Retiring right

We're very fortunate in Australia with our #retirement savings system, for it is a #savings system that is often ranked in the top 5 retirement systems in the world. It's great for many of Australia's workers that compulsory contributions are made on their behalf into a system that manages $3 trillion on their behalf. So it's great as a system, however, at the individual level, Super and Pension funds are still quite often misunderstood.   

In my last couple of years advising, more so than the other 15, I have seen conversations around retirement go through the roof.  

I'm seeing people still linking the age of retirement to the age they can access the Government provided #pension, rather than when they will be in a position financially to achieve the lifestyle they want, from the income their investments can generate. I see this more as not understanding how the effects of compound interest work on accumulated savings where the more you have saved, the larger the impact of the next years growth and income distributions are.  

So a couple of simple points to keep in mind when planning our retirements are the following:  

• Do I/we understand how much I/we spend on living each month? (let's not include the mortgage payments as in our perfect world, we have paid this off before we take our final paycheque) 
• If we are concerned about our retirement savings being impacted by a fall in markets just before or just after we stop working, have we got enough in cash, to cover a couple of years' living costs to allow the savings to recover?  
• What will I be doing each day/ week? Having worked for some 45 years, how will I adapt to not having a need to get out of bed each day? 
• Does my retirement include me working part-time, doing something I love more than I did when I worked full time? Maybe 2-3 days a week?  
• What happens if you get sick and can no longer manage your affairs on your own?  

How much do we spend on living each week? 

This number is crucial to understanding what the bare minimum is you need stashed away in savings to cover your ongoing costs each year.  

There have been plenty of financial commentators shouting form the rooftops for years that we need to spend less than what we earn, and this is where that advice comes home to roost. The less it costs us to run our house (which may involve you needing you upgrade to solar to minimise ongoing costs there) means the less you need in savings to meet these costs, and the sooner you may be able to retire.   

 Are we concerned about our retirement savings being impacted by a fall in markets just before or worse, just after we retire?  

I love the concept of having 2 years of savings in the bank for retirement just in case my retirement savings are impacted by the inevitable market correction that wasn't coming until I decided to retire.  

These cash savings provide a powerful buffer and peace of mind for when the inevitable drop in markets occurs.   

Certainly, an option to mitigate the impact of market falls is to reduce the level of growth asset exposure (shares) in your savings, but in doing this, you’d likely need more in savings to compensate for the lower level of income generated by more defensive assets. 

What will I be doing each day/ week? Having worked for some 45 years, how will I adapt to not having a need to get out of bed each day? 

Much of this depends on how clear you are with what your purpose is. I see many medical professionals having a desire to continue working past the traditional retirement age, and I'm sure you’d agree that these folk have more than enough money saved and invested to retire much earlier, so why do they want to keep working? Because they are driven, have an inner belief that they were created to help people and derive so much satisfaction from that, why would they want to stop.  

What if you had found your purpose in life, would stopping that just because you hit some mandatory age make sense?  

The challenge is to find our purpose, our reason for being and for everyone it can be different. Lucky for us, it doesn’t matter at what age we find this purpose and yes, it's okay if your purpose changes, It's allowed to, it's your purpose not anyone else's. Tracking happiness: What is a purposeful life?

If you’re not dedicating as much time in your life to your life's purpose, wouldn’t it be great to be in a position where you could cut back your usual working hours and dedicate more to what drives you? good retirement planning could facilitate that, allowing you to meet your living costs through employment income or a combination of employment income and retirement income streams to give you the finances to chase your dreams.  

What happens if you get sick and can no longer manage your affairs on your own?  

Now this piece is relevant to us all at all stages of life as we have seen in our office over the last year, but is normally more prevalent in our later years.  

Most of us should have four basic documents in place to help manage our financial affairs if things go awry to come to an end:  

• A Will 
• A death benefit nomination in our chosen super fund, pension fund, life insurance policy 
• An Enduring Power of Attorney 
• An Enduring Power of Guardianship 

The first two above apply when we pass away and help manage the financial distribution of the assets that make up our estate.  

The last two apply when we lose the legal mental capacity to make decisions for ourselves, either temporarily or permanently.  

Arguably, these are as equally as important to have in place as were the creation of the funds and assets that they designed to manage and distribute.