if you've got time on your side, small changes can have a big impact on your super balance, says financial adviser Michael Rowland from Rowland Financial Advisory.

“Speak to your adviser – it might just simply be that you're contributing to super after tax and you should do it pre-tax,” he says.

4. Consider non-super strategies

Depending on your lifestyle and life stage, strategies that don't tie up your funds in super will be important.

“You might have a desire to help out kids with university, a car or a house deposit,” says Rowland.

Non-super strategies can include property investments or shares, and can leverage the equity in existing assets.

“You might look at investing in growth assets over a longer term to achieve a potentially stronger return and use that to pay down remaining debt closer to retirement, or build an income stream outside super,” he says.

You may also consider more tax-effective arrangements such as using a mortgage offset account, putting assets in your partner's name or establishing a family trust.

Insurance is another important investment, as WB Financial’s client and Brisbane resident, Carolyn, discovered after her husband Chris suffered a brain aneurysm.

“We had mortgages to cover on two investment properties, so it was great to have the income protection insurance money coming in regularly,” she says.

5. Just do it – take the first step

“Most people don't,” says Rowland. “They will talk and talk and talk and put it off to sort out later.”

So, while your path to retirement will depend on your circumstances, one thing is certain: time is your greatest asset.

“If you don't get on the planning bandwagon early, things get really difficult and you may end up with a retirement that's totally different to the one you pictured,” Rowland says.

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.