How to prepare for retirement

After decades of working, you finally envision yourself retiring and enjoying the remaining years of your life without the need to work and just take it easy. If you plan to retire within the next 10 or 15 years, consider taking these today to help ensure that you have what you need to enjoy a comfortable retirement lifestyle.

Assessing your sources of income prior to your target retirement date gives you the time to prepare or make any necessary adjustments.

Start by envisioning the kind of retirement you want. Will you retire completely, or work part time, volunteer, travel? You need to develop a realistic picture of the financial resources you may need to sufficiently support yourself. If there is a gap, think about how to accumulate the additional assets needed or adjust your goals/expectations to match your position. By analysing your current expenses, you may identify discretionary items that can be eliminated or reduced.

1. Diversify and invest for the long run
Consider maintaining a good mix of stocks, bonds, managed funds, and other assets that fit your risk tolerance and investment timeframe. Liquidity is also another important factor to consider when investing and diversifying your overall position. A diversified portfolio will help minimise economic downturns and help generate additional ‘passive income’ to assist in funding your lifestyle when you eventually retire.

2. Take full advantage of superannuation, especially catch-up contributions
Whenever possible, increase your superannuation to the maximum contribution caps if surplus funds are available to take advantage of the tax environment and investment earnings within superannuation. If unable to contribute to the maximum cap, at the very least if you are approaching retirement, aim to match the contributions made by your employer or take advantage of catch up contributions if additional funds are available to leverage your superannuation to your benefit to increase your standard of living during retirement.

3. Minimise debt
Consider accelerating mortgage payments, paying off credit cards, personal loans, or any other interest paying expenses before retirement. By limiting new debt and reducing existing debt, you can minimize the amount of retirement income that will be spent on interest payments.

4. Calculate your ideal retirement income
Estimate your desired income you want at retirement to make your assets last throughout your lifetime, the old rule of thumb was that you could afford to spend 4% of your portfolio annually in retirement. As such if you have $1 million in retirement assets, you could expect to afford to spend roughly $40,000 of that amount per year when you retire. However, this depends on the individual based on lifestyle objectives and other needs. Options to boost retirement savings include:
– Delaying retirement and/or working longer
– Managing cashflow and reducing discretionary expenses
– Plan ahead for retirement by speaking with a financial adviser to manage your net position over time and being proactive with your finances

5. Consider future medical costs
If you retire at age 65 or older, Medicare will cover most your routine health-care expenses. However, you may want to consider additional expenses to cover any unforeseen healthcare expenses which may increase in likelihood as you grow older.

6. Decide where you will live when you retire
Where you live could have a big impact on your retirement expenses. Depending on your needs, you may consider downsizing or even upsizing, but this will depend on your lifestyle goals and personal circumstances.