Retirement Planning: An In-Depth Guide to a Fulfilling Retirement​

​According to recent surveys, only 19% of Australians are optimistic about their retirement situations. While this is a sad fact, it's possible to boost your confidence and avoid disaster leading up to retirement as long as you do your research. Understanding how to plan for retirement is the first step to becoming optimistic about the next chapter in your life!

Retirement planning is essential to living out the rest of your life stress-free after you stop working. This means understanding hoe your superannuation retirement account works, budgeting for your chosen lifestyle, and getting your finances in order with the help of professional financial planners.

Here, we're going to discuss how you can take these steps. Read on for an in-depth financial planning guide so that you can have a long and happy retirement!

Understand Your Superannuation

If you're like most Australians, you know what superannuation (colloquially referred to as a 'super') is- the retirement fund filled with money that you set aside to access after your preservation age. However, you may not know the practicalities of accessing your super. That's what we're going to talk about here! Read on to learn the specifics on how you can save for and access your super during the course of your retirement.

Contributing to Your Super

Every Australian employer requires you to put a minimum of 9% of your earnings into your super so that you can access it later.

Let's say that you make $85,000/year. You would be required to put $7,650 into your super because of the 9% law.
However, this is nowhere near enough money for you to live even a modest lifestyle after you retire. 18-year-olds are currently recommended to put at least 12% of their salary into their superannuation accounts. If you're older than 18, you may want to consider setting aside up to 20% of your annual salary.

For the average Australian, contributing to your super regularly is well worth it. First, you aren't taxed on superannuation as you are in regular bank accounts. You can put $25,000/year into your super for a reduced tax rate.

If you make $85,000, you can contribute  $17,350 in addition to the required $7,650. In a regular bank account, you would be taxed $5,638 on this sum. However, you would only be taxed about $2602.

Accessing Your Super

You can access your super in full at 65 years old, even if you are still working. However, you can get access to the money in it before that, too, assuming that you've reached your preservation age. This age can be anywhere between 55 and 60, depending on when you were born. Your financial planner can help you figure out what your preservation age is and when the best time to retire is based on how much you will have in your super account.

In any case, your income during retirement will come from your super. You will have a few options for obtaining this income:

  • Account-based pensions, which turn your super into a regular income stream. You get to choose the size and frequency of transfers into your bank account from your super. This gives you a lot of control over your lifestyle so that you can budget appropriately on your own.
  • Annuity sums, which provide you with a steady stream of money each year during retirement. You can choose whether you want your annuity to last for a fixed number of years, your life expectancy, or the actual rest of your life.
  • Lump sums, which allow you to take your entire super out in one go. There are lots of pros and cons to this, but you generally should look into another option if you don't have a good financial planner. If you have professional help, then a lump sum is an easy and surefire way to access your money.

Any option that you choose will give you the choice to access your super as a single person or joint with a spouse. This is entirely the decision of you and your spouse.

Know Your Preferred Lifestyle

Before you can begin planning financially for your retirement, you'll need to assess the amount that you need to have in order to fund your preferred lifestyle.

The good news is that most Aussies who retire do so with more money than they previously had. Not only do you have the money you and your employer have already set aside as part of your superannuation, but you'll continue to get an annual income to fund your quality of life during retirement.

Most Australians aim to retire around age 65. If you want to live a modest lifestyle around this age, you'll need an estimated income of $24,250 a year for a single individual and $34,855 for a couple. For a comfortable/more extravagant lifestyle, a single individual will need about $43,665 and a couple will need around $59,971.

Some questions to ask yourself when determining your preferred lifestyle are:

  • What sort of home will you be living in and where will that home be located?
  • Do you plan to travel domestically? How about internationally?
  • How often do you plan to eat out?
  • What do your entertainment expenses look like?

Make sure that you answer these questions honestly when considering how much you'll need in your super. This corresponds to how much you should be saving in the years that lead up to retirement.

Get Your Finances in Order

Now that you understand how your super works and are thinking about what your preferred post-retirement lifestyle is, it's time to look into getting your finances in order. Read on for some tips on how you can budget for your retirement and live the life you've always dreamed of during this time!

Talk to a Financial Planner

The first thing you'll need to do when getting your post-retirement finances in order is to talk to a financial planner. These professionals have the tools and knowledge to help you figure out how much money you have, how much you need to set aside, and where you can allocate existing funds to maximise the utility of your funds.

There are a few things you'll need to do when selecting a financial planner. First, look into their portfolio and make sure that the planner has worked with clients that are similar to you. This means people of similar financial backgrounds and lifestyles. If a financial planner has more experience with needs like your own, they'll be more able to offer expert advice.

You'll also want to make sure the financial planner you're considering is legitimate by looking up their credentials at the finance firm that they work for. If you can't find evidence of education and experience, it's a sign that you should look elsewhere.
Once you select a financial planner and reach out, you can discuss many factors with them including your debt, budget, and future savings.

Debt and Retirement: The Connection

The first thing that you'll want to discuss with your financial planner is how your specific debt will impact your retirement.

Approximately 29% of Australian households are classified as being over-indebted. However, the vast majority of us have some kind of debt as they go into retirement. Australia is the nation with the second most in-debt households worldwide (after Switzerland.) The debt constitutes over 120% of our overall GDP, which doesn't look good for those who are soon to retire.

If you have a lot of debt to your name, you may need to have additional money in your retirement budget in order to pay off your debts. This means that you may need to wait until 65 to retire rather than doing so at your preservation age. It also means that you may want to save more for your retirement starting at an early age so that you can make the most out of your later life.
Set a Practical BudgetThe next thing you'll need to do is to set a practical budget for retirement. Make sure that you set enough aside for debts to be paid off, but also for essentials. This means home payments, food, insurance, and other home essentials.

On average, here's what these essentials will cost you each month:

  • Food / $368
  • Rent / $2,562
  • Utilities / $194

Plus, you'll need to add in more for clothes, personal care, and entertainment, which are expenses that vary greatly based on your individual lifestyle. Click here for more specific information on the average Australian budget.

If you want to retire earlier and have less money, you may want to talk to your financial planner about downsizing your home. There are beautiful houses in retirement communities around Australia that likely cost much less than you're currently paying, so look into that option! This will allow you to budget money for other things that you've always wanted to do but never had the chance to as a result of work.

Set Aside Money for the Important Things

When budgeting, set aside money not only for the essentials but also for things that are important to you personally. Retirement is a time when you have nothing but time. This means that you're going to want to set aside money to do the things that you've always wanted to do but haven't got around to yet.

This might come in the form of taking up new hobbies, like weekly golf or tennis lessons. These are weekly expenses that are just as important as other ones, so you'll need to budget for them.

You'll also want to have enough money to travel. Whether you want to go to unknown places abroad or simply have a look around Australia, you'll need to have the funds to pay transportation fees, buy food, and visit attractions in these new locations. You'll also need to be able to afford hotels when you're abroad or in new places. These parts of your budget will be much smaller than food or housing, but it's important that they're there.

Plan for Unknown Possibilities

Another thing you need to do before going into retirement is to plan for the unknown. As you get older, it's natural that you may begin to experience health issues. You will need the funds for doctor's visits and treatment plans for any diseases that you may develop. While no one wants to think about deteriorating health, it's a possibility that you need to plan for.

You also will need to have money set aside in case of global affairs. Having experienced a devastating wildfire and a pandemic in just a few short months illustrates the need to be prepared for an emergency when it chooses to strike. While you hope that these funds never need to be used, it's important that you have a little something set aside for a rainy day.

Finally- and you should talk to your financial planner about this- it's important that you have your assets all set up and ready to go to your next of kin. Even if you expect to have a long and happy retirement (as you should!), you'll be able to rest easy knowing that your loved ones will be taken care of after you leave them.

Start Retirement Planning Today

There are a lot of aspects of retirement planning. You may think that simply knowing what you want to accomplish during retirement is enough, but this isn't the case. There's a whole financial side to retirement that you need to be aware of and plan for. Make sure that you know how large your income will be, talk to a professional, and expect the unexpected.
Now that you know how to plan a fulfilling retirement both financially and practically, it's time to get started! Contact a financial advisor in your city for more information on how to begin budgeting and putting money aside for the next chapter of your life. You can find us in:

Click on the name of your city for more specific information. Our experts are more than happy to discuss finances with you and look into how much money you truly have to spend when enjoying your retirement.