Getting your hands on valuable retirement planning tips can not only give you confidence in your retirement plan, but also have you retiring years sooner.
You see, once you know the rules to play by, it’s not difficult to considerably reduce tax. Plus you’ll have an investment strategy that’s on point and ultimately lead a more fulfilling retirement.
I’ve put together what I consider to be the most valuable 8 tips for retirement planning.
8 Tips for Retirement Planning
When it comes to retirement planning, it’s important to first gather all of the pieces before putting the puzzle together.
The retirement planning tips that I have compiled are in chronological order of how I believe you will get the most from your savings.
Here are my top tips for retirement:
1. Know When You Can Access Your Super
Knowing when you can access your super is the first step to implementing retirement planning strategies. After all, superannuation will probably be your largest source of income throughout retirement, so it’s good to know when you can get your hands on it.
The first time that you are able to access your superannuation is once you have reached your superannuation preservation age, which is based on when you were born, as shown in the table below:
| Date of Birth | Preservation Age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| After 30 June 1964 | 60 |
Once you have reached your preservation age, you can either have partial access to your super or full access, depending on your employment status. Either way, once such access is available, there are several retirement strategies you can start employing. For most people, it is beneficial to access super prior to actual retirement, as counterintuitive as that sounds.
Also, by knowing when you can access your super, you can have greater comfort in your super contribution strategy, because you can calculate how long such funds will be inaccessible for.
Now that you know when you can access your super, it’s time to set some goals.
Related Article: When Can I Access My Super Tax-Free?
2. Have a Retire Income Goal Target
To plan anything, you need to know where you’re headed. When it comes to retirement planning, the main objective is to achieve a desired level of retirement income.
Most retirees are looking for a comfortable retirement, which generally means somewhere between $30,000 per year on the lower end for singles and $100,000 per year, including travel, on the upper-end for couples.
This table shows the level of expenses for both a modest and a comfortable retirement lifestyle Australia:
| Modest Lifestyle | Comfortable Lifestyle | |||||
|---|---|---|---|---|---|---|
| Single | Couple | Single | Couple | |||
| Expenses per year | $31,867 | $45,947 | $50,207 | $70,806 | ||
These general figures can give you a guide, but you might want to calculate your own specific retirement expenses, using a budget planner such as this one.
3. Plan to Retire Early
You probably aren’t aware of just how early you can afford to retire. Most people that we provide retirement planning advice to were expecting to work another 3-4 years until we showed them that they didn’t need to.
The reason for this is because there’s a good chance you’re underestimating the financial position that you’re currently in and also because you might not understand the benefits that retirement planning tips and strategies can have in reducing your tax and increasing your super balance.
Additionally, once you’ve figured out where you currently stand in relation to retirement affordability, there are some tweaks you can make to weigh up your priorities. Take it from me: If you reckon you’re in your last few years of work, then there’s probably a pretty good chance you can afford to retire tomorrow.
Related Article: How To Retire Early
4. Know Where Your Income Will Come From
The large majority of retirees in Australia will have a reasonable super balance, some bank savings and maybe some personally-owned shares. Some might even have an investment property (or two) and not quite sure whether to retain it or sell it and if so, when?
In our experience, the most simplest and tax-effective approach to retirement is to have all of your investment wealth within super, which is then used to start a tax-free retirement income stream. This income stream may be further supplemented by Centrelink Age Pension payments. Plus, you should have enough money in a personal bank account to cover emergencies. This is how most low-touch retirement plans are set up.
If you do have an investment property, it could represent another source of income via the rent being paid. However, we find most clients, through their own doing, prefer to simplify life in the lead-up to retirement by selling properties and contributing the proceeds to super – removing the burden of managing properties in retirement. In saying that, it can be a good diversifier if you are comfortable with the risks and extra workload.
Related Article: Expert Tips for Retirement Drawdown Strategies
5. Get a Basic Understanding of Your Investment Options
It’s very easy to complicate a retirement investment strategy, but just as easy to remain ignorant towards it. You should be aiming for somewhere in the middle.
My philosophy is that you should only take on as much investment risk as is required to achieve your objectives. No more, no less.
Let me explain.
If you choose to invest your retirement savings in a higher-risk option, then historical returns suggest you will achieve higher long-term returns compared to a more conservative investment option.
But, what many people choose to ignore is that higher returns come with higher risk. Not necessarily the risk of losing all of your money, but rather the risk of not achieving the expected outcome. That is, the variance (or standard deviation) of returns becomes greater, which consequently makes planning for retirement more difficult.
Related Article: Best Retirement Investment Options
For example, if you only need, say, an average 4% p.a. investment return on your retirement savings to achieve your desired retirement income goal of $60,000 per year, then you should probably be looking to invest your super in an investment option that has the objective of aiming for a 4% return. Sounds logical, doesn’t it?
However, if you were to leave your super in an investment option that is expected to achieve 7% p.a. returns, then you are automatically taking on more risk than you need. So, instead of having a high probability of achieving a $60,000 per year retirement income, you suddenly reduce your predicted outcome to maybe achieving a 1/3rd chance of getting a $75,000 income, 1/3rd $60,000 and 1/3rd $40,000 per year income. Higher risk means less certainty and greater variances of outcome.
Look at the investment options that your super fund offers. See how each option is invested and what return they are targeting. Then, determine which option is most likely to achieve your objectives.
Related Article: What are My Superannuation Investment Options?
6. Consider Transitioning to Retirement
By the time you have reached your preservation age, you need to have decided how a transition to retirement strategy is going to benefit your retirement plan. Will you be using it to reduce personal income tax, minimise future death taxes, pay down residual debt, or work less hours in the lead-up to retirement?
Heck, you might do it for all these reasons!
A transition to retirement pension enables you to start an income stream with your superannuation balance, even if you are still working. This extra income can be used to:
- Afford higher salary sacrifice contributions;
- Pay down debt faster;
- Supplement reduced working hours; and/or
- Convert taxable super components to tax-free components.
Any Australian that doesn’t use a transition to retirement strategy as part of their retirement planning ought to have their head read.
7. Maximise Super Contributions
Superannuation is Australia’s little tax haven. You get tax concessions for making contributions, you get tax concessions on investment earnings, you get tax-free earnings when you’re retired and tax-free pension income to live-off; so there’s a strong argument for getting as much of your savings into super as possible.
The only downside of super is that you can’t access it until a certain age, but as you draw closer to that age, it can make sense to begin bulldozing money in.
And don’t let retirement stop you! You can keep making contributions well over age 65, so there’s plenty of time on your side.
The one thing you should do is prepare a contribution plan. It’s not a good idea to simply just pour money into super each year, without purpose.
Your contribution plan should include concessional contributions and non-concessional contributions, as well as potentially downsizer contributions, spouse contributions, contribution splitting, and CGT retirement exemption contributions. But most importantly, the timing of any unused contribution caps and the bring-forward rule is imperative – this is where you’ll usually get the most bang-for-buck.
Related Article: 8 Effective Tax Strategies for Retirement
8. Get Professional Advice
Tips for retirement planning are no doubt helpful, but nothing will ever top personal financial advice.
The best advice for retirement will always come from a licensed financial adviser – assuming you know where to find the right one. Ideally, when it comes to retirement planning advice, you should be seeking advice from someone who specialises solely in retirement planning advice.
Too many advisers these days try to accommodate all age groups and all types of advice, which means their advice will always be sub-standard. If you are considering obtaining personal financial advice from a particular company, you should check out their website and see if they provide advice to anyone with a heartbeat, or if they focus only on the specific area of advice that you are looking for.
Additionally, when it comes to retirement planning advice, you should probably steer clear of an adviser that charges ongoing monthly fees. In my opinion, it is completely unnecessary for a pre-retiree or retiree to be paying ongoing advice fees. A one-off fee for a comprehensive retirement plan will suffice.
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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Hi, I hope you enjoyed reading this article.
If you want my team and I to help with your retirement planning, click here.
Thanks for stopping by - Chris
