Mistake Free Retirement
Counting down the days until you retire from work and start a new chapter in your life??
Perhaps you’re looking forward to taking an extended overseas trip or spending more time with your grandkids or taking the grey nomad caravan trip and chase the sunshine.
Whatever your plans, it pays to have a think about your finances before you knuckle down to the fun stuff.
Here are six retirement issues you should consider:
1. Reviewing your super
Having another look at where your super is invested is much less fun than planning a vacation; so many retirees leave it as a last priority – often looking after a market downturn. If you’re going to change your mind, the worst time to do it is after the market’s gone down; that’s when you realise all your losses! When things have been going up – that’s the time to do it!
2. Knowing how much money you will need
Many people think the age pension will fund their retirement, but for most people $20,000 a year is simply not going to be any where enough to live on. Even if you are planning to supplement your pension with superannuation, consider rises in the cost of living, which are usually around three per cent a year, and the rise in cost of medical expenses. Pay attention to your savings pre-retirement. You might budget for $38,000 a year, but in five years’ time they’ll need $49,700!
3. Face the Reality – you are going to need to retire at some point
The biggest mistake you can make is simply choosing to ignore the reality that retirement is just around the corner. It is crucial to make a plan no matter what your age. The first thing to consider is the kind of lifestyle you’d like in retirement, then calculate how much money you’ll need to put away to achieve that, working backwards from there is the best way to ensure your peace of mind.
4. Dangerous cocktail of investments, super and pensions
Retirees often make the fatal mistake of looking at different parts of their finances in isolation, rather than as an overall mix. Here is an example to illustrate this point:
Take the example of a person age d62, but might not think about selling their investment property until they’re 66 and retired. If they’d done it a bit earlier they might have been able to have taken advantage of some tax concessions. A strong asset could hurt your income in retirement. Commonly we see investments that provide an extra $2000 a year in income, but costs $4000 a year in pension payments. Clearly some advice here could make a difference.
5. Putting all your super in the bank
Retirees often think that withdrawing the lot and letting it sit in the bank is the only option if they want to access their money. They do not realise is most super funds offer a cash investment option, which means you can still get to your money and won’t affect the pension’s income test..
By taking the money out of super they may be reducing other benefits like the age pension, which could potentially have been improved by using an allocated pension or annuity to hold the money. Storing your super in the bank could also make you ineligible for a concession card, meaning you could realistically be forking out more than $2000 over a year.
6. Five years can make a lot of Difference
You can potentially begin to withdraw your super from the age of 55. When people realise this, they often get excited, take out the lot and pay off the last of their mortgage.
But there’s one catch – before the age of 60, super withdrawals can potentially be taxed up to 20 per cent. But if you wait until 60 you could potentially take it out and pay no tax