Planning for longer life spans

Australians are up there with some of the highest life expectancies in the world. On average, men live to around 81 and women to 85, with many living well beyond that. If you plan to retire in your 60s, you should be prepared for 25 years or more of retirement living. This is a major shift from a generation ago, when retirements were typically much shorter. A longer retirement presents a fantastic opportunity to pursue travel, hobbies, and spend time with family, but it also brings increased financial responsibility. The bottom line: longer life expectancy requires smarter, more forward-looking financial planning so you don’t outlive your money.

Your 40s and 50s are the prime time to boost your retirement savings. In Australia, superannuation is the cornerstone of most people’s retirement plan, so it’s important to make the most of it. This might mean salary sacrificing a bit extra into super or making additional voluntary contributions if you can. Thanks to compounding returns and tax advantages, every dollar you add now could mean more income in retirement. It’s also wise to consolidate your super accounts, if you have multiple ones, to avoid unnecessary fees and ensure your super is invested in line with your goals and risk tolerance.

Beyond super, consider other savings and investment plans. It’s never too late to start setting aside money in a high-interest savings account, shares, or other investments to build wealth for the long term. If you’re playing catch-up on retirement savings, focus on a disciplined plan: for example, you might redirect a portion of your income that’s freed up after paying off debts or as children become independent.

Many financial experts suggest aiming to have around 20 times your desired annual spending saved by the time you retire. Using that “20× rule” as a guide, if you think you’ll need about $50,000 per year in retirement, you’d want roughly $1 million put away in super and other investments. Don’t be discouraged if you’re not there yet. The key is to start building your nest egg now, and remember that even small, regular contributions can grow substantially over time.

We are living longer and healthier lives, which is great for retirement. Good health and financial well-being are closely linked. Prioritising your health in mid-life and beyond can actually save you money in the long run. Staying active and addressing medical issues promptly can help prevent future costly health problems. However, it’s also important to plan for health-related expenses in your retirement budget. Australians are fortunate to have Medicare; however, factors such as private health insurance, out-of-pocket medical expenses, and potential aged care needs should also be taken into account. As we live longer, there’s a higher chance of needing expensive treatments or care at some point. Be sure to factor in costs such as prescriptions, medical services, and possibly home care or modifications to your home to accommodate your aging needs.

Thinking ahead about healthcare involves making informed decisions, such as maintaining private health insurance or exploring long-term care insurance options. The goal is to ensure that an illness or injury won’t derail your finances. Put simply, health is wealth: taking care of your well-being now helps ensure you’ll enjoy the retirement you’re working so hard to fund.

For most of us, the family home is our biggest asset. As retirement approaches, it may also become bigger than you need. Downsizing to a smaller house or apartment can be a smart move both financially and lifestyle-wise as you age. By selling a large family home and moving to something more manageable, you could free up a substantial amount of money. Those funds can be used to top up your superannuation, pay off any remaining debts, or boost your savings to produce retirement income. In fact, the government now encourages downsizing by allowing eligible older Australians, currently 55 or over, to contribute some proceeds from selling their home, up to $300,000 per person, into their superannuation.

Beyond the financial boost, downsizing often means lower maintenance and running costs, which can help your day-to-day budget in retirement. Deciding to downsize can be an emotional decision; leaving a home full of memories isn’t easy. But many who do it feel a weight lifted. “If maintaining a large home is creating challenges, don’t be afraid to downsize to a smaller place,” advises First Financial planner Joel Gleeson.

The trade-off for less space and a new location can be reduced stress, increased financial freedom, and funds available for things you want to do. Ultimately, it’s about aligning your living situation with your retirement needs and making your money work to support the life you want.

A successful retirement isn’t just about reaching a certain dollar figure; it’s also about managing your money wisely so it lasts through all your later years. Planning a budget will provide a clear picture of the annual income you’ll need, taking into account inflation and allowing for a buffer for unexpected expenses.

Most Australians will draw on their superannuation savings via an account-based pension, make regular withdrawals from their super fund, or purchase an annuity for guaranteed income. The Age Pension is also there as a safety net if your assets or income fall below certain thresholds.

A key strategy for making your money last is to be strategic with withdrawals from your super and investments. Financial planners often discuss a safe withdrawal rate, for example, withdrawing approximately 4% of your savings annually at the start of retirement. The idea is to find a balance: you want to enjoy your retirement and use your money for a great life, but also pace your spending so that you still have funds in your 80s and 90s. It’s never too late to plan and adjust. Whether you are 40, 50, or 60 years old, you can take steps now to improve your financial future. A longer life ahead means the sooner you start planning, the better.

At First Financial, our advisers specialise in tax-effective strategies, superannuation and comprehensive retirement planning services. We tailor retirement plans that ensure you live your later years the way you intended.

The team at First Financial cover everything from retirement and financial advice, investment and wealth management, superannuation and SMSF, insurance, tax, aged care, legal and lending services.

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