Four steps to plan for a better retirement
Here is a practical approach to creating a retirement plan that will help enable financial peace of mind.
Many investors concentrate on building their nest egg during their working lives to pay or help pay for their retirement but fail to give enough attention to planning for a retirement that may last 25 years or longer.
A lack of retirement planning makes retirees more financially vulnerable than necessary in numerous ways including the possibility of outliving your retirement savings, overreacting to market volatility, not planning for unexpected costs and holding a portfolio that isn't properly diversified.
Some retirees who have not properly planned for retirement may have underestimated the amount required to finance their anticipated lifestyles, while others may be living too frugally given their financial needs.
By following a practical approach for creating a retirement plan that aligns with retirees' often-unique goals while mitigating risk, retirees may gain greater confidence that savings will match with your future financial needs.
Step 1: Determine your retirement goals
These goals typically include having enough income to pay for basic living expenses, a contingency reserve (such as for medical treatment, home repairs and aged care) and discretionary spending (such as eating out and holidays). And you may plan to leave an inheritance. Once your goals are listed, you can prioritise their importance.
Step 2. Understand your risks
These include market risk, health risk, longevity and mortality risk, event risk (again such as medical treatment, home repairs and aged care), and tax and policy risk (changes to government policies and health care coverage). The research suggests that these risks should be addressed in the context of their impact on achieving their retirement goals.
Step 3: Assess your available financial resources
This will help ensure that your capital is used as efficiently as possible. Financial resources include super and non-super savings, age pension if eligible, annuities, insurance, housing wealth, insurance, and any additional income if planning to work in retirement.
Step 4: Develop a plan to achieve your goals and mitigate your risks
This is a matter of bringing together the various elements of your retirement planning. The right mix of resources should be tailored to your individual circumstances. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.
The ultimate retirement goal
In the end, peace of mind may be the ultimate retirement goal bearing in mind this phase of life may represent at least a quarter of our lives.
Written by
Vanguard
27 Jul, 2021
Latest eNewsletters
Hot Issues
- Div 296 sparking death benefit discussions
- ATO warns SMSF trustees to be aware of increase in scams
- Roles and Responsibilities in a Business Partnership
- Beware of tax implications for failing to meet minimum pension requirements: consultant
- Leasing property owned by an SMSF
- A super contributions deadline you won’t want to miss
- How topping up your super each year could leave you $80,000 better off in retirement
- Evolution of Boeing - 1916 - 2025
- ATO issues guidance on SMSF trustee appointment and compliance
- ASIC to increase audit surveillance in 2025–26
- Investment and economic outlook, May 2025
- Legal case has succession planning lessons for SMSF members, advisers: legal expert
- Your 30 June superannuation checklist
- Start-ups to suffer under Div 296
- New SMSF trustees propel uptake of financial advice
- Comparison of various Animal Weight
- $95bn loss predicted to Australian economy if Div 296 passes: analysis
- Why more Australian SMSF owners are looking to global equities
- Investment and economic outlook, April 2025
- Trustees reminded of minimum pension drawdown
- How boosting your super can help you reduce your tax bill
- Are your adult children ready for the wealth transfer?
- Financial abuse move now a certainty
- Freshwater Resources by Country 2025
- Investment and economic outlook, March 2025
- Advisers should be aware of signs of elder abuse in SMSF structures