Preparing for Retirement Checklist Australia: A Step-by-Step Guide

There’s several areas to consider when preparing for retirement, ranging from retirement objectives to investments to estate planning considerations.

The intention of this article is to provide you with a retirement planning checklist, covering each area, so that you can be better prepared in the lead-up to retirement.

Preparing for Retirement Checklist

Preparing for retirement in Australia encompasses a number of checklists that need to be addressed as you near retirement.

Specifically, these checklists can be categorised into the following areas:

1. Retirement Objectives
2. Superannuation
3. Retirement Income Sources
4. Superannuation Balance Target
5. Retirement Entitlements
6. Estate Planning

Each of these items will make up your overall retirement planning checklist. Let’s take a look at these individually.

1. Retirement Objectives Checklist

The first step in preparing for retirement is to define your retirement objectives – what you would like to achieve. You need to ask yourself:

• When do you intend on retiring?
• What level of retirement expenses would you like to cover?
• Do you have any outstanding debt or taxes to pay-off?

Answering these questions is the first item on the checklist towards putting in place a retirement plan.

Listed below is some guidance to help you answer these questions.

Retirement Age

When deciding on your intended retirement age, you should take into account:

• The age you would ideally like to retire;
• The age it becomes affordable to retire;
• The age you have access to your superannuation; and
• The age you can apply for Age Pension payments.

You might not know where to begin. My suggestion is that you just begin. You need to have a starting point and adjust from there. Would you like to retire today? At the end of the year? At the end of next year? Whatever it is, start with that.

The age at which it becomes affordable to retire won’t be known just yet, until you determine how much you need to retire. So, you can put the answer to that question on ice for now. We’ll get to that in a minute.

The age you can access your super is largely based on your superannuation preservation age, which will be either 59 or 60, but I would suggest going with 60, because this is the age that you can generally access your super tax-free.

Finally, the age you can apply for Age Pension payments will be age 67.

So, based on all of this, retiring somewhere between age 60 and 67 is common for most people.

Pluck a number and use that as a starting point.

Retirement Expenses

After deciding on a retirement age, the next step is to consider the level of expenses you would like to cover in retirement.

Retirement expense objectives can be divided into income expenses and capital expenses. Income expenses are defined as expenses that will be incurred every year or every few years; whereas capital expenses are one-off expenses throughout retirement.

Retirement Income Expenses

When coming up with a retirement income figure, a rough number is fine. By this stage in life you should have a reasonable idea of how much you spend each month and, if not, you’ll find out within the first couple of years in retirement and adjust accordingly.

Your retirement income figure should assume you are debt free and exclude any travel expenses – so, just include your everyday living expenses throughout retirement for now.

After you have arrived at that figure, you should then separately calculate how much you intend on spending on travel expenses each year, on average and until what age.

If you intend on retaining debt after retirement, you should then also separately calculate how much this will cost you in repayments and for how long.

If you are unsure of how much you will spend in retirement, this AFSA report shows what a comfortable retirement looks like in Australia. You can use this as a starting point. Alternatively, you could go through the exercise of completing a budget on the expenses you might incur during retirement. This budget calculator might help.

Retirement Capital Expenses

Once you’ve decided on your retirement capital expenses, you should also be taking into account your capital expenses. For most of our clients, we generally see these predominantly occur within the first few years of retirement, such as going on a big holiday, purchasing a new car or caravan, or completing those much needed bathroom renovations. Either way, these are generally one-off costs in retirement, or expenses that will come up infrequently.

Keep in mind, any capital expenses will reduce the capital available to you to provide for your ongoing income needs, thereby potentially reducing your desired retirement income objectives.

Debt & Taxes

Once you’ve determined your expenses, the next thing on the checklist is to calculate any debt or taxes that need to be paid from your bank account prior to retirement. This should be recorded as a lump sum figure and signifies your objective of eliminating debt and taxes prior to retirement (assuming that’s what you would like to do).

Retirement Objectives Checklist Complete!

Understanding your retirement objectives is the first step in completing your retirement planning checklist.

Here are the items for you to check off:

• Determined ideal retirement age
• Calculated retirement expenses
  • Retirement income expenses
  • Retirement capital expenses
• Determined repayment of any debt and taxes

Nice work! Next up…your Superannuation Checklist.

2. Superannuation Checklist

A superannuation checklist is important in getting your superannuation house in order. As part of preparing for retirement, it’s important to look at:

• How your super is invested
• Whether your super should be consolidated or transferred to another fund
• The type of contributions should be made to super between now and retirement

These are some simple steps you can take as part of your pre-retirement checklist that can put you in good stead for retirement.

How Your Super is Invested

There are two reasons why your superannuation investment choices are important to review. Firstly, because you need to ensure that you are comfortable with the level of risk associated with your investments and understand the impact an economic downturn or significant event would have on your balance. And secondly, because your investment choices should be expected to produce average returns in line with the returns required to meet your objectives.

Now, for the moment, you won’t know what returns are required to meet your objectives, so you should begin with the level of risk you are comfortable with. To do this, you should read-up on the investment option you have chosen to invest your super in to understand how often a negative return is expected, the objective of the investment and the type of investor it is suited to.

Generally, a higher allocation to Growth assets (shares/property) will be higher risk/higher return; whereas a higher allocation to Defensive assets (fixed interest, cash) will be lower risk/lower return.

If your super is invested in shares or property only, you should consider these to be highly-volatile investments.

Should Your Super Be Consolidated or Rolled Over?

It’s possible that you have more than one super account, especially if you have had multiple jobs. If you have more than one super account and no reason for it, you might consider consolidating your super into your preferred fund.

Alternatively, if you hold your super in a fund that you are not happy with, you might consider transferring your super to another fund. Ideally, you should seek financial advice prior to doing so.

Learn more about transferring super funds, here.

What Type of Super Contributions Will You Make?

Making contributions to superannuation will help you save towards retirement tax-effectively, because not only do some contributions reduce your personal income tax, but the contributions are invested inside the tax-effective superannuation environment.

While you won’t know at this point how much you should be contributing to meet your objectives, a good starting point is to simply assume that you continue doing what you are currently doing, even if that means you are making no super contributions, or that the only contributions going into super are being made by your employer.

Either way, you should at the very least get your head around how voluntary super contributions can be made. Learn more about: Voluntary Super Contributions

Superannuation Checklist Complete!

You have now reviewed your superannuation checklist to understand the areas that need to be addressed.

Here are the items for you to review and check off:

• How is your super invested?
• Should your super be rolled over or consolidated?
• What type of super contributions will you make?

Now onto the Retirement Income Checklist.

3. Retirement Income Checklist

Once you retire, you will no longer have work-related income, so how are you going to cover expenses? Having an idea of how you will fund retirement is an important step in preparing for retirement. Your retirement income sources will usually include some or all of the following:

• Superannuation Pension Income
• Personal Investments Income
• Age Pension Payments

Where will you be getting your retirement income from? Here’s a brief explanation of each.

Superannuation Pension Income

Upon retirement, you can convert your superannuation balance into an income stream and nominate to receive regular income payments, which can be used in conjunction with other forms of income to cover living expenses.

The most common type of superannuation income stream is called an account-based pension. Learn more about account-based pensions.

Personal Investments Income

You may have investments outside of super owned in your personal name, such as shares, term deposits or an investment property. If so, these investments might produce income that can also assist with retirement and supplement your retirement income needs.

Related Article: Best Retirement Investment Options

Age Pension Payments

Age Pension payments are available to you once you attain Age Pension age. The level of Age Pension payments you receive is based on a means-test and determined by your level of income and assets. The more in Age Pension payments you receive, the less you will need to draw down on from your super and the less personal investment income you will be reliant on.

Retirement Income Checklist Complete!

You now know the types of retirement income sources that will help fund your retirement.

Here are the items for you to review and check off:

• Understand superannuation pension income options
• Determine if you will have any income generated from personal investments
• Determine level of age pension payments you will receive

Now onto the How Much Super You Need to Retire Checklist.

4. Superannuation Balance Target Checklist

Figuring out how much super you need to retire can be calculated based on your retirement age and your retirement expenses.

Now, you might not know exactly when you can afford to retire or the level of expenses you can cover throughout retirement, but this part of the checklist process will help you figure that out.

To get started, you will need to know:

• Your current age
• Your current wage
• Your intended retirement age
• Your super balance
• Contributions made into your super account

Using this information, head over to this retirement calculator and input the figures.

The beauty about this is that it will give you a good indication of where you currently stand. Now, you can play-around with the following inputs to get closer to achieving the retirement income you would like to achieve, depending on whether the initial output shows you are ahead of schedule or behind:

• Retire sooner/later
• Increase/reduce additional contributions

By adjusting the above inputs, you can get an understanding of what you need to do between now and retirement and how much you need to meet your retirement income objectives.

Pro Tip: Alongside the ‘Results’ heading, change the dropdown to view results by super balance, so that you can see how much you need at retirement.

Superannuation Balance Target Checklist Complete

You now know how much you need to retire, when your retirement date will be and how much you need to be contributing to super between now and then.

Here are the items for you to review and check off:

• Collated information to input into calculator
• Input information into calculator
• Make adjustments to achieve desired retirement income

Next up is the Retirement Entitlements Checklist.

5. Retirement Entitlements Checklist

Apart from the Age Pension, the most common entitlement for retirees are health care cards. There are a number of health care cards you may be eligible for as a retiree, depending on your situation. Listed below is a brief explanation of each.

Health Care Cards

There are three main types of concessional health care cards available to retirees:

• Pensioner Concession Card – Automatically available to all recipients of Age Pension and Part-Age Pension payments, providing access to lower-cost health care and prescriptions.
• Commonwealth Seniors Health Care Card – Available upon application to people of Age Pension age who are not eligible for Age Pension payments, but are under the relevant Income Test. It provides lower-cost health care and discount medicines.
• Seniors Card – Issued by each State and Territory with eligibility requirements differing between each. Provides discounts to products and services, as well as reduced costs on rates, registrations, etc.

Learn more about retiree benefits and concessions here.

Other than health care cards, retirees may also be eligible for other types entitlements.

Other Entitlements

Other types of entitlements available to retirees include:

• Carer’s Allowance – a payment for assisting someone who needs care.
• Energy Supplement – a payment to help with energy costs if you are also receiving the Age Pension.
• Remote Area Allowance – a payment to assist with additional costs incurred by living remotely.
• Rent Assistance – a payment to help with the costs of renting a home if you receive the Age Pension.

You can learn more about government payments, concessions and support provided by Services Australia here.

Retirement Entitlements Checklist Complete!

You now know the types of entitlements you might be eligible for in retirement.

Here are the items for you to review and check off:

• Consider eligibility for entitlements, such as health care cards and allowances
• Apply for any concessions, when applicable.

Next up is the Estate Planning Checklist.

6. Estate Planning Checklist

The final step in your pre-retirement checklist is to consider your estate plan. An estate plan should cover the distribution of your wealth upon your passing, as well as addressing who should be responsible for making decisions on your behalf while you are still alive, if you are unable to do so yourself.

Your estate plan encompasses your:

• Will – A will is a legal document that instructs who you would like your financial assets to be distributed to and how. It also deals with personal items and care for children.
• Power of Attorney – Appointing someone to make legal, financial and/or medical decisions on your behalf.
• Superannuation Death Benefit Nomination – Instructions on how you would like your superannuation distributed should you pass away. Super is not covered by a will, unless you nominate for your super to be paid to your estate.
• Reversionary Pensions – Nominating who you would like a superannuation pension to continue to be paid to in the event of your death. If no reversionary pension is in place, a death benefit nomination will be referred to.

It is highly advisable for an estate plan to be developed by an estate planning specialist solicitor, in conjunction with your financial planner.

Estate Planning Checklist Complete!

You now know what you need to get your estate planning in order.

Here are the items for you to review and check off:

• Consider who you would like to be the beneficiaries of your superannuation and other assets.
• Discuss your estate planning intentions with an estate planning specialist solicitor.

By addressing each of the areas above, you will have a huge head-start once you decide to seek retirement planning advice. You will be much more prepared and have at least some idea of where you currently stand, what you’re working towards and the areas to be considered.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

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