What is your retirement plan
Many dreams associated with the so called “golden years” of retirement; including endless rounds of golf, spending time with your grandchildren and travelling around the world in luxury relying on your own retirement fund, or a combination of your own and the government funded age pension, are becoming further out of reach for many. A new era of retirement funding is emerging and being shaped by many different factors.
Why Retirement Planning is important
We are all living longer than ever before. Australia is one of only four countries in the world where the average life expectancy is now 80 years. Whilst it is great news that we are all living longer, our retirement savings may not last our lifetime.
Not only are we living longer, but there is a greater percentage of the workforce known as the baby boomers who are getting older together; causing a shift in the demographics of the workforce and placing pressure on the younger generations to fund the needs of an ageing population.
There are increasing demands on government services, combined with a smaller workforce to fund them.
Technological & Social Changes
Technology and an increasingly global workforce have seen jobs disappear overnight as skills are sourced from a worldwide pool of workers. There appears to be no such thing as a job for life any more, as roles are outsourced to cheaper countries lowering operating costs.
The recent Intergenerational Report highlights the pressure on the Federal Government to maintain the age pension in its current format. It is proposed to index the Age Pensions to the consumer price index from September 2017. This may result in the Age Pension declining in real terms.
The cost of housing in Australia is now one of the highest in the world. After years of paying off mortgages many face a retirement shortfall, or the prospect of having to use their retirement savings to pay off their residual mortgage.
Compulsory superannuation contributions will not be enough for many, and ongoing contribution caps will make it very difficult to accelerate superannuation savings in the years leading up to retirement.
Some Australians have left retirement planning until very late having focused on other important matters such as educating children. A late start to retirement planning leaves with you a shorter time period tin which to invest, and forfeits the benefits of compounding investments.
Children staying at home longer (Boomerang kids)
With the high cost of housing and education many children are now staying at home longer or returning home after being away for a period of time. The decision to downsize homes to fund retirement is delayed, as the needs of children take priority.
Caring for elderly parents (Sandwich generation)
Many people are finding themselves in the position of financially and physically caring for an elderly parent/parents and also still providing financial support for their own children as well.
The average age of divorce is changing- in fact the divorce rates for the over 50’s doubled between 1981 and 2000. The “steady rise in the divorce rates for the over-55s” has given rise to the term “grey divorce”.
The financial impact of getting divorced in your retirement years can be devastating. This is because your ability to earn a high income may have diminished and you also have less years to save for your retirement.
Making a decision to sell your business or retire from the workforce requires planning. For many who do not plan what they will do with life after retirement find that the large life change can lead to retirement remorse and regret. In unfortunate circumstances it may lead to depression and health issues that could have been avoided with better planning.
Business Succession Planning
The 2014 Family Business Survey by PWC shows that 1.4 million family business owners are planning to retire over the next 10 years. However only 8% of family businesses have robust succession plans in place.
Interest rates are at historic lows at present resulting in many pre and post retires seeking out higher returns with increased risk characteristics. Without careful risk management, plans can be ruined when a sudden shock is experienced in investment markets.
Retirement Planning Stages
To commence planning for your retirement you need to determine which stage of life you are in.Then you must apply different strategies, which will be flexible enough to withstand life and financial circumstance changes.
At the stage even though you may be focused on more pressing financial concerns, it is important to start considering what retirement will look like for you and also what priorities you have for the future.
Consideration of issues concerning retirement and the choices you wish to make form part of what is called a transition plan. The plan is a ‘head and heart’ approach to retirement planning, where you consider a range of factors that make your retirement years a time to look forward to.
Once you have a clear vision of your objectives, you then need to consider how you will fund this lifestyle. Funding of your retirement will depend on your circumstances and life stage. The earlier you start the retirement planning process, the greater chance will you have of achieving your retirement planning goals.
In post-retirement, whether you are transitioning to working part time or completely retired, you will be exposed to different retirement risks.
You will need a retirement plan that provides peace of mind that your money will last and that you can do all things that make you happy.
In the later stages of this stage of retirement you might be starting to think more about your health, where you live, and who look after you if you are no longer able to.
A Life Well Lived
Retirement planning is essential so that this stage of your life can be rewarding and fulfilling. Increasing longevity and better health will mean you have the opportunity to do things that you have been putting aside whilst you have been at work.
Retirement planning is based on your own unique circumstances and objectives. There is no magic number to aim for but planning should consider matters of both the ‘head’ and the ‘heart’ to make sure you look forward to and enjoy your retirement years.
The plan will need monitoring and adjustment as you move through the different stages of retirement. Investment markets and legislation will change frequently and therefore your plans will need to be flexible enough for you to be able to enjoy the journey.