According to the Australian Bureau of Statistics, 670,000 Australians are planning to retire in the next five years. Furthermore, figures highlighted in an Australian Retirement Trust report showed that the average age of retirement is currently 55, although the report did also confirm that, due to rising costs and affordability issues, those aged over 45 intend to retire much later than that – at 65.5 years, on average.
Regardless of when you retire, it’s important to plan for it rather than simply stopping work and assuming that everything will work out for the best.
Indeed, research carried out by Standard Life in the UK revealed that people who plan how much they’ll need to live on in retirement expect to retire earlier and are more likely to enjoy their life after work.
As well as increasing the chances of being able to retire early, discover five more key reasons why you should plan your retirement well before you finally stop working.
1. It will make your decision about when to retire easier
It’s possible that you might already have a rough idea of when you want to stop working. This could be at a specific age, or after you reach a certain family-related landmark – perhaps when your children have finished university.
Alternatively, your target could be related to your finances. You may be planning to wait until after you’ve paid off your mortgage, or when you have a certain amount in your retirement fund.
Having a plan in place with a target date, rather than waiting for when the moment feels right, makes the decision to retire far easier. You’ll be working from a position of strength and maximising the chances of a successful and fulfilling retirement.
Importantly, it means you’ll be able to ascertain if the life you’ve planned will be affordable, or whether you may need to continue working for a time to help build up your fund.
2. Planning ahead gives you a better chance of the retirement you want
As well as having an idea of when you retire, it’s highly likely that you’ll have plans for what you want to do once you’ve stopped working.
Having a “bucket list” of items to work through can help you focus on achieving your dream goals and experiences. Your list could include long holidays, buying a new car, or taking up a new hobby.
Regardless of what’s on your list, planning will make fulfilling them easier.
It will give you an idea of how much you’ll need to fund the lifestyle you have in mind. If your planning identifies a financial shortfall, you’ll then have time to either adjust your savings, or delay retirement to give yourself time to accrue more in your pension fund.
Without a plan, you may go blindly into retirement hoping for the best, rather than with the reassurance that your lifestyle will be affordable.
3. You can reduce the possibility of running out of money
A survey carried out by Retirement Essentials revealed that the overwhelming concern people have about approaching retirement is not having enough money. Retirement planning is important because it can help you avoid outliving your pension fund.
Although the Age Pension can provide a certain level of retirement income, planning ahead can help ensure that you have enough to support your lifestyle throughout your retirement years, rather than facing the worry of running out of money at some point.
Your plan will help you confirm how much income you can safely withdraw from your super fund each year, and how you should continue to invest your super, and other assets, after you retire.
Beyond the statutory minimum amount you have to take from your super, you will have a certain level of income flexibility. This means that with advance planning, you can factor in key retirement events to ensure they are comfortably affordable.
You’ll also gain valuable peace of mind from ensuring that your retirement fund will outlive you.
4. You can plan to help your family if it’s needed
As well as making plans for you and your spouse or partner, advance planning will help you provide for other family members if there is such a need.
For example, you will be able to factor in any support your children may need such as help getting on the housing ladder or financial help as they raise a family of their own.
An ABC News report confirmed that an increasing number of people in their 60s have surviving parents, so you may also need to consider any assistance they may need, such as provision of long-term care.
By planning ahead, you can factor all these into your plan, so they don’t end up jeopardising your own retirement.
5. Cashflow forecasting can help you envisage your future
Sometimes it’s hard to look ahead at your financial future, especially if there are unknowns in your plan, such as the effect of inflation and the potential for investment market upheaval.
However, by using an effective cashflow forecasting programme, you’ll be able to plan ahead with some confidence.
It will help you answer a lot of the questions that reading this article may have flagged up in your mind, such as:
- Is there a danger that I might run out of money?
- Can I afford to do all the things I want to once I stop working?
- How much will I need in my super before I retire?
It will also give you a clear idea of how your future financial position may look, and even factor in some “what if?” scenarios such as the effect of downsizing, or a period of high inflation.
You’ll benefit from having a detailed overview of your financial situation and how this might look in future years.
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This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.