Planning for retirement? Start with these 5 steps

It’s never too soon, or too late, to plan for life after work. When you’re in your 20s, 30s, or even 40s, retirement may seem like a lifetime away. But is it ever too early to start preparing yourself for a future of financial confidence? Definitely not.

The best time to start planning for retirement is now. Now’s the time to stop and consider what life after work can look like.

It’s important that you’re in control of your money as you get ready for retirement – whatever that looks like for you. And retirement planning, while unique to you, doesn’t need to be complicated. These five key steps will help you get ready for retirement.

1  Set clear retirement goals

The very first step in retirement planning is to define what you want your retirement to look like. When you hear the word retirement, what do you think of? Whether it’s a hard stop to working life, or something you ease into through part-time work. Understanding what the word ‘retirement’ means to you will help you start planning for it. 

Consider the following questions:

  • When do you want to retire? Determine your ideal retirement age, keeping in mind that it may affect your savings strategy. While most of us may dream of retiring early, there are generally two retirement age rules that affect when most Australians can retire. These retirement age rules are the same for both men and women.
    • Age 60: this is the earliest age where it’s possible to access your retirement savings under the ‘retirement’ condition of release or start a ‘transition to retirement’ pension. 
    • Age Pension age: this is the age when you can access Australia’s Age Pension, provided that you meet the eligibility criteria – which includes a residency test, income test and assets test.
  • What lifestyle do you envision? Think about where you want to live, what activities you want to pursue, and whether you plan to travel. Perhaps it’s a dream of taking up a new hobby, maybe it’s extensive travel, volunteering for a charity, spending more time with your family and friends, or even still working part-time. 
  • What are your anticipated expenses? Estimate your future costs, including housing, healthcare, travel and leisure activities. You may also want to financially help your children or grandchildren.

Having a clear vision will help you set specific, measurable goals.

2  Assess your current financial situation

Next, take stock of your current finances to understand your starting point. This includes:

  • Income sources: Identify all sources of income, such as salaries, rental income, or investment returns.
  • Assets and liabilities: List your assets (savings, investments, property), and liabilities (mortgage, loans) to gauge your net worth.

This assessment will help you determine how much you need to save and invest to reach your retirement goals.

You should also understand how much you currently have in super. Super is a long-term investment vehicle that carries you through two phases of life. There is an accumulation phase followed by a retirement phase, but it’s important to note that these aren’t mutually exclusive.

You can have some of your super in an accumulation account and some in a retirement account as you navigate your way between the two. Understanding the difference is important though, as each phase has different tax treatment, rules and potential strategies. 

3  Estimate your retirement income needs

Once you have a clear picture of your goals and current finances, think about how much income you’ll need during retirement. Will you be jet setting around the world? Dining on lobster or cheap and cheerful takeaway? Do you want to financially assist your children or care for elderly relatives? These factors should be taken into account when planning how you want to fund your retirement, as well as the type of lifestyle you will lead.

 

One of the most frequent questions our planners get asked is: “How much do I need to retire comfortably in Australia?”

The answer depends largely on how you’d like your retirement to look and how much (or little) you want to do during your retirement years. We often hear specific figures bandied about, with some observers saying you need a million dollars, but that is not the case. 

So, how much is enough? While we all hope for a simple answer, how much money you need in retirement differs for everyone. 

How much are you spending today? Do you think you’ll spend more, less or the same in retirement? And by how much: 5%, 10%?

Consider:

  • Government benefits: understand your eligibility for Age Pension and government benefits. For other types of payments, including carers allowance, use Centrelink’s payment finder. For information about payments for veterans see income support on the Department of Veteran’s Affairs (DVA) website. 
  • Pension plans: if you have a pension, understand its benefits and when they will be available.
  • Withdrawals from retirement accounts: plan how much you’ll need to withdraw from your savings to cover any gaps.

4  Create a savings and investment strategy

When your retirement income needs are estimated, we can develop a personalised strategy to accumulate the necessary funds. This involves:

  • Setting a savings target: Based on your income needs and how much you’ve saved so far, we can help you determine how much you need to save annually.
  • Choose appropriate investment options: It’s important to decide how to invest your savings, balancing risk and return. Diversification is key to managing risk in retirement. As you approach retirement you may prefer to dial down the risk of your investments (both inside and outside of super) and opt for a more conservative strategy. We can help you with this.
  • It is also important that you understand and review how your super is invested. After all, it is your money and the investment strategy you select can have a major impact on the returns your super earns over time. 

5  Monitor and adjust your plan

Retirement planning is not a one-time task; it requires ongoing monitoring and adjustments. Regularly review your financial situation, savings progress, and market performance. Consider:

  • Life changes: Major events, such as marriage, divorce, or the birth of a child or grandchild, can impact your retirement plans.
  • Review your investments approach: Regularly reviewing your investments is important to ensure they still meet your financial goals, risk level and personal circumstances. We take time to understand the risk and return profile that is suitable to you and adjust your investment strategy accordingly. Our Financial Planners can also assist you with this. 
  • Manage withdrawal rates: Be aware of how much you’re withdrawing from your pension each year to avoid going through your savings too quickly. For an account-based pension, the minimal drawdown rate for under 65s is 4%, gradually increasing to 14% when the member turns 95.

Establish a routine for annual reviews with your Bridges Financial Planner to keep your plan aligned with your goals.

 

Extra tip: start planning today

Whether you’re 25 or 55, it’s never too early or too late to start preparing. The earlier you start planning for retirement, the more prepared you’ll be for the future you envision. And by acting early, you can take advantage of compound interest, allowing your savings to grow significantly over time. 

Plus, starting early gives you the flexibility to navigate unexpected expenses and life changes without financial stress. By following these five steps – setting clear goals, assessing your finances, estimating income needs, creating a savings strategy, and monitoring your progress – you can work towards a fulfilling and secure retirement.

Don’t wait for the perfect moment – begin mapping out your retirement goals today. Your future self will thank you!

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Disclaimer: The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this newsletter. This information is of a general nature only. It is not intended as personal advice or as an investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.