Navigating Retirement Challenges: Financial Insights for Pre-Retirees

Inflation, rising home loan interest rates, soaring property prices, and the current housing crisis are significant worries for pre-retirees. Additionally, many are dealing with adult children who may not move out soon, market volatility, and the pressing question:

?"Will I have enough to retire?"

Here, we address some common concerns our pre-retiree clients raise.

Will I Have Enough?

The Association of Superannuation Funds of Australia (ASFA) offers a Retirement Standard, outlining the expenses required for singles and couples to maintain a modest or comfortable lifestyle in retirement. According to the Standard, a couple needs $72,663 annually (from age 65) for a comfortable retirement, while a modest lifestyle requires $47,387 per year. This equates to needing $690,000 in superannuation savings for a couple and $595,000 for an individual to achieve a comfortable retirement at age 67.

While the ASFA Standard offers a useful guideline, the concept of "comfortable" can be subjective. Additionally, many might not want to work until age 67. Individual financial planning can help determine the right time to retire, ensuring you have the necessary savings, investments, and income streams to live the retirement you envision.

Housing Affordability and Adult Children

High living costs, tight rental markets, rising interest rates, and expensive property prices are significant concerns. While many clients feel secure about their finances, they often worry about their adult children. Many pre-retirees want to help their children financially, which can impact their own retirement plans, sometimes delaying retirement or leading to a more modest lifestyle than planned. It can also cause family tensions and financial strain for everyone involved.

Support can come in various forms: providing childcare for grandchildren, having the family move in, or offering financial assistance through the 'Bank of Mum and Dad.' For those with substantial retirement funds, giving part of their inheritance to children while still alive can be an option. In fact, a recent survey shows three in four Australians plan to leave some of their superannuation as an inheritance, primarily to partners and children. Over half of the respondents intend to save more than 25% of their superannuation for this purpose.

According to a 2024 Housing 2024 Housing Affordability Report, it now takes 11.1 years to save a deposit for a typical house and 8.5 years for a typical apartment. Despite high interest rates, property prices continue to rise, making homeownership increasingly difficult for young Australians without parental help.

Financial support to your adult children needs careful consideration due to potential tax and other financial impacts. Clear agreements about the extent and conditions of support are essential. For instance, if you give a significant amount to an adult child for a home deposit, it should be legally documented. In case of unexpected events, such as a relationship breakdown, without a legal agreement, your money might be divided as part of marital assets, with no obligation for the ex-spouse to return your share.

Managing Share Market Volatility

The stock market's inherent volatility can be challenging. This is why well-thought-out, diversified investment strategies tailored to individual risk profiles and life stages are essential. Inexperienced investors often lack the confidence and knowledge to handle market fluctuations, frequently trying to time the market. This can lead to missed opportunities, unnecessary stress, and financial loss.

To manage volatility, strategies like dollar-cost averaging—buying or selling in regular increments rather than lump sums—can help achieve better long-term outcomes. Creating a balanced investment portfolio is a complex task that demands research-based advice tailored to an investor’s unique financial situation and risk tolerance. Personalised advice based on individual circumstances is crucial – we discuss this further in a recent article.

Importance of Personal Risk Insurance

Serious illnesses like heart attacks, strokes, and cancer can have profound effects on your finances, family, and legacy. It's also crucial to ensure that adult children have adequate insurance, as their serious illnesses, accidents, or income loss could impact your retirement plans if you need to step in as a caregiver or provide financial support.

Comprehensive financial planning addresses personal cash flow and insurance affordability. We meet regularly with our clients to review their insurance needs, including the cost of premiums and any changes in circumstances that may affect their insurance and lifestyle requirements. If the rising cost of living and supporting your family has you reviewing your personal insurance policies, read our recent article and give us a call before you cancel.

At Wealth Fundamentals, we specialise in helping those nearing retirement enhance their savings through superannuation and investments, creating the necessary income streams for a chosen retirement lifestyle. We emphasise asset protection and tax-efficient structures, collaborating with your professional partners and taking into consideration your family dynamics.

If you would like to know more about pre-retirement financial planning and managing your personal and family cash flow, please contact Matt Lane or Alec Winter at 07 3720 1299 or email [email protected]

Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.