National Seniors Australia (NSA) recently released a report looking at the retirement planning strategies of over 1,800 pre-retirees. What it found is that an alarmingly high proportion of people are leaving their senior years to chance.
Only around 62% of pre-retirees report having plans in place for their finances, with about 27% making plans for their health and even fewer laying foundations for their retirement lifestyle.
Longer life expectancies mean we can expect to spend 20 or even 30 years in retirement. That makes it a good chunk of our lives – and with some planning, retirement can also be a good time in our life.
There’s no doubt one of most important considerations facing pre-retirees is how to use their financial resources to enjoy the best possible post-work lifestyle. This is even more essential for the large proportion of people who plan to exit the workforce before reaching the Age Pension eligibility age (currently 65 years). The same NSA study found that amoung pre-retirees aged between 50 and 54, men plan to retire, on average, at age 62 -while women plan to retire, on average, at age 61.
Early retirement may sound very appealing to many, though it does mean having to make your superannuation or other investments last longer. The alternative is usually living on a meagre government pension for an extended period, which is very unappealing. So the way you use your super plays a central role in a sensible retirement plan.
Retirees aged 60-plus can choose to take their super as a lump sum or invest the money in a private superannuation-based pension, or use a combination of both.
Government figures show around six out of ten retirees take at least part of their super as a lump sum.
There aren’t many times in life when we have access to a substantial pool of cash, and it can be tempting to use a lump sum super payout to pay off debts, buy a new car or take a holiday. But this is a strategy that can leave you with little to live on in retirement.
By contrast, investing your super in a private pension provides a regular income stream – just like your former wage or salary, and the money stays in a tax friendly environment.
The approach that is right for you will depend on your circumstances, goals and needs, and there can be complex tax and social security issues to take into account. That’s why I’m a big fan of seeking professional financial planning advice before you exit the workforce. Yes, you will pay for this advice – so do shop around, but it could make a valuable difference to your financial wellbeing in retirement.
You can find out more by downloading a copy of the free e-book ‘Ten steps to making the most of your retirement’ from my website, paulsmoney.com.au