Reframing Retirement
Retirement is traditionally viewed as “the end of the road”, the period in life where you’re supposed to give in to Father Time.
However, fear not! These days, retirement represents the time in which people can enjoy the fruits of their labour – and enjoy them for a significantly longer period than previous generations (the average Australian can expect at least 20 years of retirement).
In planning for your retirement and identifying the amount of money required for a comfortable post-workforce existence, there is one simple truth: the more you put away now, the greater the freedom, flexibility and peace of mind you will enjoy in your retirement years.
With that in mind, we put some of the questions we are regularly asked to our panel of experts – consisting of Matthew Collins (Principal/Adviser), Tim Brosnan (Adviser) and Tim Collins (Adviser) – to provide an insight into what steps you can take to maximise your nest egg.
How much do I need to accumulate to retire?
Matt: The answer is, it depends based on individual circumstances. The easiest way to determine this amount is to work with an experienced Financial Decisions retirement professional to identify how much income in today’s dollars you will need to fund your lifestyle in retirement.
Following this step, we need to work out what amount of capital is required to generate that income. Then we calculate a realistic time frame and tax effective strategy to accumulate that capital, keeping in mind the most tax-effective methods of receiving it once retired. We always consider superannuation and Centrelink rules while making these calculations and have assisted hundreds of retirees in retiring with complete confidence.
Tim B: The amount needed would depend on a range of factors and would come down to individual lifestyle and what you are used to living on.
Industry standards state that you should aim for 65% of your pre-retirement earnings, but if in pre-retirement you were using 50% of your income to pay off debt or contribute to super, 65% might be higher than you need.
So, in effect, it would depend on what your objectives in retirement are and the need for more funds while you are younger compared to when you hit your 80s.
How long will I have to work for to accumulate that?
Tim B: Again, this would depend on how much you need in retirement.
A couple who requires $50,000 per annum for life in retirement will get by with $500,000 in super and combining an age pension with your super income. Alternatively, a couple who requires $100,000 per annum for life may require $2 million in super funds, as they will never get access to the age pension.
Tim C: This is variable based on the amount needed. Most people I speak to have unrealistic expectations for retirement. Most clients start earning full-time money at about age 30 then have kids and get a mortgage, so they need to spend the next 15 years paying off the debt and dealing with the expense of raising kids (school fees, etc). They then say they wish to retire at age 55. That only leaves 15 years to accumulate enough wealth to last for the next 45 years in retirement!
What is the most tax effective way to accumulate this money, invest this money and receive the income once I retire?
Tim B: Super, super, super!
With the concessional contributions being taxed at 15% as opposed to your marginal tax rate, adding additional funds into your super makes sense tax-wise. With the reductions in concessional limits from $35,000 to $25,000, you may need to start making contributions that hit the concessional limits earlier than before, as you will not have the opportunities to add more to your super later.
Super also becomes 100% tax free once you have retired after pension age, so it makes it a very attractive place to position your funds.
Tim C: In super. The other option for very high-income earners who are maximising their superannuation limits is to use a family trust/corporate structure to cap the tax rate at 30% rather than the potential 49%.
What impact can a prolonged market correction have?
Matt: During the Global Financial Crisis with very few places to escape, nearly everyone suffered short-term capital losses due to the severe market downturn.
During that time clients would routinely ask “should I go back to work?” and “will I need to work longer and postpone retirement?”. With prudent management, we found clients did not have to sell assets at an inappropriate time (i.e. while the price was down) and they could still draw their required income. Subsequently, the market has recovered and capital balances restored.
We implement strategies around having adequate cash balances to maintain income payments during these periods, ensuring that growth assets do not have to be sold to fund lifestyle at the wrong time.
What are the risks of not reaching my retirement goals?
Matt: This can only be determined on a case by case basis.
Financial Decisions advisers have seen clients through the “tech wreck” and the Global Financial Crisis. Matt and Damien worked in the financial markets during the 1987 crash and the 1994 markets where every sector lost ground. They have experience in dealing with adverse markets, recessions, high interest rates and unemployment. They have devised strategies that all Financial Decisions advisers implement to mitigate risks.
Tim C: You will have to keep working while your friends travel the world, drinking wine and eating lobster!
Partners in Insurance – Introducing Watkins Taylor Stone
To further build on our suite of financial services, Financial Decisions is excited to announce a partnership with specialist general insurance brokers, Watkins Taylor Stone. From retailers to manufacturers and wholesalers, professional service providers to trades, property investors to home owners, Watkins Taylor Stone has the experience and expertise to guide you through the general insurance maze.
Your insurable exposures and needs may change from year to year, which raises the question of whether your current insurance coverage is keeping pace. All too often, the adequacy of insurance coverage is tested when a loss occurs, rather than being understood at the point of purchase or renewal. This highlights the need for ongoing vigilance with your insurance arrangements.
The Watkins Taylor Stone philosophy is that a general insurance broker proves their worth through the provision of sound advice and individually tailored insurance programmes. Further, they will become proactively involved in any claim event, from initial notification through to claim settlement as your advocate.
To launch this partnership, we are proud to offer a cost and obligation free review of your existing insurance arrangements.
In order to capitalise on this service or to see how you can enhance your prospects for a comfortable, worry-free retirement, call a Financial Decisions Adviser today on (02) 9997 4647 to arrange a consultation.
Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. September 2017
Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407