Five ways to stretch your money:
Quick checks for better results
Australians are living longer than ever, even after taking the Covid pandemic into account. This is great news for all, but it also leads to the obvious corollary – how to fund a longer life in retirement? And it’s not just a question of stretching money to cover extra years, it’s just as important to maximise retirement income so that you are able to live as comfortably as possible.
Today we explore five ways to stretch your money to help your nest egg last longer. Two checks will help boost income, one looks at longer term returns on investments, and the remaining two are useful to reduce your outgoings.
Let’s start with number one.
1. Income check: Have you checked that you are getting all your entitlements?
Yes, it’s a question that we raise quite frequently. But there is a good reason for this. Many of the rules attached to both Age Pension entitlements and concession cards are either not well known or not well understood by many retirees. For this reason, we always suggest you review your situation regularly and check the specific rules that matter in your case. Some examples:
Age Pension age – if you are nearing the age at which you can apply, then applying up to 13 weeks early (you can get started here) may help ensure you do not miss out on even one week’s payment.
Gifting– the rules apply to gifting over a five-year period – unless you fully understand how this works you may miss opportunities or face penalties
Asset valuation – overvaluing assets means lower income. Know the rules to ensure you avoid this trap.
Younger spouse strategies – again, these may seem complex at first, but such strategies can result in much higher income, earlier than you expected.
The above examples are just a handful of ways that a more thorough understanding of your entitlements can be of benefit.
2. Income check: Is your balance of cash versus other investments ideal?
According to the ASIC Moneysmart website, over the last 10 years, cash returns were less than half those of investments in shares. Yes, cash is considered the most secure investment due to (in most cases) a government guarantee, but when returns are lower than inflation, your money is actually shrinking. Most financial advisers support the need for a mix of cash and other types of investments, but it’s the balance across all your investments that can make a real difference, both in current income and for longer term growth prospects.
3. Growth check: What are your settings? Are they right for your age and stage?
As we explored last week, it is possible that you have selected an investment setting at some stage when planning for, or entering, retirement and that setting is still in place. In the past it was very usual to move to an ultra-conservative investment profile as soon as you reached preservation age and started to drawdown your super savings. Such thinking was probably reasonable when life expectancy was lower. But today’s expectations of an average life expectancy of 85 for men and 88 for women (aged over 65) are much higher. At any point in your retirement journey it is critical that you know all the settings you have selected (they may vary from super to other managed fund accounts or share portfolios). And that you review these settings with your current and future retirement funding needs in mind. Again, using the Retirement Forecaster tool with an adviser allows you to practice adjusting these settings to see likely outcomes and then consider if any need changing.
4. Expenditure check: Are you over insured?
As we head through life our insurance needs can change quite dramatically. If we are in our early 20s, perhaps studying and renting, then our asset ownership is probably quite low and we would be unlikely to have dependents who would suffer if we were to die. As we get older it’s likely we will try to buy property and accrue other assets. We may also have children and it is then that the need for car, property, life and/or disability insurance becomes much more important. Similarly medical insurance needs can change depending upon our age and stage. It’s for this reason it’s important to make sure that you are not over insured in any of the above categories. Some retirees will cancel life insurance when their dependents reach a stage that they can fund themselves. Understanding the cover offered for each and every policy is the first step towards decisions to refine and revise all policies you may hold. A comparison website or call centre is a great place to start.
5. Expenditure check: Do you actually live within your means?
This question may sound impertinent – it’s your money, right? – but it can be the most helpful question of all. Many of us, retirees included, simply spend more than we earn, which means our capital is being drawn down at a faster rate than is sustainable. There is a lot of guilt attached to the concept of over spending, particularly in couples, so it’s helpful to understand that knowing exactly where every penny goes can be a relief. It does take time and work and that can be another reason that many will simply avoid looking at their household expenditure. The good news is that there are lots of tools and calculators that can help you to do your sums quickly. Many organisations offer different versions, but why not start with the highly regarded Moneysmart calculator which takes just 20 minutes to complete? Knowledge is power indeed.
There is one another key strategy which may reset your retirement income significantly, and that’s to consider further work projects. This may not be for everyone but with legislation is going through Parliament to increase the Work Bonus to $11,800, and a very real skills shortage, a few extra dollars may lift your retirement comfort level a notch or two.
If you would like to review your own retirement income forecast, our experienced financial advisers are ready, willing and very able to guide you through the different ways that your savings can be stretched to fund your preferred future lifestyle.
