retirement readiness, retirement fit, retirement planning, retirement income

Are you retire fit?

Handy five-point checklist

Running enthusiasts take marathons seriously. They establish  fitness and running routines months in advance, measure their progress to ensure they have all the necessities in place for the big day – and the gruelling race to follow.

Avid gardeners prepare in similar ways for the changes of season, planting spring bulbs in autumn, laying mulch in spring in preparation for dry spells in summer.

So why do many of us think we can simply lurch into retirement, without a lot of planning, research or forethought? It begs the question. Are you retire fit?

It’s true that, for about 40% of retirees, the decision to leave work is due to redundancy, ill health or caregiving needs, so this can occur without warning. However there’s no real excuse for the other 60% if they choose not to be well prepared for life after full-time work.  But what does being retirement fit mean in a more practical sense?

Becoming retirement fit is a significant process, but it can be more simply understood through the following five separate – but equally important –  stages:

  • Choosing your exit time and strategy
  • Having a clear idea of your needs and income sources
  • Understanding the basics of entitlements
  • Being aware of superannuation strategies
  • Setting deadlines

Let’s make it practical …

Here’s a brief rundown of the things to consider for each of these five stages. When you’ve read through this list, rank your progress on a scale of 1-10 (1 = poor, 10 = excellent). Then add each of the five rankings for a score out of a potential 50. If you’re below 35, that might be a hint that you have work to do!

1. Choosing your exit time and strategy

No one can voluntarily leave full time work unless they have decided on the departure date and whether they will fully retire, or transition by working less and starting to live on a retirement income stream. The setting of a date can be challenging as it may depend upon your potential retirement income, how tired you are of working, your health, your partners’ plans or perhaps, your employers intentions. Many people put off discussing their eventual retirement with their boss as they don’t want to be ‘got rid of’. It seems this is erroneous thinking, with most employers now very supportive of their workers long-term retirement needs and the best ways they can support them to manage their finances and transitions. The first step is to talk to those around you to see if there is a timeframe that suits your family and your employer, one that coincides with the point at which you believe you will have sufficient retirement income. Choosing an exit strategy is simply putting more flesh on the bones:

2. Having a clear idea of your needs and income sources

Or, in simpler terms, how will you pay yourself in retirement? For nearly 60% of Australians, entering retirement will mean at least a part-Age Pension payment, often supplemented with superannuation drawdowns and some private savings. The first, obvious, step to understanding your income needs is to know what you are currently spending. This gives you a baseline, as most people in retirement will spend less over the years. It’s helpful to also have an idea if you expect some ‘big ticket’ expenses in the early days. This might mean replacing a work car with one of your own, renovations, travel, or perhaps even paying down a mortgage. Projecting your likely spending, combined with an Age Pension and/or superannuation drawdowns is a really important calculation to make in order to decide if you are able to retire soon or not. If you don’t know where to start, the Retirement Essentials Retirement Forecaster has been designed to help you make these calculations.

3. Understanding the basics of entitlements

As mentioned above, most people start retirement on a full or part Age Pension. Even those that start out self funded often find themselves relying on at least a part Age Pension as years go by.  In fact 80% of Australians aged 80 or older are on an Age Pension.  So now is a good time to be aware of Age Pension payment rates and the main rules (income and assets thresholds) that are used to assess your eligibility. There are many other aspects of entitlement that then swing into play, including supplements, rent relief, Pension Concession Cards and other support or benefits. Counting yourself in or out of pension eligibility is a critical early step in retirement planning.

4. Being aware of superannuation strategies

Superannuation is something that many of us don’t pay much attention to while it is accumulating through the mandatory Super Guarantee (which will move from 10.5% to 11% on 1 July). But this is a mistake, as there are many cost-effective ways of increasing your super before you retire, allowing your savings to compound and result in a higher nest egg at retirement age. So if you are still working it makes a lot of sense to better understand ways of saving faster so that you fast-track your retirement income. If you are close to retirement, there are another range of superannuation options which can also maximise your savings. These include many of the rules we covered last week. If you can say, hand-on-heart, that you thoroughly understand all the rules relating to both the accumulation and decumulation phases of super, then well done you. But if you don’t, a tailored superannuation discussion with one of Retirement Essentials experienced advisers could further maximise your savings.

5. Setting deadlines

The job’s not done yet. Having an achievable, realistic schedule will remove a lot of the stress from this major life event and ensure that you don’t miss vital and costly deadlines. For instance, there is no backpay on the Age Pension! So it’s important you get your application in as soon as you are allowed (13 weeks before turning Age Pension age), so that you don’t lose a dollar of income.. It will also mean earliest possible access to concession cards, so applying sooner rather than later is key to your income maximisation. 

It’s not all about pension entitlements, though. There are many rules, terms and conditions based upon a calendar year, a financial year or your date of birth (which will affect both your pension eligibility age and Preservation Age). It is this information you will need to include in your own ‘retirement diary’ so that you are ticking the boxes on time and making decisions in a calm and measured manner.

In fact, that’s the main point of being retirement fit. As with the marathon runner, you don’t want to fall over from lack of preparation. It’s so much better to calmly glide past the winner’s tape and celebrate the win!

How did you go with your self- assessment? 

Are you happy that you’ve considered all the necessary actions to move to retirement? 

Or do you think that there are better ways to prepare?