Here’s how you make your retirement years financially secure.
More and more Australians are living into their 90s and beyond.
Those who retired at 60 will have to potentially fund 30 or more years of retirement. This challenge becomes even more acute
when interest rates are low. At present the official rates are just 1.5 per cent.
It is surprising how many retirees have no idea of the amount they spend each year, or how long their savings will last.
But when you have stopped working, these numbers are very important.
Paul Keating introduced compulsory superannuation in 1992 so most Australians will have at least 25 years of superannuation
savings available to them. The average superannuation balance for males when they retire is $271,000 and for women $157,000.
Invested at 3 per cent, these two figures yield only $8,100 and $4,710 a year. Most Australians are underfunded when
it comes to retirement. If you are nearing 70, here are ten things you should have done – or should do shortly
– to make your retirement years as financially secure as possible.
1. Know how long your savings will last.
Most people find themselves underfunded in times of prolonged low interest rates. If you require $100,000 a year to
live and interest rates are 5 per cent, you need $2 million in capital. If interest rates halve, you need double the
capital for the same income. If you have to dip into your capital to meet living expenses, have a clear idea of how long
your capital will last. As your capital diminishes, your interest earnings will fall accordingly.
2. Clear all debt and pay off the mortgage.
This seems an obvious thing to do, yet it is not unusual for older people to carry debt. Debt should be minimised, and
a clear plan should be in place to pay it off as soon as possible.
3. Lower your costs of living.
Successive Australian governments have altered the asset and income tests for aged pensions in an attempt to make
Australians more responsible for funding their own retirements. This trend is likely to continue. Currently, 30 per cent
of retirees in Australia are self-funded, while 70 per cent draw a pension. Twenty years ago, 80 per cent were drawing
a pension. Lowering your costs of living will make funding your own retirement easier.
4. Draw up a will and have good estate planning.
Dying intestate (without a will) creates huge problems for the next of kin. Draw up a will and keep it up to date. Make
sure your lawyer, accountant and executors have copies and make sure your family members know what your wishes are.
5. Keep your advisors close.
Make sure your lawyer and accountant know each other and understand their roles with regard to your financial
affairs. Ideally, both should be younger than you. If your financial advisers are older then you, ask them to suggest
colleagues to replace them.
6. Maximise the value of the family home.
Most homeowners in most states are enjoying higher house prices. Explore options of selling your home, downsizing
and funding your retirement through the proceeds. Retirees who work part time can still make superannuation contributions,
which attract lower tax rates.
7. Retirement living.
Have a good understanding of what options are available to you with regard to retirement homes. Many people find retirement
homes give them peace of mind, but there can be large financial commitments involved. Retirement living is a lifestyle
choice, but it can come at a substantial price.
8. Aged care.
Whether you end up receiving care in your home or in a residential facility, the costs of aged care can be large. An
ACAS assessment must be done and a Centrelink form completed before a spot at an aged-care facility can be sought. These
are complicated and time-consuming exercises. Research and financial planning done in advance is well worthwhile. The
worst time to start looking at aged-care options is when you are in hospital and doctors say you cannot return home.
Aged care may be funded via the rental income from a family home but normally only if you have accumulated other investments
to assist with the costs.
9. Simplify your family/corporate structures.
Family companies and trusts may be useful during your working life but diminish in usefulness after retirement.
Consider the ongoing importance of a trust once you have retired, and seek accounting and legal advice on the benefit
of retaining such structures.
10. Beware the next generation.
Being asked to help fund your grandchildren’s education can be a difficult request to turn down. Do your
best to ensure your children have jobs and their own income streams that enable them to fund their own children’s
education.
John Rawling is a consultant at Joseph Palmer & Sons, aged care specialists
View the copy of The Australian article here
Aged Care is a complex area for most people – for more information please contact one of our experienced Aged Care
consultants, John Rawling in Melbourne on (03) 9601 6816 or Ron Stephens in Sydney on (02) 8224 3324 for a no-obligation
discussion on how we can demystify this topic and help you through the financial process.