We look at retirement as the time in your life where you can take a well-deserved break and truly enjoy the best life has to offer.
After all, you’ve made your contribution to the working world and now you’ve earned the right to kick back.
But retirement isn’t always that simple or straight-forward. Everybody has a different starting point in retirement.
Whether you’re fortunate enough to retire on your own terms, or if you have to retire earlier or later than expected, the key to successful retirement planning in 2021 is knowledge.
Are you ready to retire?
Sometimes factors such as health issues, redundancy and family responsibilities could mean saying goodbye to working life before you feel completely ready.
We know that retirement is a big life change. For many, a job isn’t just a way to get paid. When colleagues and career mean more to you than the money, moving on can be tough. If you’re expecting retirement to leave a substantial gap in your life, planning new routines, rewards and friendships will boost your sense of optimism and wellbeing.
Depending on the type of work you do, your health might be a factor, and retiring early may become the only suitable option. In fact, the Australian Bureau of Statistics (ABS) reports personal health as the second most common reason for retiring. The same may be true if you need more time to care for a partner or other family member.
The same ABS figures show wealth as even more common than health when it comes to reasons for making the move into retirement. 41% of men and 34% of women said financial security had the biggest influence on their decision. Knowing what you’ll spend in retirement and where that money will come from can give you confidence that you’re financially ready to make the change.
How do you plan for retirement?
The best way to start planning for your retirement is to look at your specific circumstances and requirements. Assess your spending, income, assets, savings, current investments, insurance, taxes and estate management. Consider how you should approach your retirement savings as you move through different life stages.
This may require some tough decision making. Do you want to live frugally now for future financial freedom, or would you rather take steady and consistent saving steps? Do you prefer to let professionals manage your wealth or make investment decisions yourself? Are there ways you could boost your super while enjoying tax benefits? These are just some of the important questions that you may need to consider as you plan your retirement.
Would you consider part-time work?
Continuing with paid work in retirement can be a way to maintain a routine you’re comfortable with and make your super last longer. If you’re eligible for the Age Pension, it’s good to know you can still earn some income without your payments being affected up to a certain level (this is called the income test threshold).
There is also the Work Bonus that allows you to earn income up to a certain threshold without reducing your Age Pension. And if you take a break, you can build up your Work Bonus balance and earn more when you start working again.
The Department of Human Services website has more information on the Work Bonus and the latest on eligibility, thresholds and balance limits. We also recommend speaking with your financial adviser to determine what best suits your personal situation.
Is your superannuation going to support you?
Before you complete your final day at work, it’s important to determine whether your superannuation balance is enough to support your desired retirement lifestyle.
The Association of Super Funds of Australia (ASFA) estimates the average superannuation balance required to achieve a comfortable retirement would be $640,000 for a couple and $545,000 for a single person, assuming they withdrew their super as a lump sum and received a part Age Pension. But these are very modest figures and don’t necessarily provide you with the freedom to be completely independent.
How much super you personally need will vary according to the standard of living you want to maintain at retirement, such as recreational activities, paying for top-level private health insurance and travel.
If you are unsure whether your superannuation will support you into retirement, speaking with a professional financial adviser can provide you additional confidence. They will be able to review your current position and give you helpful advice about maximising your super balance.
Government entitlements and recent changes to the Age Pension
From 20 March 2021, nearly 2.6 million older Australians will be receiving an increase to their Age Pension payment, following a mid-March indexation increase to social payments. This announcement follows the Royal Commission into Aged Care Quality and Safety’s Final Report, tabled into Parliament on 26 February 2021, which outlined the necessary changes needed in the aged care sector.
The increase will see Age Pensioners and Carers receive an increase of $8.40 a fortnight to their social security payment, bringing the total fortnightly pension to $952.70 for singles, and $1,436.20 for couples combined.
The Pension Supplement, Energy Supplement, Rent Assistance, and other supplementary payments are also included in this indexation increase. A range of income and assets test limits will also increase with the indexation, so recipients will be able to have higher income and assets before their pay is impacted.
In July 2021, the Age Pension age will go to 66.5. If this is relevant for you, it’s best to be well prepared. Your financial adviser will be able to help you many years in advance to ensure you plan accordingly.
If you are turning 66 this year, and you are not eligible for the Age Pension, your adviser can still help. You may be entitled to the Commonwealth Seniors Health Card. This card is income tested and could save you more than $2,500 on healthcare costs.