Life Begins At.....
Issue link: http://ebook.aprs.com.au/i/40177
FINANCIAL MATTERS Avoiding some common pitfalls of retirement planning These days we're generally living longer and increasingly looking toward spending more time in retirement. Ultimately, this means having to make savings stretch further and last longer. Even with the best laid plans to ensure that your retirement savings will adequately support and hopefully outlast you, it can take some getting used to the often signifi cant changes in your fi nances when you eventually cease working for a living. Because there are such life changing times ahead and many factors to consider when putting plans in place for your ideal retirement lifestyle, it can be easy to miss some of the key fi nancial signposts along the way. So, here are some of the common retirement pitfalls of which to be aware and suggestions on how you can avoid them. 1. The 'She'll be right!' approach Retirement can certainly be a premature or sudden occurrence for some people due to ill health or other unexpected reasons, but there are a large number of people who arrive at retirement's doorstep without any form of planning at all. Such people often retire without the resources needed to achieve their retirement dreams. To ensure you lead a meaningful life in retirement, you really must make some plans to succeed. If you don't feel up to the task of tackling planning alone, enlist the help of a fi nancial planning expert. Talk to your super fund as most now offer this type of service to members. 176 THE RETIREE SPRING 2. Not understanding your budget and needs When planning your retirement, you will need to know how much income to withdraw from your savings and how frequently so that you are not running out of cash or missing out on opportunities while the time is right to take advantage of them. Your personal circumstances and goals will infl uence amounts withdrawn. There is no right or wrong amount to withdraw and this may vary over time. If possible, start planning about fi ve years out from your desired retirement date to best understand your timeline and resources needed. To complete the picture, also gain a rough idea of your Centrelink pension entitlement and how this interrelates with your own capital. 3. Missing out on benefi ts provided through superannuation During the great credit crunch you often heard stories of people taking their money out of super and putting it in the bank to earn the higher interest. There are lower risk options in most super funds these days, so there is no need to exit the system just to change your investment option. Exiting may be an irrevocable decision as there are restrictions on the amounts you can contribute to super and after age 65 you need to satisfy a work test to contribute at all. Strategies such as salary sacrifi cing and Transition to Retirement can often reduce tax and boost super, especially if played out over a number of years. Super is taxed lightly on entry and in the super environment with zero tax on earnings whilst in pension phase. Saving tax and boosting long-term savings is a great combination. When super is moved into an allocated pension in retirement, the income drawn is very favourably treated by Centrelink from an income test perspective. This is because much of the income drawn can be considered a return of the investor's own capital and is virtually income test exempt. 4. Underestimating how long you will live In 1960 the life expectancy of a male was under 71 years, but today this fi gure has increased to just under 82 years. People are living longer. Remember that averages are just a statistic – many people outlive the average. In fact, the chances of one half of a couple living past 90 are now nearly 50%. For a man aged 65 there is a 33% chance of living past 90 and for women the probability is 44%. People can defi nitely outlive their money, especially if they do not manage it prudently both before and during retirement. 5. Neglecting your health Health insurance is important. If possible, factor the premiums into your retirement budget with a contingency for possible lump sum withdrawals for future health expenses. Self-funded seniors may not receive an age pensioner's concession card, but can obtain discounted pharmaceutical and other health benefi ts when their adjusted taxable income is under $50,000 (single) or $80,000