Picture the scene – you're about to retire and will finally be free from having to work. It's an exciting time for many because, at last, you can look forward to relaxing and enjoying a laid-back lifestyle with less stress. But there's something vital to consider too – and that's how to be financially secure in your retirement.
Planning for retirement should happen decades before you hit pension age and you'll need to think about where the money you need will come from. While money provided by the government offers a safety net, this isn't guaranteed forever, so the best practice is to begin saving through savings bonds or investing as early as possible.
Enjoying your retirement is easy, but without the right financial plans in place, you may find that you struggle to do what you want to do – whether that's play sports with friends, go on more vacations or plant more flowers in the garden.
In this handy guide, we'll discuss how to create a great retirement plan and explore the different financial options available to you.
Create a plan
The first step in planning for your retirement is to establish how much money you think you'll need every year. The calculation should factor in all the money you think you'll spend each year, as well as how many years you may need the money to last.
The pension age is between 65 years and six months, and 66 years and six months, depending on when you were born. The average age that people pass away is 79 years old for males and 85 years old for females. Considering the averages, and assuming that you decide to retire at the pension age, you'll need enough money to last between 13 years and six months and 19 years and six months.
A couple needs to have saved around A$360,000 to ensure a comfortable retirement, while a single person needs around A$259,000. However, the actual amount you need will vary, depending on your lifestyle and commitments.
You should consider what matters to you most – this might be social activities or fitness programmes. Also factor in the cost of your rent or mortgage and how much you will spend on groceries. Think about your bills too. Do you have any debts to pay off? If so, factor these into your financial plan for retirement.
Identify financial sources
You can secure income for your retirement through a range of different means and in this section, we'll outline those options.
The Australian government provides those who retire with a certain amount of money. There are certain criteria a person needs to meet to be eligible, and you should consider this income to be a safety net rather than a satisfactory amount to live on. Plus, there's no guarantee the Age Pension will exist forever and it shouldn't be taken for granted.
It's a good idea to make some investments in the hope of growing the amount of money you hold. Of course, there are risks with investing that you should be aware of, but more and more companies now let you pick the level of risk you're comfortable with.
If you invest in shares and these perform well, you can decide upon your retirement whether to hold on to them or sell them and live on the profits.
With savings bonds, you are loaning money to the government. While generating profit from this isn't guaranteed, it's considered to be one of the safest investment options around, given that you're investing in a government rather than a company.
You may decide that you want to work part-time during your retirement to earn an income. This can help to make your retirement savings last longer and ensure that you can enjoy the pre-retirement lifestyle you became accustomed to.
Pay off debt
It can be hard to have a happy retirement if you still have debts to pay off. Avoid taking out loans, where possible. If you have to, try to pay these back as quickly as possible and before you reach pension age.
When you start a new job, your workplace will inform you of its pension scheme. You can choose whether to opt in or out of this, but we strongly suggest you take advantage of the program. With a workplace pension, you simply put a certain percentage of your salary into a pension pot and your employer tops this up. When you reach retirement age, you can access this money.
Image Credit Unsplash