Bite-sized advice – what’s best for you?

Bite sized advice

What’s best for you?

Most of us can remember the old ‘80s Castrol GTX advertisement with Sol who maintains that ‘oils aint oils’. It’s a fun mafiosa style take on the need to have exactly the right oil for the specific need for your car. This came to mind the other day when we were talking about advice. Because when it comes to retirement income advice, peoples’ needs can vary widely and only certain advice is useful at certain stages of your retirement journey.

This flies in the face of the ‘old school’ belief that retirement planning needed a ‘whole of life’ plan, which in today’s money can cost $3000 – $4000 or more. That approach may suit some, but retirement has changed dramatically over the past few decades and so has retirement planning advice.

Our belief is that understanding how to save and manage money both for, and in, retirement can feel simply overwhelming for many 50-60-something Australians. There’s a reason for this. Retirement income now comes from a combination of five different pillars:

• the home, 
• the Age Pension, 
• super 
• private savings and investments, and
• work income. 

At various stages in your retirement journey, different pillars may be accessed for your different income needs. Understanding the interplay between these pillars and using your assets most effectively – according to entitlement, superannuation, tax and investment rules – takes real skill.

So to presume that you can easily predict how this will play out over the next 30 years or so is a big ask. Years of experience have shown us that what is usually most helpful is to assist our members to pinpoint where they are on their journey and the specific type of advice that will best suit their needs right now. As one of our team members reminded us, the best way to eat an elephant is one bite at a time.

What’s a typical journey?

That’s a trick question in a way, as there are no ‘typical’ needs in retirement. A good way to think of how to navigate your own way through the retirement income maze is to use the analogy of a ‘choose your own adventure’ book. So a starting point for your retirement journey is to determine whether, like nearly 70% of other retirees, you will receive a full or part-Age Pension. This is a fundamental question and the answer can then guide your next steps:

• If you are likely to qualify, them making sure your decisions are informed to help maximise your entitlements makes a lot of sense
• If you are very unlikely to qualify, then understanding the options for those who are self-funded is mandatory. This requires a clear understanding of the role of super, establishing an Account-based Pension and how to maximise contributions, especially during your earning years 

Younger spouse options

Except if you are the ‘one in 3000’ couple who share an actual birthdate, in every relationship, one spouse will be younger than the other. This is unremarkable in itself, but does present a major opportunity to manage assets, specifically your super, in a way that can enhance the older spouse’s potential Age Pension eligibility. There are many things to consider before deciding to transfer super to a younger spouse, so this is another specific retirement income consultation that has been valuable for couples when one is approaching Age Pension age.

Benefitting from home ownership

A further factor which determines the best ‘bite-sized’ advice is whether you own your own home and/or still have a mortgage. It’s widely documented that having a home in retirement is perhaps the greatest advantage of all. It can provide a sense of security and financial stability as well as a source of funding as other income options are reduced throughout your retirement. But whether to use private savings or access to super to pay off a mortgage can be a major decision, requiring full knowledge of the relative merits of reducing debt as opposed to investing for growth.

Time for a change?

Further into your retirement journey you may also wish to downsize. There are many reasons why this course of action could appeal. Sometimes it’s to free up cash, or perhaps to reduce outgoings on larger properties. It might be to make a sea change or tree change or the chance to simply find a home that better reflects your new life stage. It can be an exciting step, but also one which requires a lot of discussion and a clear understanding of how funds freed up by the sale of a property might be a significant boost to your super balance, through strategies such as the Bring Forward rule or the Downsizer Contribution rules. 

How long will your money last?

Overarching all of the above tailored advice consultations is the ability to forecast how long your savings might last. This is far from a simple calculation, as those who did not initially qualify for an Age Pension often will do so within a few years of retiring. Projecting how your income from super and savings will combine with Age Pension eligibility, adjusted by how much you believe you will spend, requires complex maths. This is why working with an adviser who can use the Retirement Forecaster to explore how long your money will last, how much you can safely spend and which changes will help you reach your goals can seriously aid your decision-making. 

Of course, the above stages in the overall retirement journey are far from exhaustive. Some retirees are seeking advice on property investments, some on rules on rural acreage or family farms, others on living overseas or creating bequests for loved ones. And as time goes by, sooner or later most of us will need to consider how we plan to cover our aged care needs.

It’s further evidence that retirement living and your related income needs are never a set and forget proposition. The good news is that it’s never too late to review your situation and have a life-stage specific discussion about ways to use the rules to your own best advantage.

Which advice will best suit your needs?

Sometimes it can help to have someone to talk through some of these issues. So if you have questions or would like another set of eyes on your finances and goals, why not book an advice consultation with one of our financial advisers. The advice consultations provide general information that can help you to plan your retirement finances.  

Or you may have some more specific questions that you want help with to determine how an alternative strategy could affect your financial position and your ability to achieve your goals. Retirement Essentials offers adviser-led strategy consultations on a range of topics.  In these meetings you are able to join one of our financial advisers online where they assess your current situation and show you what an alternative option may look like.   Click on one of the links below to book a strategy consultation.

• Retirement Forecasting (understanding spending options during your retirement journey, followed up with a tailored strategy paper). 
• Understanding more about super (there are many options available to maximise income or wellbeing).
• Maximising your entitlements (making the most of your financial resources and Centrelink)
• Understand impacts of your home mortgage (consider your retirement journey options)
• Younger Spouse strategy (How moving assets to a younger spouse’s super can increase your entitlements)