For most Australians, a comfortable retirement is a long term goal that remains in the back of our minds for many years. Many of us (especially the baby boomers), watched our parents & grandparents struggle along on a Government pension and vowed never to do so ourselves. The Australian Bureau of Statistics (ABS) survey in 2013 found that 49 per cent of people aged over 45 expected superannuation would be their main source of income at retirement.

For every generation that joins the workforce, aspirations for an earlier or more comfortable retirement are a common goal.

In our office over the past 12 years, we have been lucky enough to help hundreds of investors of both pre and post retirement age. This gives us an invaluable insight into the different issues that retirees can face.

So, what information should you consider when planning for retirement?

1. Think hard about the income you will realistically need when you retire

Unless you are incredibly wealthy, it can be very difficult to adjust for people who retire without pre-planning for the income level that they will need. It is absolutely essential to have an honest conversation with yourself before retiring; what do I really need to draw-down in order to live the life I want?

Many people retire without a plan for income & lump sum drawings, and end up either spending too much or too little. By setting a budget in place before retiring (even just an estimate) and revisiting this every year, you can ensure that you are optimising your retirement funds and also living the life you want. After all, you deserve it. Indeed, a financial adviseris a great way to help you plan for retirement, as we come across a broad cross section of retirees every day.

2. Revisit your investment risk profile & portfolio asset allocation

Some investors retire and consider cashing in their portfolio on the basis that they can “never earn those funds over again”. These people fail to think about whether their investment will continue to grow or even earn an income above inflation. As cash rates are very low currently, this is not an ideal strategy for any investor drawing a retirement income from their portfolio.

On the flipside, some investors also fail to revisit their portfolio exposure to equities or gearing (borrowing) pre or post retirement.  It is important to not only regularly benchmark your portfolio against your chosen ‘comfort level’ before you hang up the work boots, but also once you stop working. Your objectives and time frames for investing will no doubt change over time.

Retirement is not necessarily a trigger to make huge changes to your portfolio structure, but it’s important that you discuss the portfolio breakdown with your independent financial adviseron a regular basis to ensure it stays appropriate for you personally.

3. Is it essential to fully retire?

For a person currently aged 65 in Australia, the average life expectancy now extends to an average of 85 years of age. Older generations in our country retired in their 50’s and early 60’s as life expectancy was much shorter. Now as life expectancy extends with medical treatments and better lifestyles, so too does the length of time a person will need to fund their retirement without employment income. According to the ABS, almost one in five Australians over the age of 45 plans to work until at least age 70 but the actual average retirement age does remain at 63.4 years, which is a long time to fund your lifestyle without bringing in any new income if you have not accumulated enough.

The question on the table really is; with adaptable employment contracts and accommodating employers nowadays, the ability to draw part pensions and particularly the flexibility for those with a Self-Managed Superannuation Funds (SMSF), do you really need to fully retire? We are starting to see a real cultural shift occur with investors, who may reduce working hours to part-time but continue to work in their late 60’s and early 70’s, or take leave of absence periods for extended periods of time, but then return after a holiday, time off for grandchildren or just to spend some time enjoying their family, friends and hobbies. This can be great for employers too, an easy and slow transition out of business, protecting corporate memory and providing training for future generations.

One of the benefits of an SMSF is the ability to switch your pension on and off relatively easily in retirement if your working hours change. Obviously there are regulations in place that need to be followed, but with the right SMSF specialist accountant and adviser, the process is simple.

Where to from here?

The moral of this story is that forward planning for retirement is absolutely key, as is regularly revisiting your retirement objectives and investment portfolio, but most of all putting your lifestyle goals first. If you can keep a handle on these three issues, you can enjoy your work life and look forward to retirement with sufficient income to sustain you.

If you would like to discuss the issues above or any other matter relating to retirement, feel free to contact us here.