Jeremy Duffield, Author at Retirement Essentials

Paying attention to costs and taxes can improve your retirement

If you depend on a water tank to provide your water during a long hot summer, the last thing you want is for it to have a number of leaks. It’s the same for your retirement nest egg – your savings and super. If it’s going to provide you with lifetime income, you have to protect it against leakage from paying away too much in costs.

So, retirement funding Principle #7 is: Costs and taxes matter. It’s generally better to have less of them.

It’s a simple idea. Returns on your investments add to your retirement resources. Costs of investing and taxes reduce your resources.

What’s complex is that it’s often hard to appreciate how much costs and taxes can impact you; there are many different types; and they’re often hidden below the surface.

Be prepared!

by Jeremy Duffield | Planning for Retirement

In previous articles, we’ve talked about how it’s tough to plan your retirement due to uncertainty about future investment returns…and inflation. In Part 3, we showed how the amount you can spend depends on what you earn on your investments. Problem is: no one knows what investments will earn in the future.

So Principle 6 for retirement spending is: You need to be prepared for a range of outcomes.

Surprisingly, most financial advisers act as though they know what’s going to happen in the future. They give you a projection of your ability to spend based on an assumed rate of return over the next 25 or 30 years. It’s a bit of a “pretend game” – let’s pretend we know what the return will be.

But while the assumption used might be a reasonable estimate, actual rates of return will be different…and perhaps by a lot.

The reality is that investment returns vary significantly, and unpredictably, not just year by year but decade compared to decade. We can see that by showing the returns in past decades. This chart gives the annualised rates of return for 4 major asset classes in each of the decades since the 1970s and the 1920s so far.

The Age Pension is the Foundation of Retirement Income

by Jeremy Duffield | Retirement Income

Even if you don’t get it yet, the Age Pension is key to retirement planning for most people in Australia. Over half of older Australians get more than half their retirement income from the Age Pension. And 80% of people are expected to be on at least a part Age Pension by the time they’re 80. It’s a reliable safety net and a guarantee that there’ll always be a basic level of income to support your spending in retirement.