Have your cake and eat it come retirement

Retirement. It’s one of those things that always feels like it’s on the distant horizon, far enough away to think, ‘there’s plenty of time’.

In your Twenties, retirement’s typically something that’s far from top of mind. Hit your Forties and Fifties, though, and all of sudden, it’s something you become acutely aware of.

Fine if you’ve been diligently squirrelling extra away into your super and you’ve got a diversified financial strategy. But if, like most Australians, you’re hitting the peak of your ’money making’ years and realise you’re a little behind the game, retirement and possibly not having enough to maintain your family’s lifestyle start to become a worrying proposition.

The first thing to bear in mind is that it’s never too late to lay the right groundwork. Whether you’re planning on retiring early or just trying to get on top of it, setting yourself a clear vision of what you’re working towards is imperative. That said, the more ambitious your vision, the sooner you’ll need start bunkering down and, worse case, potentially start compromising between your current lifestyle and the life you’re hoping to lead come retirement. Again, get the strategy right, and there’s always time.

While there are a myriad of ways you can tackle forward planning your retirement, if I had to choose, these would be my top six things to focus on…

Put a dollar value on your post-work lifestyle

And be realistic. The stats point to new retirees spending around 20-25 percent more than they did pre-retirement. Factor in our ever-increasing cost of living, particularly if you live in a major city, and you begin to get an idea. From an advisory perspective, this ‘price tag’ is the magic number, so to speak, as once we have an idea of what you’re working towards, we can then start to build a strategy to help get you there.

Take advantage of tax breaks

Here, the obvious starting point is superannuation. Everyone’s circumstances are different, obviously, but there’s every chance you could be taking advantage of the tax savings that come with contributing a bit more to your super. It’s a case of getting an understanding of what your options are, laying out the numbers and incorporating them into a wider strategy.

Ramp up your savings

An obvious one, too, but I’d argue this one’s critical. In other words, you don’t want to be spending every dollar you earn. Again, depending on your situation, sometimes it requires shifting your attitudes around your finances. It can be as simple as realising that every time you spend money, you’re conscious that you’re potentially making a trade-off against your retirement goals. To this end, it might even be a case of living slightly below your current means for a few years to really get the jump on your nest egg and, as cliched as it sounds, getting yourself in a position where you’ll reap the rewards down the track.

Avoid costly renovations

One of the most common situations I’ve come across over recent years are people well into paying off their homes then remortgaging to renovate. In other words, they’re forced to put extra money towards paying down the mortgage again. Renovations are always tempting, but I’d argue that extra money would be better utilised working harder through smart investment, potentially netting you a 7.0-8.0 percent return instead.

Reconsider downsizing

While where talking about the family home, another big issue I see regularly is downsizing and just how problematic it can be. More often than not, people edging closer to retirement sell the family home for, say, $1.5-2.0m and end up spending almost the same amount on a new single-story residence or townhouse in inner Melbourne, which, without planning and the right strategy, will actually counter what you set out to do in the first place – bank the difference. Unless your home’s falling down around you and the land is worth an absolute fortune, I’d argue that it might be more hassle than what it’s worth.

 Watch out for lifestyle creep

As you move along in life and career, there’s always the temptation to spend more, the more you earn. Which is fair enough, particularly if you work hard. Now, I’m not suggesting you don’t reward yourself every once in a while, but, for me, it’s vitally important to try and put away as much of any windfall or bonuses that come your way as you can.

 

There’s a lot to consider, I know, but, quite often it really does come down to being smart with what you earn and, with the right strategy, chipping away at the life you want to live in retirement. As always, I’m always happy to help get you on track, whether that’s simply sound boarding some basic strategies right through to developing a clear-cut retirement roadmap for you. You can catch me on brett@mcgadvisory.com.au or 03 9805 2299.