If your retirement is just around the corner, the current financial climate may make you feel a little uneasy. There’s no need for hasty moves, though. If you are concerned, a review of your current portfolio and investment strategy may be helpful.
After all, the average Australian spends around 20 years in retirement, so it’s important to create a retirement strategy that takes account not only the current market conditions but also the risks and opportunities that can arise in the years ahead.
As one of your most significant retirement assets, your superannuation needs a carefully considered assessment as you approach any new life stage.
Here are five useful tips to help you ease towards retirement.
1. Review your risk profile and portfolio allocation
Check your super portfolio’s risk profile. Generally speaking, investors take a high growth approach when they’re younger to take advantage of higher returns, however, as with normal share market cycles, there will be fluctuations in the share market. Having a long-term strategy gives you the time to recover from any market downturns before it’s time to retire.
Older investors may prefer a more conservative investment strategy, one that can help to stabilise returns by potentially protecting super from share market volatility.
2. Calculate retirement expenses
Be realistic about the living expenses you’ll need when you finish working. For some, it may cost less to live in retirement because of reduced expenses such as commuting costs and maintaining a work wardrobe.
On the other hand, you may plan to travel more, buy a new vehicle or renovate your home, so these expenses need to be factored in when calculating how much you’ll need.
According to the Association of Superannuation Funds of Australia (ASFA), the annual average budget to maintain a comfortable lifestyle in retirement is $73,077 for a couple and $51,805 for a single person.
And to maintain a modest lifestyle, ASFA estimates a couple will need $47,470 and a single person will need $32,897. Both of those estimates assume you already own your own home.
You can find easy-to-use tools on the MoneySmart website to help you work out your budget and also estimate your income from super and the Age Pension.
3. Take action on mortgages and loans
Entering retirement with manageable or small levels of debt can help you to feel more financial stable.
If you’ll still be repaying a mortgage after you’ve retired, you could consider downsizing your home or using superannuation funds to pay down the debt, keeping in mind the tax implications and ensuring that you comply with superannuation laws.
4. Check your timing
Understanding when and how you can access your super is important.
You can use your super to fund your retirement from age 60, also referred to as ‘preservation age’. You can also use your super to begin a transition to retirement income stream (TRIS) while continuing to work.
Alternatively, if you continue working beyond preservation age, you can withdraw your super once you turn 65.
There are some circumstances in which you can access your super early, such as illness and financial hardship. However, eligibility requirements do apply.
5. Decide how to withdraw your funds
There is more than one way your funds can be withdrawn. You may be able to withdraw your super in a lump sum, if your fund allows it. This could be the entire amount you have invested, or you could receive regular payments.
If you ask your fund for regular payments (paid at least once a year), it is known as an income stream and your super account transitions from the accumulation phase – where contributions are made to a pension.
There are minimum withdrawals that you must make once you commence an income stream from super. For example, for those aged under age 65, a minimum annual withdrawal of 4 per cent of your super balance is required and this drawdown rate increases as you get older.
Next steps
Planning for your retirement can feel overwhelming, with many decisions to make about your future income. You’re not alone in the journey, and your trusted Nexia advisers are here to assist you with choosing a path that’s right for you.
